Woodford, one of Britain's best-known money managers, has left thousands of investors without access to their savings after suspending his flagship 3.7 billion pound equity income fund six weeks ago after a surge of exit requests.
The assets will be sold as part of a structured auction process which could last up to three months, the source said, speaking on condition of anonymity.
This means investors may need to wait until the fourth quarter to try to recoup their cash.
The firm's administrator Link Fund Solutions has tapped boutique investment bank PJT to handle the sale but has yet to sign an official mandate, the source said.
PJT - founded by former Morgan Stanley rainmaker Paul Taubman in 2015 - is expected to receive a green light to start the process later this month, the source said, and has so far handled inbound interest from investors in the United States and Europe.
Link declined to comment. It said on July 1 that the suspension of the Woodford Equity Income fund would continue, without giving a reopening date.
PJT was not immediately available for comment.
The sale will initially address Woodford's illiquid assets which will be bundled into multiple portfolios to be auctioned off to hedge funds and secondary market funds, the source said.
The 59-year-old fund manager will also part ways with some of its listed but illiquid assets as well as his liquid investments on the stock market which will be packaged into relevant portfolios and put on the block separately, the source said.
Investors including HarbourVest Partners and Coller Capital are expected to bid for parts of the portfolio, the source said.
HarbourVest declined to comment and Coller Capital did not immediately respond to request for comment.
Existing investors in companies including top 10 holdings BenevolentAI and Oxford Nanopore have pre-emptive rights and will need to be approached before trying to lure third parties into any deal, according to the companies' rules.
Hedge funds Lansdowne Partners, Odey Asset Management and Redmile have shares in Oxford Nanopore along with Singapore sovereign wealth fund GIC. Goldman Sachs unit Broad Street Principal Investments is an investor in BenevolentAI.
There is no deadline to finalise the various divestments and some major holdings might be sold individually, depending on investors' appetite, the source said.
"Price is the main thing here," he said. "It's all about getting the best value."
A Woodford spokesman referred to comments made by Neil Woodford in a video on July 1, when he said: "my view is that we won't have to take big discounts".
Healthcare and biotech was a favoured Woodford sector, making up nearly a quarter of the fund's portfolio, including listed stocks.
Drug discovery company BenevolentAI and DNA sequencing technology firm Oxford Nanopore - unicorns with $1 billion-plus valuations, made up 7% of the portfolio, or 306 million pounds.
But such firms are hard to value, as they often have few or no orders or revenue. Six British Woodford biotech holdings made losses last year, according to UK company filings.
Rather than current performance, analysts and investors look years into the future and make a valuation based on "the potential for profitability", said Brigitte de Lima, director in corporate finance at goetzpartners.
Nooman Haque, managing director, life sciences and healthcare, at Silicon Valley Bank, called the process "quite an art form".
BenevolentAI made losses of 26.9 million pounds in 2018, yet saw its valuation soar to $2 billion after its latest funding round in 2018, while Oxford Nanopore had an after-tax loss of 57 million pounds in 2017, and was valued last year at 1.5 billion pounds.
"There was a strong business case and growth story for BenevolentAI," said Abhishek Singh, vice president in the IT services group at consultancy Everest. He said the firm caught Everest's attention in 2017 when it was researching "hot start-ups" but fell "off our radar" subsequently.
A BenevolentAI spokesman highlighted the firm's "recently announced collaboration with AstraZeneca and other deals in progress" as a sign of the company's potential.
An Oxford Nanopore spokeswoman said the firm, which opened a factory this month, was "very ambitious - a great British growth story".
(Additional reporting by Simon Jessop and Navdeep Yatav, editing by Sinead Cruise and David Evans)
By Pamela Barbaglia, Carolyn Cohn and Douglas Busvine