One year on — what has happened since the Woodford saga began?

His demise gripped the industry as onlookers were glued to the fall of the industry star, previously dubbed the man who could “not stop making money”.

A year on, there is still some £500m of investors’ cash stuck in the illiquid assets at the crux of the saga, with little indication of when these will be sold. Some commentators have argued investors may be trapped in the wound-down fund for years.

Since the fund closed its doors to dealing on June 3 last year, investors have lost 40 per cent of any remaining cash in the fund. By comparison, funds in the Investment Association’s UK All Companies Sector have lost an average of 9 per cent.

Investors had already seen a prolonged stint of underperformance from Mr Woodford in the years leading up to the fund’s suspension. From June 2017 to June 2019, the fund lost 24 per cent compared to a UK All Companies average of a positive 1.2 per cent return.

Most of the assets invested in the fund have now been returned after BlackRock and PJT Hill were appointed to sell-off the stocks within the fund in October last year.

Some 70 per cent of the assets were returned to investors in January, when they shared a £2.1bn payment, while a further £143m was paid out at the end of March.

The Woodford saga illuminated the issues of illiquid assets in open-ended funds. His Equity Income fund was suspended on June 3 last year after Kent County Council asked to pull all of the £260m it had invested in the portfolio through its workplace pension.

The fund had been running with outflows averaging £9m per working day in May but 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 that his strategy would pay off.

But when Kent County Council’s request arrived the fund did not have enough liquidity to meet the redemptions.

Unquoted assets

Ben Yearsley, investment consultant at Fairview Investing, said the saga had “clearly hardened the view” illiquid assets should not be in open-ended funds. He added: “They certainly should not be in daily dealing open-ended funds, and this should include property. Illiquid and daily dealing should not go together.”

AJ Bell's head of active portfolios Ryan Hughes agreed. He said: “The Woodford issues shone a light on the dangers of holding illiquid assets in daily traded open-ended funds. 

“As a result we have seen other asset managers look to reduce or remove unquoted assets from their open-ended portfolios which can only be seen as a positive.”

Mr Hughes thought the mismatch was an “accident waiting to happen” and one that was not necessary as there were more “appropriate structures” to hold such assets.

Nick Wood, head of fund research at Quilter, said closed ended funds — such as investment trusts — seemed to have increased their use of unquoted assets but that they were a declining prevalence within the open-ended space.

The role of the star fund manager

Commentators noted the saga surrounding Mr Woodford had also made investors more wary of managers considered “stars” or those with smaller support systems.

Annabel Brodie-Smith, communications director of the Association of Investment Companies, said: “The Woodford saga has made the market much more sceptical of star fund managers.

“Management groups have been keen to promote co-managers and the team rather than one star name.”

Darius McDermott, managing director of FundCalibre, agreed, although he thought the industry was already seeing a move towards the team-based approach among fund management companies.

He added: “[The Woodford saga] has been a dent to star fund managers and you could argue it could accelerate the trend. But there remains a number of star fund managers whose long-term performance is exceptional.”

Advisers also felt the saga had promoted the importance of due diligence and to note the underlying assets in the funds they were invested in. 

Ricky Chan, director at IFS Wealth and Pensions, said: “It underlines the importance for rating agencies and advisers alike to conduct further due diligence on the underlying assets in funds to understand the exposure to unquoted assets and not be ‘blinded’ by a star manager.”

Mr Hughes agreed. He said it highlighted the importance of good fund governance to ensure all the appropriate checks and balances were in place, particularly at smaller boutique investment firms.

Trust in the industry

Mr Woodford’s high profile in the asset management industry — and his ultimate downfall — hurt the average investor’s trust in the funds market, according to commentators.

Paul Gibson, adviser and director at Granite Financial, said clients invested with Woodford would feel “extremely let down”, but added the large promoters of Mr Woodford’s funds should “ultimately shoulder more of the blame”.

Ms Brodie-Smith thought the Woodford saga had damaged investors’ confidence in the industry, explaining “investors suffered significant losses and they still don’t know when the final payment will be made and how much it will be”. 

Meanwhile, Mr McDermott said: “Those who have been invested with Woodford — advised or not — have been left with losses and have seen their confidence in the active management industry dented. 

“The high-profile nature of the Woodford saga is bad for the industry at a time when it’s never been more important to encourage long-term savings.”

imogen.tew@ft.com

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