Neil Woodford's decision to temporarily close his £3bn flagship Equity Income fund came as a result of two events on Monday 3 June.
The first was the decision by Kent County Council to withdraw all of the £250m it had invested with him through its pension fund.
Outflows were already running at a net £9m a day when the call came from Kent.
But Monday had already started badly for Mr Woodford after Keir Group, one of the fund's substantial holdings, announced a profit warning, prompting its shares to fall by 40 per cent, booking another big loss for Mr Woodford.
For months Mr Woodford's representatives had played down fears about the fund's liquidity, saying outflows had become moderate and that the fund manager remained as confident as ever his strategy would pay off.
The first signs liquidity might be an issue came when it was revealed that Mr Woodford had listed some of his stakes in unquoted companies on the Guernsey Stock Exchange, which meant they no longer counted as unquoted under Investment Association rules.
The problem had been that due to the quoted stocks' poor performance, the unquoted holdings became a bigger part of the total portfolio, reaching above the 10 per cent limit permitted under IA rules.
The drop in the value of Keir Group shares, combined with the outflows seen in recent weeks as nerves about global trade tensions and a potential no deal Brexit saw investors withdraw their cash at a rate of £9m per working day in May, with the £250m withdrawal by Kent County Council adding to the outflows.
That prompted the fund to be closed to outflows and inflows until further notice.
The decision will be reviewed after 28 days and the Financial Conduct Authority will be contacted, at which point the fund could be reopened or the closure may be renewed.
Woodford Equity Income, which was once £10bn in size, has lost 18.12 per cent over the past three years while the Investment Association UK All Companies sector gained 23.3 per cent.
Over the past year it has lost 18.05 per cent, while its sector lost 5.5 per cent.
Ryan Hughes, head of active portfolios at AJ Bell, said: "Woodford has indicated that they will be looking to reposition the portfolio away from illiquid holdings during the suspension and therefore investors may have to be patient for the fund to reopen.
"Events such as this are rare but it is a reminder to all of the risks that come with investing in illiquid assets while offering daily liquidity to investors. This never appears to be a problem when money is flooding in but when sentiment turns it can come back to bite investors badly as has happened here."
The decision to close the Equity Income fund could have implications for investors in other Woodford mandates.
Kieran Drake, a research analyst at Winterflood Securities, said investors in the Patient Capital investment trust, also run by Mr Woodford, are also likely to suffer.
This is because the trust owns many of the same unquoted shares as are held in the Equity Income fund, and if Mr Woodford has to sell those shares in the Equity Income fund in order to raise cash, this will cause those share prices to fall, causing the share price of the Patient Capital trust to fall.
david.thorpe@ft.com
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