Nearly six months have elapsed since the toxic meltdown at Woodford Investment Management first began in earnest, with the gating of its flagship Equity Income fund.
It is a collapse, a financial event, that I will never forget until I take my last breath.
Its scars run as deep as those left by the financial crisis of 2008 – and, before that, the tech meltdown of 2000.
Although I admit I was behind the Woodford curve compared to the likes of former fund manager Tom Winnifrith, who commendably was onto him long before most other journalists, I knew the fund manager was finished as soon as the decision had been taken to suspend Equity Income in the first week of June.
I said as much to my editor after he had called me back from a holiday in Mallorca to write a piece on the fund’s suspension.
The article I wrote on was headlined: “Adios. Toast. Finito. Crash goes the man who couldn’t walk on water.”
I opened the article with the following words: “It took more than 200 years for the Roman Empire to disintegrate and fall.
“For the brittle investment empire of WIM, it could be just a matter of months given the wrecking ball of the last few days that has seen its flagship fund shut up shop.
“It is as if a financial earthquake has struck [Neil Woodford’s] business. And while Mr Woodford has come back from the proverbial dead before, it looks like a final curtain is about to come down on a career spanning more than 30 years.”
Sadly (and I mean that), I could not have been more right.
Mr Woodford is toast and finito, although not before depleting equity income of £8.7m in management fees – money taken after the fund was suspended.
He has wrecked many an investor’s retirement along the way, especially those who invested in equity income.
For some equity income investors, experts are talking of losses in the 60 to 70 per cent range – once the fund’s remaining assets have been disposed of.
All incredibly sad. I have received hundreds of letters and emails from impacted investors and some leave you in tears.
Will we learn from this sorry investment affair and make our retail investment industry fit for purpose?
I really do hope so, although I have seen precious little evidence so far to suggest that improvement is on its way.
Indeed, it seems that the industry would prefer to paint Mr Woodford as a ‘one off’ and just carry on with its business as if nothing has happened. If that is the case, it would be a crying shame.
For a start, fines and sanctions imposed on those intimately involved in the Woodford debacle are essential – on those who hyped Equity Income knowing its risk profile was changing for the worse, on those who were meant to ensure Mr Woodford was abiding by the rules, and of course on Mr Woodford himself.
Unless that all happens, investors caught up in the scandal will feel perpetually cheated – and the industry’s reputation will remain sullied.
Outside of Woodford, it is obvious that the investment funds industry should be subject to more rigorous rules.
I simply do not believe that unquoted businesses (unquoted assets) should now be allowed to be held in an open-ended investment vehicle. Unquoteds are for investment companies and investment trusts – listed on the UK stock market – to invest in. Full stop, end of matter.
I also believe the rules and disclosure requirements on illiquid holdings should be tightened.
I went to a presentation last week by Alex Wright, manager of Fidelity Special Situations and sister fund Special Values.
I was intrigued by a statistic included in the presentation that showed how quickly the fund’s portfolio (that of Special Situations) could be turned to cash in the case of a Woodford-like spike in redemptions.
It showed that nearly 20 per cent of the fund’s assets could be traded to cash within a day. In other words, the fund’s portfolio is healthily liquid.
Surely, such a statistic should be included in all monthly fund factsheets, thereby giving investors a sense of how easy or difficult it could be to exit?
Furthermore, it is time, surely, for fund groups to reassess the amount of an individual company they can own.
Fidelity limits it to 10 per cent across its funds, but some competitors such as Invesco have a higher limit of just below 30 per cent.
This can present all kinds of problems when the company’s market capitalisation is limited and the shares illiquid.
Offloading such positions – as Mr Woodford found out – can be extremely difficult.
Finally, investment funds should do what they say they aim to do on the proverbial tin.
If a fund labels itself as UK equity income, it should be investing in dividend-friendly UK companies, not in start-up businesses where dividends are furthest from directors’ minds.
One for the Investment Association, prodded by the regulator, to get its teeth into.
Jeff Prestridge is personal finance editor of The Mail on Sunday
