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Neil Woodford’s investment victims face three-year wait for compensation

Woodford investors may have to wait another three years for compensation if watchdog fails to intervene


Tens of thousands of investors who lost money in the winding up of multibillion pound investment fund Woodford Equity Income – run by high-profile manager Neil Woodford – may have to wait another three years for compensation if the regulator fails to intervene in the meantime. 

This was the stark admission made late last week by law firm Leigh Day as it started court proceedings against Link on behalf of investors who lost money in the meltdown of the Woodford fund in 2019. 

As authorised corporate director, it was Link that had a regulatory duty to look after the best interests of investors in the £3.8billion fund. Leigh Day claims Link failed to carry out these requirements, both in the run-up to the fund’s suspension in June 2019 – and afterwards as it took the shock decision to break up the fund, crystallising losses for investors. 

Fall-out: Neil Woodford’s investment fund, Woodford Equity Income, was suspended

Boz Michalowska, a partner at Leigh Day, says it could take up to three years for the case against Link to get to court. ‘It’s why we have started the process now, so Woodford investors won’t have to wait any longer,’ she told Wealth last week. 

Her hope is that Link may agree to a settlement before the case is heard in court, although this is unlikely. Link has already said it will ‘vigorously’ defend itself against any proceedings. Alan Miller is co-founder of the True and Fair Campaign, whose aim is to bring about a more customer-focused financial services industry. Miller, a fund manager, has repeatedly called for Woodford investors to be compensated and welcomes Leigh Day’s decision to take Link to court. But he believes Woodford investors have been hung out to dry by the regulator. ‘Significant compensation,’ he says, ‘should already have been paid.’ 

Woodford Equity Income was run by Neil Woodford, who in the 2000s established a reputation at asset manager Invesco for being one of the country’s finest investment managers. 

On the back of his success, he set up his own investment house – Woodford Investment Management. The flagship Equity Income fund was launched in 2014, with funds Income Focus and Patient Capital following shortly afterwards. 

Yet it wasn’t long before Equity Income began to experience problems. Although it was labelled an equity income fund – a defensive investment style built around holding some of the UK’s most dividend-friendly companies – its portfolio comprised a big chunk of assets in illiquid stocks. Some were unquoted and most paid no income whatsoever. According to documents presented last Thursday by Miller at a webinar organised by shareholder campaigning group ShareSoc, 30 per cent of Woodford’s portfolio was in illiquid stocks as early as the end of 2014. 

This position ratcheted up to 40 per cent by the end of 2018. It was a big factor in the fund’s suspension in June 2019 as a multi-million pound redemption request from a big institutional investor could not be met. 

‘The risk profile of Woodford Equity Income’s portfolio was off the scale, compared with a fund such as Invesco High Income, which Woodford had previously managed,’ says Miller. ‘You’re talking about a portfolio which would have normally taken more than 11,000 days to liquidate – way off the scale, even when compared with smaller company funds.’ 

Leigh Day’s charge sheet against Link is extensive. It claims the overseer failed to ensure the fund had no more than 10 per cent of its portfolio in unlisted companies. It also allowed Woodford to construct a portfolio that compromised the ability for investors to redeem their shares promptly. Finally, Leigh Day says Link aggravated investor losses by winding up the fund after sacking Woodford, resulting in the disposal of some assets at rock-bottom prices.

This last point was highlighted last week when gene sequencing company Oxford Nanopore – a former Equity Income holding – made a successful stock market debut. The stake that Woodford had held in Equity Income was sold by administrators for a pitiful £20.8million, a tenth of its current value. 

Leigh Day is seeking compensation from Link that will recover all the investment losses incurred by Woodford investors – plus a sum to reflect the return that investors should have enjoyed if the fund had been managed prudently (in line with a fund tracking the FTSE All-Share Index). 

The law firm is not the only one seeking compensation on behalf of investors. Harcus Parker, Slater and Gordon, and RGL Management are also pursuing claims. It is likely that at some stage the four litigation specialists will pursue a group claim. This would enable them to pool resources and present the strongest case possible. Any Woodford investor joining a claim will do so on a ‘no win, no fee’ basis. So in Leigh Day’s case, it will take a 30 per cent fee from any compensation it wins from Link. ShareSoc is backing Leigh Day’s claim. On Friday, Link reiterated that it had ‘acted at all times [with regards to Equity Income] in accordance with applicable rules, as well as in the best interests of all investors’.



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