The former UK star stock picker Neil Woodford and his investment management company have been fined almost £46m by the UK’s financial regulator over the collapse of his popular equity fund.
The Financial Conduct Authority (FCA) has given Woodford a penalty of £5.89m and banned him from holding senior manager roles and managing funds for retail investors and fined Woodford Investment Management (WIM) £40m.
The penalties are for failures in their management of the Woodford Equity Income Fund (WEIF), which collapsed in October 2019 after investors, including many ordinary retail customers, rushed to withdraw money in response to a number of poorly performing company investments, including some hard-to-sell illiquid assets.
The value of the fund fell from a high of more than £10.1bn in May 2017 to £3.6bn in the run-up to its suspension.
The fund was frozen and later closed and wound up. About 300,000 people had invested in the fund, including 130,000 through the investment platform Hargreaves Lansdown, which is being sued by thousands of investors.
The FCA’s ruling is only provisional, as Woodford and WIM have referred the decision notices to the upper tribunal where each will present their case.
The City watchdog concluded that between July 2018 and June 2019 Woodford and his company made “unreasonable and inappropriate investment decisions”, having disproportionately sold more liquid investments – which are easier to sell – and bought less liquid ones over this period.
This meant that at the time of suspension only 8% of the investments held by WEIF could be sold within seven days, the FCA said. Under rules in place at the time, investors should have been able to access their funds within four days.
WIM and Woodford “did not react appropriately” as the fund’s value declined, its liquidity worsened and more investors withdrew their money, the regulator said.
In its ruling, the FCA said Woodford “held a defective and unreasonably narrow understanding of his responsibilities”.
Steve Smart, a joint executive director of enforcement and market oversight at the FCA, said: “Being a leader in financial services comes with responsibilities as well as profile. Mr Woodford simply doesn’t accept he had any role in managing the liquidity of the fund.
“The very minimum investors should expect is those managing their money make sensible decisions and take their senior role seriously. Neither Neil Woodford nor Woodford Investment Management did so, putting at risk the money people had entrusted them with.”
