Woodford investors FINALLY set to receive share of £235m redress

Link Fund Solutions has agreed to pay up to £235million to investors who lost money following the collapse of Neil Woodford’s £3.8billion Equity Income Fund.

The redress covers losses taken by over 300,000 WEIF investors as a result of failures by LFS in its role overseeing the liquidity of the fund, the Financial Conduct Authority said in a statement late on Wednesday.

The redress figure is less than estimates of overall losses suffered by WEIF investors, who are set to receive just 77p for every pound lost. 

The agreement is subject to the competed sale of LFS, which was the fund’s authorised corporate director and administrator, to rival firm Waystone Group.

The compensation agreement is also subject to the approval of affected investors and the Court of a scheme of arrangement to resolve all LFS’s liabilities relating to the WEIF Scheme.

If the WEIF Scheme is not approved, Link Group has said it will not make the redress contribution.  

This would mean any redress would be dependent on the outcome of a contested case between the FCA and LFS, and would be limited to the net assets of LFS, minus litigation and any other costs. 

Around 1,417 days have passed since the suspension of the WEIF, with thousands of investors left in the lurch on the compensation front. 

The FCA originally calculated the losses arising from failures in liquidity management to remaining investors as being around £306million, which is substantially greater than the remaining assets of LFS. 

The sale of Link Group’s Fund Solutions business will generate up to approximately £140million in sale proceeds. 

The FCA said today: ‘The up to £235million in redress includes LFS’s assets (cash, capital resource and potential insurance proceeds), plus the proceeds from the sale of Link Group’s Fund Solutions business.’

It added that LFS had a net balance of cash and capital resources of approximately £47million. It also holds relevant insurance cover of around £48million and discussions with its insurers are ongoing, the FCA said.

The FCA has previously said it believed the appropriate redress sum was in the region of £298million.

But the regulator said on Thursday: ‘Although the redress offered in the proposed Scheme will not provide fund investors with the full redress amount of £298million, the FCA considers it is in the interests of the investors to be given the opportunity to consider the Scheme. 

‘If the proposed redress amount of £235million is paid in full then investors will have recovered approximately 77p in the pound. 

‘There has already been a total of £2.56billion paid to investors since the suspension of the Fund from the distribution of proceeds from the sale of investments.’

Therese Chambers, executive director of enforcement and market oversight at the FCA, said: ‘The FCA’s investigation raised serious concerns about Link Fund Solutions’ management of the liquidity of the Woodford Equity Income Fund. 

‘LFS’s actions appear to have caused significant losses for those investors who remained in the fund when it was suspended. We believe the proposed Scheme offers investors the best chance to obtain a better outcome than might be achieved by any other means and it is in the investors’ interests they be given the chance to consider it.’

There are other parties under investigation in relation to the circumstances that led to the suspension of the Woodford’s fund.

These investigations continue and they will consider any further failings which may have negatively impacted investors, the FCA said.

Woodford invested in risky early-stage and unlisted stocks, building exposure to ‘illiquid’ assets that surpassed regulatory standards and industry norms. 

As investors panicked and pulled cash out, the fund was left unable to sell them fast enough to return the money, and was forced to suspend withdrawals entirely before ultimately collapsing.

When Link realised the extent of the problem, it closed the fund, selling the stocks and returning the money to investors.

But several sales were at a knockdown price, and some savers have lost huge sums after the fund was frozen in 2019.

Ryan Hughes, head of investment partnerships at AJ Bell, said: ‘Some 1,417 days have passed since the suspension of the Woodford Equity Income fund and today’s announcement from the FCA regarding financial redress due to the failings of the fund administrator, Link Fund Solutions, will come as significant relief for the thousands of investors who have been very patiently waiting for some form of compensation.’

He added: ‘The scale of the financial redress is evident given that it effectively wipes out the UK Fund Solutions business. 

‘With a number of distributions having been made to investors over the past 3 years the redress payment should take the recovery level to around 77 per cent of the value of the fund on suspension, with a very small balance left in the few remaining unquoted companies that have still to be sold.

‘While approval of this redress scheme with Link would close the case and liabilities against them, the FCA points out that this remains a live investigation with other parties remaining under investigation. 

‘As a result, the Woodford drama will drag on past the four year mark but many investors will no doubt be glad that significant progress now looks to have been made. While it will take some time for this redress process to complete and for payments to be made, investors are one step closer to being able to finally put this whole sorry episode to bed.’