Cracks are widening in Project Woodford

JUST when you thought the debacle that is Woodford Investment Management could not get any worse, it does. Sad though it is to say, it really does not bode at all well for investors in the company’s two main investment funds, Equity Income and Patient Capital, managed by Neil Woodford.

It also casts real doubt on the ability of WIM to survive as an independent business. A shame, although Woodford – aided by an inept regulator – only has himself to blame by taking risks with investors’ money he should never have been allowed to do.

Neil Woodford 2019 is no longer the Neil Woodford of 2000 who at asset manager Invesco Perpetual skilfully safeguarded investors’ money through the technology stock market crash and then went on to make them much richer.

The fault lines in project WIM are appearing everywhere – like fissures after an earthquake. Over the last few days, we have learnt that the £3.4 billion Equity Income – the company’s flagship fund – will now stay shut until at least December, meaning investors will not be able to gain access to their nest eggs for another four months, maybe even longer.

No wonder readers with money tied up in it continue to contact us, angry that Woodford has both played fast and loose with their savings – while chipping away at the value of their holdings by applying investment charges equivalent to £455,000 a week. Without wishing to spoil the Sundays of those readers with money trapped in Equity Income, it means £4,095,000 has been sucked out of the fund by WIM since dealings were first suspended in early June.

Assuming the fund now stays shut until December, the Woodford vacuum cleaner will have sucked out £11,830,000 in fees. Fair? Methinks not, whatever Woodford says in defence of the charges (see Wealth, pages 56 and 57).

This dramatic extension of the fund’s suspension, we have been told, is to allow Woodford time to reposition the portfolio away from unquoted stocks and into more tradeable UK shares and cash so that when Equity Income does eventually reopen (not a given by any means), investors will be able to get their money out.

Yet even this process is proving more difficult than envisaged – especially given the decision in the last few days of the Guernsey stock exchange to delist two of Equity Income’s key holdings. These are artificial intelligence firm Benevolent AI and new wave energy company Industrial Heat.

As a result of their delisting, Equity Income will once again be in breach of rules that require it to maintain no more than 10 per cent of its portfolio in unquoted companies.

It was the breaking of this rule that caused the fund to shut up shop when big investors wanted their money out in May but there was not enough cash to pay them.

As if this was not all enough to dispirit Woodford investors, it has now emerged the manager recently sold part of his personal holding (60 per cent, or 1.75 million shares) in investment trust Patient Capital to meet a tax bill.

Although hardly an advert for Woodford’s investment faith in Patient Capital, there would be nothing wrong with his sale of shares if it wasn’t for the fact that he failed to tell the trust’s board until six days ago. This leaves him in danger of falling foul of City rules that require those discharging managerial responsibilities (that is, Woodford) to disclose share sales to the stock market within four days.

With Patient Capital close to its 80 per cent limit on unquoted holdings, it is no wonder the trust’s board is in discussions with other asset managers with a view to taking over the investment reins from Woodford.

With possible litigation waiting in the wings against those involved in the investment sore that WIM has become – Woodford, Hargreaves Lansdown (for including Equity Income as a best-buy fund right up until it was suspended) and Link (the fund’s overseer, responsible for safeguarding investors’ interests) – the future does not look good.

As I report in Wealth today, Woodford still refuses to speak directly to the press about the problems that have beset WIM.

Of course, that is his prerogative, but it does not help his cause. It merely fuels a suspicion that as every day goes by he becomes more detached from his investors.

Worrying and troubling.