The UK financial watchdog said it was in “advanced” talks about a settlement with the supervisor of Neil Woodford’s funds nearly four years after his business collapsed leaving hundreds of thousands of investors with losses.
The Financial Conduct Authority said on Monday that the talks with Link Fund Solutions, the UK arm of Australian group Link, could result in an agreement rather than enforcement action and aimed to ensure Woodford’s investors received redress.
Link said it was in exclusive discussions to sell LFS to Dublin-based rival Waystone Group, to raise money to compensate investors,
LFS came under fire after Woodford’s flagship £3.7bn Equity Income fund collapsed in 2019. Some 300,000 investors in this fund are still waiting to get their money back.
The FCA said in September that enforcement action could involve a £50mn penalty against LFS and that redress payments to investors could reach £306mn.
To resolve this by agreement, the FCA said it had given Link time to sell assets, noting that any redress figure would be based on failings at LFS in managing the liquidity of Woodford’s funds.
The FCA said: “We know that affected investors will be keen to understand what impact this may have on them, including how any proposed scheme of arrangement would work. We will provide a further update as soon as we are able to.”
Link’s sale of LFS to Waystone would exclude liabilities relating to Woodford. Waystone has been granted a “further period of exclusivity” to finalise a deal before the end of March. But Link warned that it would not receive any of the proceeds of the sale, which would go towards the settlement with the FCA. Waystone confirmed the talks.
Link added that if a settlement was reached it would resolve the FCA’s investigation into the matter and would be contingent on a scheme to pay out all liabilities in connection with Woodford.
It also warned of an impairment charge of A$449mn in its financial results for the half year in relation to the UK division.
LFS was responsible for overseeing liquidity at Woodford’s funds, which had large holdings in unlisted companies. It eventually froze Woodford’s funds after investors rushed to withdraw their money as performance tumbled.
It has been one of the biggest recent scandals in UK investment management and has prompted other fund groups to assess their exposure to unlisted stocks.
Jupiter Asset Management said this month that it was selling its stake in digital lender Starling Bank to safeguard investors. Chief executive Matthew Beesley also brought in a rule stopping open-ended funds from making investments in unquoted stocks.
Woodford made his name at Invesco. He left in 2014 to set up his own business with Invesco salesman Craig Newman as chief executive. He launched funds including his flagship Equity Income fund, which invested in both listed and unquoted stocks. But market falls and his stock selection caused losses, prompting investors to withdraw their money and the eventual freezing of the funds by LFS.
The FCA’s investigation into Woodford continues.
