Two giant American investment firms will earn millions in fees from the closure of the Woodford Equity Income fund.
Link, the authorised corporate director of the fund, announced this morning (October 15) that the fund will close, and that Woodford Investment Management is no longer the manager.
Link has confirmed that no termination payment was made to Woodford Investment Management for the ending of the contract.
The ACD said it intended to formally liquidate the fund in January. It has appointed BlackRock Advisors (UK) to manage the winding up of the liquid part of the portfolio, and PJT Park Hill, an American finance house, to run the unquoted and highly illiquid portion.
A spokesperson for Link confirmed that holders of the stricken fund will continue to pay the same fees as before - equating to an annual management charge of 0.65-0.75 per cent for most clients, or 0.5 per cent for those who hold the fund via Hargreaves Lansdown. Instead of the charge going to Woodford Investment Management, it will be used to pay BlackRock as fund manager of the quoted portfolio, and Park Hill as an adviser on the unquoted assets.
Providers of professional services to the fund, such as auditing and custody, will also be paid from the fee charged to investors. Depository services are provided by the UK arm of the US bank Northern Trust.
The fund is £3bn in size, which will mean the fees paid by investors between now and January will likely run into millions.
Link said the brokerage and legal costs now due to Park Hill would be "greater during this period than they were typically in previous periods" because of the requirement that the illiquid assets be sold in this timeframe. Link will not take its own fee during this period, having first waived it following the fund's suspension in June.
Peter Brunt, associate director for equity strategies at Morningstar, said: “Given the criticism that WIM came under for continuing to charge the full management fee during the suspension period, we find it surprising and disappointing that BlackRock and Park Hill have not made any concessions under the new management set up. While we acknowledge that there will be costs involved, it is hard to argue the need for the full management fee when the objective is to sell assets.”
Link's statement did not confirm what proportion of the existing fee structure would be owed to BlackRock and Park Hill. But the ACD said it would return money to the fund if there was a surplus left from the annual charge once necessary fees were paid.
Fee arrangements will change once the wind-up process begins in January.
Link said in its statement: "Once the winding up of the fund commences, the periodic charge will no longer be taken. However, we anticipate there will be costs payable by the fund associated with the sale of the fund’s assets after the winding up commences, including the fees of BlackRock and Park Hill.”