follow us on social
An investor body has criticised the offer of redress to investors in the Woodford Equity Income fund organised by the Financial Conduct Authority, calling the regulator’s communications “confusing”.
The UK Individual Shareholders Society, known as Sharesoc, said the FCA has a “fundamental conflict” between its role in protecting consumers, and its “apparent desire” to avoid creating a claim with the Financial Services Compensation Scheme.
After the collapse of Neil Woodford's eponymous fund, the FCA agreed a £235mn payout with Link Group, parent company of the WEIF’s authorised corporate director, Link Fund Solutions.
The deal protects Link from further claims if it is approved by shareholders in the fund.
The regulator has said this scheme represents the “best chance” for investors to obtain a better outcome than might be achieved by any other means, and has recently hit out at some of the private litigation, as well as "self-interested" criticism of its deal.
A spokesperson for the FCA said the ultimate decision about the redress scheme is down to Woodford investors.
“However the FCA’s view is that the scheme – which includes a voluntary contribution from Link Group – is the quickest and best way to return as much money to investors as possible,” the spokesperson added.
“The outcome of any litigation and claims to the FSCS are not certain – and any FSCS claims would not cover investment loss”.
However, ShareSoc said this is confusing as redress claims are for damages, not investment losses.
The group said the regulator has “failed to point out” that, of the 77 per cent recovery of investments for shareholders, 71 per cent has been from the sale of assets in the fund, with the redress scheme covering 6 per cent more.
“There appears to be a fundamental conflict between the FCA’s role in protecting consumers and its apparent desire to avoid creating a claim on the FSCS, which would ultimately be borne by the financial services industry via the FSCS levy,” ShareSoc said.
Both the FCA and ShareSoc have recommended that investors study the next steps for the redress offer when released by the regulator in July, and if approved, investors could start to receive compensation in late 2023 or early 2024.
Unwinding the fund
Link’s last update in November last year showed there was £50mn still in the WEIF, after £2.56bn was sent to investors through five payments.
Due to liquidity issues in some of the holdings, Link said the rest of the fund’s value may not be distributed to investors until the end of the year.
Woodford: what happened?
Woodford's flagship Equity Income fund had been struggling with outflows which were running at a net £9mn per working day in May 2019.
A month later Kent County Council asked to withdraw all of the £250mn it had invested with him through its pension fund and Kier Group, one of the fund's substantial holdings, announced a profit warning which prompted its shares to plummet by 40 per cent.
This triggered the suspension on June 3, 2019. Woodford was then scrambling to sell shares to improve the fund's liquidity in an effort to preempt a wave of redemptions when the fund reopened.
But on October 15, 2019 it was announced Woodford's suspended Equity Income fund, initially touted to reopen in December, would be wound down and the former star manager fired from the fund.
He then walked from his remaining two investment vehicles before confirming he had taken the decision to close Woodford Investment Management later that day.
Last summer, two law firms joined forces in a claim against Link Fund Solutions over the company’s handling of the Woodford Equity Income fund.
Leigh Day and Harcus Parker submitted a group litigation order at the High Court on June 15 on behalf of more than 3,000 investors in the fund, which collapsed in 2019.
The firms believe the claim will be worth more than £100mn.
Both companies had previously begun court proceedings against the fund’s authorised corporate director.
sally.hickey@ft.com
What's your view? Have your say in the comments section below or email us: ftadviser.newsdesk@ft.com
