05.07.2019 kl 18:06 2693

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05.07.2019:   https://www.ft.com/content/4b672f72-9e77-11e9-b8ce-8b459ed04726

Q&A: What next for investors in Woodford Equity Income?

«Hundreds of thousands of retail investors with money trapped in the Woodford Equity Income fund will have to wait at least another month until trading resumes, it was announced this week, as the stricken £3.7bn fund entered its fifth week of suspension.

Anger is growing among investors, many of whom feel they were not sufficiently warned about the fund’s liquidity risk, and fear heavy losses when the fund eventually reopens its doors.

How much longer will the suspension last?
The short answer is that nobody knows, but for at least another 28 days. The Financial Conduct Authority was informed on Monday that the fund was not ready to be reopened. The decision has to be reviewed at least every 28 days.

“Of course, we understand that people want access to their money, they are very frustrated by not being able to deal in the fund. But we are using the time . . . to ensure we get the right outcomes for our investors,” said Mr Woodford in a video statement to investors on Monday.

The ongoing suspension reflects the fund’s inability to meet a wave of redemption requests from investors while staying below a regulatory cap on hard-to-sell illiquid assets in the fund.

Mr Woodford promised this week that when the fund reopened there would be more liquid stocks from the FTSE 100 and 250 indices.

How are the asset sales progressing?
On Monday, it was announced that the fund manager had reduced his holdings in Raven Property and Horizon Discovery, two long-term investments. Mr Woodford has also sold down stakes in other listed companies over the past month, including BCA Marketplace, New River Reit and Oakley Capital Investments.

However, investment commentators feel sales of the fund’s non-listed assets will be more challenging, saying it is too early to speculate how far the value of units in the fund may fall at such a time when it is ready to reopen.

Why won’t Woodford waive management fees?
Woodford Investment Management confirmed this week that it is receiving £65,000 per day in fee income from the Equity Income fund, even though it remains suspended.

The fund management group has resisted calls to cut fees from Nicky Morgan MP, the head of the influential Treasury select committee. Andrew Bailey, head of the Financial Conduct Authority, has also said there are “good arguments for waiving fees” although there is no regulatory requirement to do so.

The group has said it believes the charges are justified, as the portfolio is still being managed.

What about Woodford’s other funds?
Mr Woodford’s other investment funds have also suffered. His open-ended vehicle, Income Focus, has seen its size drop by more than 40 per cent in the past month to £296m due to heavy withdrawals.

The company’s closed-ended Patient Capital Trust has shed 25 per cent of its share price over the same period.

Investors are angry — but what are regulators doing?
The FCA has launched an investigation into the events that led to the gating of Mr Woodford’s fund to investor redemptions, and Mr Bailey has already raised questions about how fund liquidity should be defined.

The Equity Income fund had managed to keep within the liquidity limits by listing stakes in some previously unlisted assets on Guernsey’s stock exchange. Mr Bailey told the Commons Treasury select committee that this was “sailing close to the wind”, adding: “Listing something on an exchange where trading does not actually happen, as far as I can see, does not actually count as liquidity.”

However, Mr Bailey also stressed how rare it was for funds to breach the EU’s 10 per cent cap on illiquid assets. Of around 3,000 open-ended UK funds, Mr Woodford’s fund and one other small fund were the only two to report a breach in the past year.

Bank of England governor Mark Carney was far more punchy in his assessment, telling MPs that funds that invested in illiquid assets but allowed investors instant access to their money were “built on a lie”, calling for changes to regulations.»

Redigert 05.07.2019 kl 18:22

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