A regulator stuck in lockdown over the Woodford saga

ANOTHER week goes by a nd yet a gai n there is more depressing news on fallout from the demise of the Woodford investment empire. Will this stream of awfulness ever end? Will the regulator ever take responsibility for dealing with this investment travesty and hold those responsible ( Neil Woodford, fund overseer Link and Woodford evangelist Hargreaves Lansdown) to account? Not for a while I fear.

Questions and sadly no answers – the regulator, it seems, has decided to go into permanent lockdown on this issue. (Note to the Financial Conduct Authority: lockdown starts ending tomorrow.) This time around, the bad news relates to some of the illiquid stocks that Neil Woodford bizarrely decided were suitable for his Woodford Equity Income Fund – and (more justifiably) were also held in Woodford Patient Capital investment trust, a fund set up to invest in whizz-bang start-ups.

After much scratching of heads and unnecessary delay, fund supervisor Link has now decided to significantly write down the value of these assets. As a consequence, the rump of assets left in the shell that was Equity Income has been sharply devalued, from £ 164 million to £124 million. Frustratingly, that will mean less money for Equity Income investors when these bits and pieces are finally sold.

Some Equity Income investors are not happy. Said one investor who has done a better job surveying the Equity Income wreckage in recent months than either Link or the regulator: ‘To my total shock and incredulity, Link has made another fund devaluation, without a word of explanation. At this rate, there will be zero money left for a final distribution to investors. What on earth is going on?’

The write-downs have also severely impacted on Schroder UK Public Private – Patient Capital as was. Its assets have been written down by £80 million, a move which sent the shares into a tailspin. They now trade at just above 30p, compared to £1 when the trust launched in 2015.

What is so galling about these write- downs is t he i nordinate amount of time they took Link to effect. In our Wealth section in July 2019 and in this column in November 2019, I wrote that there were a number of holdings in both the fund and investment trust that were ripe for writing down. In particular, I referred to Rutherford, a cancer treatment specialist previously known as Proton Partners.

IN November 2019, I said this company was not in good shape – making losses – and questioned the £2-a-share valuation that the trust had put on it. At the time, fund manager Alan Miller, whose financial forensic skills have no bounds, estimated that Rutherford accounted for nearly 20 per cent of Patient Capital’s net assets – the trust’s assets minus borrowings. Our conclusion at the time? Any write-down in Rutherford’s valuation would have a material impact on the trust’s asset value, which could plunge it into crisis territory as its borrowings relative to debt soared way above the permitted 20 per cent limit. Link didn’t act.

Despite a stream of London Stock Exchange announcements from Rutherford warning of losses (November 30, 2020), and the need for more funding (January 18 this year), it was not until l ast week that the trust’s board announced it was writing down the value of its Rutherford holding – from £81 million to £34 million. This followed an updated valuation from Link. Miller is singularly unimpressed.

On Friday, he told me: ‘Surely the regulator needs to look at why Link and the trust’s board waited until now to devalue its Rutherford holding. Private investors buy and sell an investment trust based on its net asset value. If it transpires this value was illusionary, then there has been a false market in the shares.’

The FCA needs to come out of lockdown tomorrow and do the job it is paid to do – protect financial consumers.