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Woodford Equity Income to be wound up: what investors need to know

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15/10/2019
Neil Woodford’s flagship fund is to be shut down four months after it was suspended.

Investors in Woodford Equity Income have been blocked from accessing their money since the fund was closed on 3 June following a huge spike in withdrawal requests, which the fund could not meet.

Link Fund Solutions, which administers the fund, said it aimed to return cash to investors “at the earliest opportunity”.

In a letter to investors, Link said: “After careful consideration, the decision has been taken not to re-open the fund and instead to wind it up as soon as practicable.

“We recognise that the winding up will come as a disappointment to some investors, but we believe that this course of action is now in the best interest of all investors.”

Neil Woodford, who was once considered Britain’s best stock picker, has been removed as manager of the fund with immediate effect.

Link has appointed BlackRock and Park Hill to sell the fund’s assets.

In a statement, Woodford said: “This was Link’s decision and one I cannot accept, nor believe is in the long-term interests of LF Woodford Equity Income Fund investors.”

The winding up of the fund is expected to begin on 17 January with “the first capital distribution paid to investors by the end of January”.

But Ryan Hughes, head of active portfolios at investment platform AJ Bell, said it could take months for investors to get all their money back.

He said: “The fund will begin to wind up in January next year, and investors will get their first return of cash then, when the more liquid assets have been sold. But it will be a while before investors get back all the money due to them.

“The liquidity assessment carried out by the fund and divulged to the FCA in April this year showed that a third of the fund was in assets that would take six months to a year, or more, to liquidate. The portfolio has shifted a bit since then, but it is unlikely to be a quick process.”

Link has been providing monthly updates since the fund was suspended in June.

In its last statement on 23 September, it said it expected the fund to remain closed until December.

The suspension was meant to give Woodford time to reposition the fund’s portfolio into more liquid investments, which would have allowed it to meet redemption requests when it reopened.

However, Link said that “whilst progress has been made in relation to repositioning” the portfolio, it has “not been sufficient to allow reasonable certainty as to when…the fund could be re-opened.”

Adrian Lowcock, head of personal investing at Willis Owen, said: “We have seen the complete demise of the most famous fund manager the UK has seen for years. Investors knew the scenario was bad but the indication from Woodford thus far had been that the fund would reopen.

“This collapse is on a par with the implosion of New Star at the height of the financial crisis, and it will shake the funds industry to its core.

“Sadly many people will be looking at significant losses.”

Hughes added: “While no mention is made of Woodford’s other funds, it now seems highly unlikely that he will remain in place as manager of the Patient Capital investment trust, with the board already looking at potential replacements.”

What should investors do?

Link said it will continue to provide regular updates in respect of the sale of the fund’s assets and that investors are not required to take any action.

What happens to fees?

Woodford has controversially continued to charge fees throughout the fund’s suspension. There has been no mention of this changing.

Link said it will not take a fee for acting as administrator from the point of suspension but will continue to take a charge from the fund to pay BlackRock’s fees. This charge will no longer be taken once the wind up commences.

Brokerage and legal costs, including the costs of Park Hill, associated with selling assets will continue to be borne by the fund.

What does this mean for investors from a tax point of view?

Any proceeds from the winding up of the fund will be deemed to be part disposals of shares for capital gains tax purposes. Link suggests investors contact an adviser if they have questions about their individual tax circumstances.

 

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