Neil Woodford has said the latest breach of the rules by his suspended flagship Equity Income fund will have “no impact” on clients.
The stricken £3.7bn Woodford Equity Income fund was suspended on June 3 amid sustained outflows and will remain suspended until at least December.
It was announced today (July 31) that the fund has once again breached a rule forbidding it from holding more than 10 per cent of the assets in unquoted stocks.
The rule was breached because two of the companies the fund owns ,which were listed on the Guernsey stock exchange, decided to come off the market.
The companies in question, Benevolent AI and Industrial Heat, have now become unquoted companies and mean Mr Woodford’s fund has unintentionally and technically breached the rules.
A representative of the company said: “Following the inadvertent passive breach, action to bring the fund back into compliance is already underway.
"On 3 May, we informed investors that the fund’s exposure to unquoted securities would be significantly reduced – including those listed on exchanges where there is currently little or no trading activity.
"The decision by Benevolent AI and Industrial Heat to delist from TISE will have no impact in how the assets are managed within the fund “
Andrew Bailey, chief executive of the Financial Conduct Authority (FCA) had told the Treasury select committee in June that listing those stocks on the Guernsey stock exchange, complied with the “letter but not the spirit” of the rules.
This was because stocks listed on that market, where very little trading happens, are not much more liquid than if they were unquoted, and so have the same potential downside risk for investors.
A representative of Woodford Investment Management said: “The companies held in the LF Woodford Equity Income fund that are, or have been, listed [in Guernsey] have always been classified as illiquid and valued by Link in line with its Fair Value Pricing policy (which is also adopted for valuing the fund’s unquoted stocks). This continues to be the case.”
Shaun Port, chief investment officer at Nutmeg, said: “For too long star managers have been seen as the darlings of the investment industry, with too little scrutiny into sometimes opaque practises, and now retail investors have been left to pay the price.
"The rules on unquoted holdings are clear and designed to protect ordinary investors.
"The sleight of hand that was used to avoid previously breaching this limit has now been exposed, and a significant portion of these assets will have to be liquidated rapidly, putting performance further at risk.”
Adrian Lowcock, head of personal investing at Willis Owen, calculated that Woodford Investment Management will have received fees of close to £13m from investors in the fund during the period of the suspension, if the suspension runs until December.
This is based on a management fee of 0.75 per cent and a fund size of £3.7bn.