The ripple effect

Already battling against month after month of fund outflows, managers and advisers were also contending with signs of a renewed downturn in risk assets and global economic activity. The Woodford news, which made the front page of the BBC website on a busy weekday morning, will be a further dent to UK investor confidence.

By now, advisers will have dealt with the calls from their own clients, and some may have had to put a brave face on it. Those who outsource investment decisions may have been able to rest a little easier: very few, if any, discretionary fund manager model portfolios still held Woodford Equity Income as of the second quarter of this year. 

And advisers anxious about knock-on effects on other portfolios will have seen little evidence of a feeding frenzy. 

Of Mr Woodford’s main holdings, only one or two had a truly catastrophic week, and they’re too idiosyncratic for others to worry about. No other UK retail fund manager holds Autolus, the pharma firm that fell 20 per cent in the week since the suspension.

The fund’s biggest position, Barratt Developments, rode its own wave and rose in line with its sector that same week. Even Burford Capital – a stock closely associated with Mr Woodford, and one also owned by other UK equity desks – has largely shrugged off recent events. 

Then there is Nick Train: the manager’s short-term performance was hit by Hargreaves Lansdown’s 20 per cent slump in June. But he has room to manoeuvre given the shares previously rose 20 per cent in May alone.

There may be more pain to come once the Income fund sluice gates reopen, but the waters are mostly calm for now. That will leave advisers wondering about second-order effects.

As anticipated, the Financial Conduct Authority’s delay in finalising a response to its illiquid assets paper has come in handy. The regulator’s chief executive Andrew Bailey, has said it will take into account the lessons of the Woodford affair before publishing its findings.

And yet sweeping changes to the funds regime are unlikely. That’s partly because one potential target of Mr Bailey’s ire – the 10 per cent illiquid asset allowance – is a Ucits rule rather than a domestic regulation. 

What’s more, the big levers that are accessible to the FCA are unlikely to be pulled. There’s nothing in the Ucits framework that says a fund has to offer daily dealing, but the regulator will recognise this is an investor demand rather than an industry standard imposed from above. And, to be fair, it seems unlikely that fortnightly dealing (permitted by Ucits) would have altered the eventual outcome in Mr Woodford’s case. 

When it comes to illiquid investments in general, Mr Bailey’s comments also emphasise the watchdog remains open to their merits. 

That leaves the second-order issues like the role of fund distributors. There have been calls for a crackdown on direct-to-consumer platforms’ best-buy lists, but to do so shortly after the FCA gave the sector a relatively clean bill of health in last year’s platform market study would prove a little embarrassing. 

Ultimately, although the Woodford saga is not yet proving a systemic issue for UK investors, it remains a serious reputational problem for active management, and investment in general. That damage could linger across all parts of the industry for a long time to come.