‘He went a bit mad’: Woodford’s peers on what went so wrong

Neil Woodford “wrote multimillion-pound cheques with no due diligence” and “went a bit mad” when the initial success of his new firm “went to his head”, according to City observers.

After Woodford Investment Management opened for business in 2014, its funds attracted billions of pounds in a short space of time. The manager was forced to invest this money quickly to avoid it sitting unproductively in cash but his new firm lacked the resources to research certain stocks effectively, rivals allege.

“He had all that money to deploy, first for his Equity Income fund and then for his biotech and technology investment trust [ Woodford Patient Capital],” said one. “But buying that kind of stuff isn’t easy – you can’t just throw money at a wall. You need to employ the right scientists but there was no due diligence, even when they were writing huge cheques.”

Another experienced City figure backed up this assessment. “There was no real experience or talent among the other staff, just a few inexperienced analysts,” said the source, who had direct knowledge of Mr Woodford’s business in its early days. “These people lacked the stature to push back at Mr Woodford’s decisions.”

Several of the people Telegraph Money spoke to, who are all experienced money managers, said Mr Woodford’s “lack of humility” made this point all the more important.

“These guys all have big egos,” one said. “He probably had an evangelical belief in what he was doing.”

A second said: “There was hubris here in ignoring adages such as the fact that the market can remain irrational longer than you can remain solvent.” Another said: “I think he wanted a knighthood. He wanted to retire after making Oxford [where his company is based] Britain’s Silicon Valley. It was hubris – I think his intentions were good.”

A fourth added: “When you start your own business you need humility if you are going to avoid mistakes. But his actions do not suggest humility. He held very large stakes in some companies, indicating very high levels of conviction.”

Several of these big bets, such as Provident Financial and Allied Minds, did not come off. Mr Woodford held 21.6pc of Allied Minds and 14.9pc of Provident Financial in his Equity Income fund; the fund also owned more than a fifth of the shares of several other companies.

“The red flag was the size of these stakes,” one source said. “It shows overconfidence. When there is this concentration of ownership you can’t liquidate your holding and you effectively own the whole company.”

Several rivals said Mr Woodford’s undoing was refusing to cut his losses when holdings got into difficulty and instead increasing his stakes. “I think the early success went to his head and he went a bit mad – he started to believe his own hype,” one said. “When it went wrong he panicked and doubled down – he gambled.”

Another agreed. “Some investors want to be proved right and others want to make money,” he said. “The latter sell when a stock falls, which is normally sound risk management. The ones who want to be right will double down – but doubling down is not risk management.”

Mr Woodford declined to comment.