Woodford must step down
THE scandal surrounding Neil Woodford’s investment empire deepens with each passing day.
The 300,000 of us who trusted our savings to Woodford through the Hargreaves Lansdown investment platform recently received quarterly reports from the Bristol-based stockbroker.
The paper losses in a period when share prices at home and abroad have been volatile, but rising, will come as a body blow to investors who were encouraged to put their faith in the guru – partly as a result of thin analysis in the Hargreaves Wealth 50 Report.
What is especially galling is that in spite of the urgings of the City regulator, the Financial Conduct Authority (FCA,) and Hargreaves Lansdown’s boss Chris Hill that Woodford waive management fees on the ‘gated’ Woodford Equity Income Fund, he is still collecting £100,000 in income for each working day.
Almost 100 days have passed since the fund had to close its doors on June 3. Our calculations are that if the fund remains gated until December – as expected – Woodford’s outfit will be £12m to the good while savers suffer. Those unfortunate enough also to be savers in Woodford’s Patient Capital face a double whammy. As Patient Capital
is a quoted investment trust, there is an escape route. But no one who has bought into this company could have anticipated the pathetic governance and labyrinthine inter-company transactions which eroded shareholder confidence.
It has been a signal week for Patient Capital. It lost a director Steven Harris, a close associate of Woodford, and suffered the humiliation of being expelled from the FTSE 350 of top countries.
The Patient Capital Trust now trades at a discount of 41pc to asset value, and has lost 50pc of its value over the last five years.
This should be a huge source of embarrassment to ‘independent’ chairman Susan Searle and her board who have a fiduciary duty towards shareholders. Patient Capital trust allowed itself to become a pawn on the Woodford chess board. Earlier this year it accepted into its portfolio unlisted stocks dumped by the Equity Income fund as Woodford sought to make his main vehicle compliant with regulation. The departure of Harris, boss of Oxford-based speciality pharma firm Circassia, removes one conflict, since Woodford funds own 20pc of his company.
But that is far from the end of it. Another director, Scott Brown, is chief executive of high-tech battery developer Nexeon, also a Woodford investment.
SEARLE, until very recently, was conflicted as chairman of Mercia Asset Management where Woodford has a 20pc stake. When the crisis at Equity Income erupted in June, Patient Capital hinted that it would remove Woodford as manager.
Three months later, Woodford is still at the helm even as value has drained away.
The intertwined financial interests of all those involved will not have made the mandate very attractive to outsiders.
But at the very least, the Chicago-based custodians Northern Trust – also interwoven into the empire by a stonking £150m loan – should have insisted on change for peace of mind of investors. A lack of independent
management and scrutiny is in danger of bringing disrepute to the whole investment trust sector.
Even at a share price of just 43.2p, advisers are warning savers to steer clear on the grounds of the continued gating of Equity Income and ‘significant cross-holdings.’ Conflicts have created an omnishambles.
Elsewhere in the Woodford universe, IP Group, an early-stage investment company backed by Woodford, is a cornerstone investor in many of the same unlisted companies. Its shares have tumbled to a sharp discount to net asset value. Meanwhile, over at Equity Income, there are lurid disclosures about quoted litigation firm Burford, one of Woodford’s larger holdings.
It would be possible to continue by outlining Woodford’s hopeless backing of doorstep lender Non-Standard Finance in its inept bid for bigger competitor Provident. Woodford’s stake was offloaded to private equity firm Alchemy in the last few days.
The big puzzle is how Britain, which spends £1.7bn a year on financial enforcement, has failed to intervene aggressively to remove Woodford from office. The Treasury showed no hesitation in sacking bank bosses in the financial crisis and replacing them with trustworthy and skilled individuals.
Andrew Bailey at the FCA has inexplicably allowed the ghastly Woodford affair to trundle on for too long.