Crisis must speed reforms
THE sound of stable doors shutting is reverberating around the financial community as concerns about the temporary closure (let’s hope it is that) of the Woodford Equity Income Fund (WEIF) grow louder.
Financial Conduct Authority chief executive Andrew Bailey is seeking to get out in front of the issue by tightening the rules governing open- ended funds such as WEIF.
He wants bans or limits on daily withdrawals of cash, and regulation which stops the listing of assets on markets in less-than-transparent jurisdictions.
Guernsey, where guru Neil Woodford has listed unquoted stocks, comes to mind.
The Bank of England has been on the case for some time. A box at the back end of the November 2018 Financial Stability Report refers to risks in investment funds. It is a theme which the governor Mark Carney raised in a speech in New York last October and again in Tokyo last week.
His latest comments came as the wheels were coming off Woodford funds, and investment platform Hargreaves Lansdown and advisers St James’s Place suffered the slings and arrows. It is terrific that, postfinancial crisis, regulators are much more alert to potential fissures in the financial system, especially when, as Carney observed, global assets under management climbed from $50 trillion in 2007 to $80 trillion a decade later.
He suggests that ‘funds should have the liquidity management tools to deal with stressed conditions’.
That is all fine and dandy but not much use to the tens of thousands of ordinary investors in the Woodford funds who find their hardearned after-tax savings locked up. Others can only watch in horror as shares in Woodford’s Patient Capital drop like a stone.
Hargreaves Lansdown, one of Woodford’s noisiest backers, is struggling to dig itself out from under avalanche of reputational and potentially financial damage. It was quick to suspend charges for managing client holdings in Woodford funds. One suspects many customers didn’t even know that their money was disappearing down this particular drain. The latest step for Hargreaves is to try and extricate clients from its own-branded multi-manager funds.
One can’t help thinking that such action – similar to that taken by St James’s Place – might only speed the Woodford decline.
Meanwhile, over at Woodford Patient Capital, a supine board headed by Susan Searle is seeking to convince investors all is fine, having allowed the fund of which she is chairman to be the dumping ground for assets moved across from WEIF.
The effort to calm nerves has singularly failed, with the shares down a further 6pc in latest trading, after 17pc last week, in a terrifying test of patience for investors.
It is reported that the Patient board may be looking at switching managers. But with the stock sinking like a stone a rescue merger, or boardroom overhaul is needed.
Patient Capital might be the perfect target for maverick activists such as Ed Bramson of Sherborne, who stripped the carcass of Electra clean and defenestrated Foreign & Colonial.
The most galling aspect of all of this has been the vast riches extracted, to the misery of investors, by Woodford and his associates, top brass at Hargreaves Lansdown, St James’s Place and everyone else involved.
They have placed a time bomb under the collective savings industry and handed a gift to Marxists running the Labour Party.
Gravy train
OBSCENE payments in the investment and fund management industry are not confined to Neil Woodford. The currently fashionable boutique Lindsell Train has caught the bug. Cash has been rolling in and the firm saw funds under management soar 23pc to £16.3bn in the last year as returns jumped and net inflows increased.
Less impressive is the speed with which the highest paid director, Nick Train and his colleague Michael Lindsell, are extracting cash from the enterprise.
The top-paid official received £8.2m last year up from £5.7m the previous year. That places the lucky recipient top of the league of fund managers, ahead of the £6.7m for Schroders’ Peter Harrison, and in a different pay class to the bosses of Jupiter and Standard Aberdeen.
The pay out at Lindsell Train is a powerful reminder of how the biggest winners in asset management are always those at the top.
If the air comes out of the balloon, the proprietors can hide away in their mansions.