Woodford investors FINALLY set to receive share of £235m redress

Link Fund Solutions has agreed to pay up to £235m to investors who lost money following the collapse of Neil Woodford’s £3.8bn Equity Income Fund.

The story covers the losses of more than 300,000 WEIF investors due to LFS’s failure in its role as overseer of the fund’s liquidity, the Financial Conduct Authority said in a statement late Wednesday.

The recovery figure is lower than estimates of total losses incurred by WEIF investors, who will receive just 77 pence for every pound lost.

The deal is subject to the competitive sale of LFS, the fund’s authorized corporate director and manager, to rival firm Waystone Group.

The offset agreement is also subject to the approval of the affected investors and the court of an arrangement to resolve all of LFS’s obligations under the WEIF arrangement.

If the WEIF scheme is not approved, Link Group has said it will not pay the recourse fee.

This would mean that any recourse would depend on the outcome of a disputed case between the FCA and LFS, and would be limited to LFS’s net assets, less litigation and any other costs.

About 1,417 days have passed since the suspension of the WEIF, which left thousands of investors in the lurch on compensation.

The FCA originally calculated losses from liquidity management failures for the remaining investors to be approximately £306 million, which is significantly greater than LFS’s remaining assets.

The sale of Link Group’s Fund Solutions business will generate up to approximately £140m in sales proceeds.

The FCA said today: ‘The up to £235 million of recourse includes LFS’s assets (cash, capital resources and potential insurance proceeds), plus the proceeds from the sale of Link Group’s Fund Solutions business.’

It added that LFS had a net balance of cash and capital resources of approximately £47m. It also has relevant insurance cover of around £48 million and discussions with its insurers are ongoing, the FCA said.

The FCA has previously said it believed the correct fee amount was close to £298 million.

But the regulator said on Thursday: ‘While the redress offered in the proposed Fund Investor Scheme will not provide the full compensation amount of £298m, the FCA believes it is in the investor’s interest to be given the opportunity to Scheme to consider. .

“If the proposed £235 million recovery fee is paid in full, investors will have recovered about 77 pence in the pound.

‘A total of £2.56bn has already been paid to investors since the Fund’s suspension from distributing proceeds from the sale of investments.’

Therese Chambers, Executive Director of Enforcement and Market Oversight at the FCA, said: “The FCA’s investigation has raised serious concerns about Link Fund Solutions’ management of the liquidity of the Woodford Equity Income Fund.

LFS’s actions appear to have caused significant losses to those investors who remained in the fund when it was suspended. We believe that the proposed Scheme offers investors the best opportunity to achieve a better result than could be achieved by any other means and it is in the interest of investors that they be given the opportunity to consider it.”

An investigation is underway into other parties in connection with the circumstances leading up to the suspension of the Woodford’s fund.

These investigations are continuing and they will consider any further shortcomings that may have negatively impacted investors, the FCA said.

Woodford invested in risky early stage and unlisted stocks and built up exposure to “illiquid” assets that exceeded regulatory and industry standards.

When investors panicked and raised money, the fund couldn’t sell them fast enough to pay back the money, and was forced to suspend withdrawals completely before finally collapsing.

When Link realized the magnitude of the problem, it closed the fund, sold the shares and returned the money to investors.

But several sales have been at a low price, and some savers have lost huge sums after the fund was frozen in 2019.

Ryan Hughes, head of investment partnerships at AJ Bell, said: “Approximately 1,417 days have passed since the suspension of the Woodford Equity Income fund and today’s announcement by the FCA regarding financial indemnification following the failure of the fund manager, Link Fund Solutions. will be a great relief to the thousands of investors who have waited patiently for some form of compensation.”

He added: ‘The magnitude of the financial recovery is clear given that it is effectively wiping out the UK Fund Solutions business.

With a number of distributions to investors over the past 3 years, the recovery payment should bring the recovery level to about 77 percent of the fund’s value at suspension, with a very small balance left in the few remaining privately held companies that have yet to be sold. become.

While approval of this recourse settlement with Link would close the case and liabilities against them, the FCA points out that this remains a live investigation with other parties still under investigation.

As a result, the Woodford drama will last longer than four years, but many investors will no doubt be pleased that significant progress now appears to have been made. While it will take some time for this recovery process to be completed and payments made, investors are one step closer to finally being able to end this whole sorry episode.”