Jun. 9--IT TOOK more than 200 years for the Roman Empire to disintegrate and fall. For the brittle investment empire of Oxfordshire-based Woodford Investment Management, it could be just a matter of months given the wrecking ball of the last few days that has seen its flagship fund (Woodford Equity Income) shut up shop, its other funds come under pressure as investors bail out, and the asset manager lose a key multi-billion pound investment mandate.
For 59-year-old Neil Woodford, the company's founder, a vast empire that tens of thousands of investors entrusted their money to has been reduced to near rubble. It is as if a financial earthquake has struck his business. And while Woodford has come back from the proverbial 'dead' before, it looks like a final curtain is about to come down on a career spanning more than 30 years.
An episode that when -- and if -- it comes will be greeted with more catcalls than cheers. Boos nearly all round. After all, it's the present that is remembered, not the past.
From hero five years ago -- when Woodford amid much excitement launched the first fund brandishing his name, Woodford Equity Income -- to zero.
As one long-in-the-tooth City fund manager told Wealth yesterday: 'Neil Woodford genuinely thought he could walk on water, but he's not bloody Jesus. We are now watching the ghastly results of what happens when an individual thinks he is better than the market. The market invariably wins.' For the record, this fund manager now believes Woodford Investment Management is dead in the water. Adios. Toast. Finito.
Woodford's fall from grace also casts a somewhat dark shadow on the role of Hargreaves Lansdown in the glorification of this fund manager who at investment house Invesco Perpetual assumed cult status in the early 2000s for avoiding the worst of the bursting of the dotcom stock market bubble in March 2000. By refusing to invest in technology companies, Woodford -- at the helm of high profile funds such as Invesco Perpetual High Income and Income -- escaped the market carnage of 2000 and went on to enjoy a rich vein of investment form relative to many of his peers.
Brand 'Woodford' was created, triggering the winning of huge and lucrative investment mandates for Invesco from the likes of wealth manager St James's Place. A 'star' was born, earning his right to move in the same exclusive orbit as slightly more elder investment statesman Anthony Bolton at rival Fidelity. It all helped cement the relationship between Hargreaves and Woodford that benefited them both hugely. Hargreaves promoted Woodford to clients and earned generous fees for doing so -- as admittedly did other brokers.
Funds under Woodford's control mushroomed like an atomic cloud as did his ego. He could do no wrong ('walk on water' as our experienced fund manager says), prompting Woodford to walk out of the Henley- based asset manager in early 2014 to launch his eponymous company.
Hargreaves, now a stock market- listed business, stood four square behind project Woodford. From the very beginning, it labelled Equity Income one of its top recommended funds even though others such as Brian Dennehy, of FundExpert, were far more sceptical.
Just prior to the fund's launch, a pragmatic Dennehy told clients: 'Why buy a new fund with no track record when you can buy an existing one with an established track record?' Why indeed. Dennehy concluded: 'Say "thank you but no thank you" to the wall-to-wall marketing.'
Despite Equity Income's indifferent track record and questionable investments in both unquoted companies and businesses with dubious ethics (Provident Financial and doorstep lending, Amigo and high interest loans), Hargreaves continued to promote Equity Income as a star fund. Even when the FTSE 100-listed company earlier this year culled its recommended funds to a more manageable 'wealth 50' -- from 150 -- it survived while others far more successful such as Fundsmith Equity (run by Terry Smith) did not.
Early last month, I met up with Mark Dampier (research director) and Hargreaves' chief executive Christopher Hill in London to chew some investment cud. Dampier told me Equity Income's star rating was up for review. For a moment, I thought Hargreaves might at last have given up the ghost on the fund but Dampier wouldn't tell me any more -- stating a final decision had yet to be made and that it would have to go to a vote among members of the research department.
A few days later, Hargreaves gave Equity Income another thumbs-up stating Woodford's record gave it 'confidence' in him to 'deliver excellent long-term performance'.
Only last week -- after the fund's suspension -- did the company finally remove the fund from its wealth 50. In recent days, a number of Hargreaves clients have contacted Wealth querying how Equity Income remained a recommended buy for such a long time while other funds performed much better and were nowhere to be seen on the list.
One emailed with the stark message: 'I am confused. Please help.' So are we. For the record, Hargreaves' boss Chris Hill last night apologised to all clients impacted by Woodford Equity Income. He said: 'We all share their disappointment and frustration. The shortcomings of one fund should not detract from the benefits of favourite fund lists like the wealth 50.'
Of course, fitness fanatic Woodford will be fine whatever happens as indeed will the directors of Hargreaves. That's how the investment industry works -- self-interest first, customers a long way back in second place (although in Hargreaves' defence, its customer service is par excellence).
Over the last two years for which accounts are available, Woodford and fellow Woodford Investment Management director Craig Newman -- a former colleague of Woodford's at Invesco Perpetual -- have helped themselves to some £49 million of dividends from the investment business that derives its income and profits from the fees levied on the three Woodford investment funds: Equity Income, Income Focus and Patient Capital. Enough dividends to keep the two and their respective partners in an orgy of pina coladas for this life and the one beyond.
Yet for investors in any of the Woodford funds, their financial outlook is much more bleak. Particularly for those in Equity Income, the fund that was meant to represent the very best of Woodford as a renowned stock picker and identifier of hidden value in companies.
Last week, in response to a deluge of requests from investors wishing to bail out, the fund had no choice but to pull up the drawbridge and announce it would be suspending all dealings in or out of the fund. There was simply not enough cash within the fund to meet all redemption requests -- money that could only be provided by the sale of holdings within the £3.7 billion fund. In short, investors have now been left in limbo and the future of their investments is at best uncertain.
Woodford, not entirely comfortable in the presence of an enquiring media, decided to explain the fund's closure by way of a short video on YouTube, a somewhat bizarre option given most of his investors (approaching, or in, retirement) are not natural watchers of this video sharing website. Although there were apologies (platitudes) aplenty -- 'extremely sorry' and 'we felt it was necessary to protect your interests' -- it was a somewhat nervous, jittery performance (a bit like that of Equity Income). Hardly one to make investors comfortable.
Sadly, as far as Woodford was concerned, it failed to stop the rot. Hargreaves Lansdown withdrew its support while wealth manager, St James's Place 'terminated' his management of several SJP branded income-orientated investment funds with assets under management totalling £3.5 billion. Financial adviser network Openwork also ended a £330 million mandate.
In a terse statement to the Stock Exchange, St James's Place said it was handing over the management of the funds to rival firms Columbia Threadneedle and RWC Partners. There was not one kind word to be said about Woodford, the emphasis very much being on ensuring clients' investments 'continue to be managed effectively'.
As for the two other Woodford funds, both continue to suffer in the wake of Equity Income's suspension, albeit in different ways. The £553 million Income Focus is experiencing heavy investor outflows which could at some stage also trigger its temporary closure. Its fund price is down 20 per cent since launch in March 2017.
Meanwhile, the £601 million Patient Capital, set up as an investment trust, has seen its share price fall sharply and is now heading towards 60p (compared to a launch price of £1 in April 2015).
Contagion. Meltdown. Whichever way you look at Woodford and Woodford Investment Management, the outlook is at best bleak. When Equity Income finally frees up sufficient cash to allow investors to start selling their holdings again, I imagine there will be a stampede for the exit gates, resulting in more assets needing to be sold -- a spiral downwards.
Maybe it would be better for Woodford to convert the fund into a stock market-listed investment trust like Patient Capital -- with the value of the shares then determined by the laws of investor supply and demand. Investors might not like the value that the market puts on their shareholdings but it would end Woodford's need to keep selling holdings to meet redemptions.
Another option is to wind up the fund and distribute the proceeds from the sale of all the assets to investors. Yes, adios, finito. As for Patient Capital and Income Focus, other investment managers could pick up the debris and, devoid of any Woodford stigma, maybe turn them around.
Of course, Wealth tried desperately to speak to Woodford. But he didn't want to speak to us. Nor for that matter did his head of communications guru Paul Farrow unless he has recently changed both email account and telephone number -- and missed our phalanx of messages (memo to Mr Farrow: a clue to your job specification is in your title).
As for Woodford's external public relations adviser Four, they were about as helpful as a broken Boots umbrella in a tropical storm -- although they did confirm that for the time being Woodford Investment Management will continue to charge its normal fee for 'managing' Equity Income. Outrageous.
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