What went wrong for star fund manager Neil Woodford?

Top City fund manager Neil Woodford has suspended trading in his flagship fund following a flood of withdrawals by investors.

The renowned stockpicker has blocked investors from redeeming, buying or transferring shares from his Woodford Equity Income fund for 28 days, after £560m was taken out in just four weeks.

Although Woodford’s financial problems “are essentially unique to him”, the “acute issues he now faces hold a cautionary lesson about a worrying vulnerability in the global financial system”, warns The Daily Telegraph’s Ben Wright.

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So what happened?

Who is Neil Woodford?

The 59-year-old British fund manager spent 26 years at investment managers Invesco Perpetual, where he controlled billions of pounds of assets, and was appointed a CBE for his services to the economy in 2013.

The following year he launched his own fund, based in Oxford. Within 12 months, his investors were seeing an 18% return on their money, compared with the average rise of just 2% on the London Stock Exchange.

“Mr Woodford styles himself a conviction-led, value investor,” says The Times’ Alistair Osborne. “And, yes, he has a record that warrants patience: £1 invested in 1988 would now be worth £25, versus £13 from the FTSE all-share.

“But lately the star fund manager’s been occupying an altogether lower orbit.”

What went wrong?

Woodford has made “terrible calls” and has “coupled that with the sort of jiggery-pokery designed to unnerve clients”, says Osborne.

The ensuing fallout has seen his fund’s value shrink from a peak of more than £10bn in 2017 to as low as £3.7bn.

Experts say Woodford was undone by his “optimism about smaller domestic stocks”, which have underperformed since the EU referendum, says The Guardian.

“Many of the public companies, like Kier, Circassia and Purplebricks, have turned out to be dogs, while about 10% of the fund is in non-quoted companies, whose shares are not listed on a public stock exchange,” explains Dominic O’Connell, business presenter on BBC Radio 4’s Today programme.

Woodford reportedly decided to halt trading on Monday after being asked to return around £250m that Kent County Council had invested with him.

He announced that it was “in the best interests of all investors in the fund to suspend the issue, cancellation, sale, redemption and transfer of shares in the fund”.

The City veteran added: “Following an increased level of redemptions, this period of suspension is intended to protect the investors in the fund by allowing Woodford, as previously communicated to investors, time to reposition the element of the fund’s portfolio invested in unquoted and less liquid stocks, in to more liquid investments.”

Essentially, he will be “scrabbling to raise cash” tied up in a series of companies, says O’Connell.

The Financial Times adds: “Such measures are extreme by fund managers and the reputational damage can be serious and long-lasting.”

What happens next?

“Eventually, Woodford will have to raise the gates. If he can’t convince investors that he’s got things under control by then, they are likely to pull their money out with renewed desperation,” says the Telegraph’s Wright.

This liquidity crisis is comparable to those that brought down Lehman Brothers and Bear Stearns, he adds.

Although global regulators have worked hard to prevent repeats of such collapses, many experts fear that the world’s liquidity problems “haven’t been solved but rather shifted from banks to fund managers”, says Wright.

Amid the “schadenfreude in the air” following Woodford’s announcement, he warns, the financial world risks overlooking a key point: “Perhaps Woodford’s present problems are merely a foreshock ahead of the main event.”