Investments  

Hargreaves Lansdown worried about Woodford for 18 months

Hargreaves Lansdown worried about Woodford for 18 months

Hargreaves Lansdown started putting pressure on Neil Woodford to change tack with his stricken Equity Income fund 18 months ago, according to the platform's chief executive Chris Hill.

Mr Woodford’s £3.75bn fund was suspended on June 3 over liquidity concerns, following outflows of £9m every working day in May. The fund had lost 20 per cent over the past year.

Nicky Morgan, chairwoman of the Treasury select committee, wrote to Mr Hill on June 11 with several questions about the process for compiling the firm's buylist, which the fund was on, and the discount received by Hargreaves clients who bought the fund.

In his response to Ms Morgan's letter Mr Hill wrote: "In November 2017, as part of our regular analysis, we identified an increase in the proportion of these small and unquoted assets in the Woodford Equity Income fund.

"We met with the fund manager that month and urged him to address the issue. The manager committed to us that he would make no new investments into unquoted businesses from that point."

He said Hargreaves also recommended the fund manager reduced the early warning thresholds for his investments in unquoted companies, which he agreed to do.

He wrote: "We insisted that they abide by the Ucits guidelines not to breach the 10 per cent level and to inform us immediately if they did, to which they also agreed.

"We have subsequently, on 18th June 2019 in FCA chair Andrew Bailey’s response to the Treasury select committee, found out that Woodford twice breached this limit in February and March 2018. They did not inform us of this on either occasion."

The FCA published Mr Bailey's letter to Ms Morgan yesterday. In this the regulator stated it had started supervising the fund more closely from February last year regarding issues related to liquidity.

Mr Hill told Ms Morgan: "At this point [November 2017] we insisted on more regular meetings to track how Woodford would be managing the portfolio shift.

"Our judgement was that our discussions would result in actions that would lead to him restructuring the portfolio and better relative returns over the longer term."

He said Hargreaves had communicated an increase in the proportion of small and unquoted stocks to its clients in December 2017.

In January 2018 it initiated monthly communications with Woodford Investment Management specifically addressing the unquoted stocks in the portfolio, either via a call or email.

Through 2018 it continued to meet with the manager. At each of these meetings, he said, the platform questioned the manager on the levels of unquoted stocks in the portfolio.

"We also asked for details on how he planned to reduce these positions."

Hargreaves Lansdown maintained Mr Woodford’s Equity Income fund on its Wealth 50 buylist right up until the day it was suspended on June 3, despite an extended period of poor performance from the fund, which was the absolute worst performer in the IA UK All Companies sector over the three years prior to its suspension, and lost  20 per cent in the year before.