Neil Woodford’s lawyers have hit back at claims the former asset manager had a “defective and unreasonably narrow” understanding of his responsibilities when managing his eponymous fund.
WilmerHale and BCLP, representing Woodford and Woodford Investment Management, said the FCA’s findings were “fundamentally misconceived” and vowed to challenge them.
This morning (April 11) the regulator revealed it had issued a warning notice to the two parties in February.
The notice read: “The FCA considers that during the relevant period (July 31, 2018 to June 3, 2019) Mr Woodford held a defective and unreasonably narrow understanding of his responsibilities for managing [Woodford Equity Income's] liquidity risks.”
It added Woodford had failed to ensure the fund had an appropriate liquidity profile when making investment decisions, and had failed to adequately satisfy himself the liquidity framework applied to the WEIF was appropriate.
Woodford Investment Management had failed to maintain an appropriate liquidity profile for the WEIF and had failed to respond to the fund's deteriorating liquidity despite the warning signs.
Woodford’s lawyers said: “It is striking that the FCA’s only criticisms of Neil Woodford relate to his involvement in matters relating to the fund's liquidity framework, which was, in fact, Link's responsibility and supervised by the depositary.”
In a statement the lawyers claimed the liquidity framework and parameters were set by Link Fund Solutions rather than Woodford and WIM.
They added: “The team at WIM, including Mr Woodford, having not had any prior warning, were surprised by Link’s decision to suspend the fund, only being informed on the morning of the suspension.
“Subsequently, the entire WIM team were shocked by Link’s damaging decision to liquidate the fund, and that Link took responsibility for the management of that process, as well as the losses that investors suffered as a result.
“WIM and Mr Woodford disagree with the FCA’s findings, which they believe are unprecedented and fundamentally misconceived. The findings will be challenged by WIM and Mr Woodford.”
Link Fund Solutions has been approached for comment.
The warning notices given to Woodford and WIM are not the FCA's final decisions and both parties can now make representations to the Regulatory Decisions Committee. The FCA has not disclosed what, if any, sanctions it intends to give should its decisions become final.
The Woodford Equity Income Fund fund had been struggling with outflows before being suspended on June 3 2019.
A significant portion of the fund's assets were in unquoted companies, which made meeting client redemptions more difficult, and ultimately led to redemptions being suspended by Link.
Today (April 11) the FCA also issued its final notice to Link Fund Solutions, in which it said the company had failed to manage the liquidity of the fund from July 31, 2018 until it was suspended just under a year later.
Link Group, LFS's parent company, has already agreed to make a voluntary contribution to the redress as it considers it has no legal responsibility for the obligations of LFS.
The redress payment is made up of LFS's assets plus part of the proceeds from the sale of LFS (without the Woodford liability) to Dublin-based Waystone Group.
Those invested in the fund when it was suspended started to receive a share of the up to £230mm redress scheme, which was approved by the High Court in February.
A Link spokesperson said at the time: “We are pleased the scheme has become effective and the initial payment has now been made to scheme investors
“We have always believed the scheme was the best option to provide investors with a substantial level of redress.”
tara.o'connor@ft.com
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