Watchdog should have acted faster over manager

Conal Gregory puts financial regulator under fire.

SAVERS FOLLOW success. If a sector, country or manager is spotted as outperforming, investors jump in foot-first. This explains the incredible sums of money that followed Neil Woodford in 2014 when he emerged with his own funds after years of success at Invesco.

The manager became a star picker when he took a contrarian stand on the dotcom boom and in the period prior to the financial crisis. He had an eye for finding undervalued stocks.

Under his own management company, Woodford launched several funds with equity income as his flagship. By May 2017, it had accepted over £10bn. Such a wall of money is almost impossible for anyone – even supported by a small coterie of like-minded analysts – to invest speedily. It takes time to research potential openings and often a ‘cat and mouse’ approach to gain the right timing. Woodford failed.

Last year the fund actually lost 16.5 per cent and yet charged 0.75 per cent for its stock picking. In 2017 it gained only 0.8 per cent, making it one of the worst performers.

Withdrawals have been so dramatic that trading on the open-ended fund was suspended on Monday, meaning that savers cannot withdraw their money. It is locked in with no date set for its release.

This arises because the fund is not an investment trust with shares. It is open-ended, meaning that it should redeem on demand.

The real problem lies in the lack of supervision. Just where was the regulator? The Financial Conduct Authority was asleep again. It should have been everwatchful when such a large amount of money was thrown at one manager. It should have intervened when vast sums were expended on unquoted investments with little liquidity.

Another warning bell should have sounded when holdings were moved to the Guernsey stock market to avoid regulation here. Confidence needs to return to investing and a new regulator is overdue.