LAUREN DAVIDSON PERSONAL ACCOUNT

If any good is to come from the Woodford farce, it will be the end of the ‘cult’ manager

Adying star has three characteristics: it takes quite a lot of time, we only find out about it after the fact and its explosion sucks in and destroys everything around it.

It would be a true miracle – a defiance of the laws of nature that govern such matters – for Neil Woodford’s reputation to survive beyond this week. There is now a black hole where billions of pounds of investors’ money used to be.

But who will be dragged down with him remains to be seen. How far beyond his own empire will the damage spread? Could the contagion reach other star managers such as Terry Smith?

The comparison between the two is easy to make. In 2014, Mr Woodford left Invesco to set up a company in his own name. In 2014, Mr Smith left Tullett Prebon to concentrate on the company he had set up a few years earlier in his own name. Both run – or ran – huge funds. Both have been lauded as the nation’s greatest stock picker.

But these similarities are not the reasons behind Mr Woodford’s catastrophic downfall. His failure was not simply born of self-belief – that is necessary for any successful fund manager. It was that he broke his own rules, changed his strategy so he was no longer doing what he set out to do and was allowed to go unchecked.

His original investment approach of buying large stakes in large companies and holding them for the long term had turned into a strategy of buying unlisted or smaller companies that were hard to trade. When the proportion of illiquid companies in his

Equity Income fund neared the limit of 10pc, he didn’t step on the brakes – he doubled down and moved some of them to his Patient Capital investment trust, putting shares from that trust in the Equity Income fund. He even listed some on the Guernsey stock exchange rather than admit his method was not working. And while all this was going on, where was the industry regulator, the FCA? Why did Hargreaves Lansdown keep encouraging people to back Woodford by including his fund in its best buy list and offering a fee cut?

Mr Smith has been keen to distinguish himself from

Woodford’s failure was not just his selfbelief. It was that he broke his own rules

Mr Woodford. In Fundsmith Equity’s half-year report, published last month for the January to June period, he felt the need to say the fund “never invests, nor will it ever invest, in unquoted companies”.

If there is good to be found among the debris of the Woodford debacle it could be the end of the cult manager – the cult, not the manager. No one is beyond scrutiny. But that does not mean no one is capable of excellence. We must not throw the baby out with the Woodford water. Money newsletter

Get the best of Telegraph Money, straight to your inbox every week

telegraph.co.uk/moneynewsletter