Woodford victims set for £235m payday nearly four years after fund collapse

Savers who were lost when Neil Woodford’s flagship investment fund collapsed four years ago are finally being offered compensation of up to £235 million, but they’ll have to wait a while before they receive the money.

More than 300,000 investors had approximately £3.7bn tied up in the Woodford Equity Income fund when it was closed by regulator Link Fund Solutions (LFS) in June 2019.

Now LFS parent company Link has reached an agreement with the Financial Conduct Authority (FCA) to compensate those who lost, funded in part by the upcoming sale of LFS and other assets.

That comes on top of the £2.56 billion already recovered from the sale of the fund’s investments, meaning investors are on track to recover 77p in the pound, the FCA said.

It’s been 1,419 days since the fund was suspended by LFS amid an investor exodus. It was subsequently phased out.

But investors have yet to vote on the compensation proposal, which will not happen until full documentation is published in the fourth quarter of this year.

And lawyers representing thousands of investors are considering their next move.

At the heart of the collapse was a bunch of illiquid investments from Woodford, meaning they were difficult to turn into cash quickly.

As investors began to withdraw their money, it was the more liquid investments that were sold first to fund the withdrawals.

But that was unfair to those who kept their money invested, as they were left with a disproportionate share of the remaining, more illiquid assets, the FCA found.

It concluded that LFS “made critical errors and mistakes in the management of the fund’s liquidity, which prevented the fund from having a reasonable and appropriate liquidity profile as of September 2018.”

Therese Chambers, executive director of enforcement and market oversight at the FCA, said: “LFS’s actions appear to have caused significant losses to those investors who remained in the fund when it was suspended.”

Investors calculated by the watchdog should be entitled to £298 million in compensation.

However, Chambers added that the £235 million offer was ‘the best chance of getting a better result than could be achieved by any other means’.

That’s because the amount already includes all of LFS’s funds, as well as additional contributions from the sale of Link’s assets in Australia to Irish company Waystone.

The FCA also said it would not impose a £50m fine on LFS if the scheme is approved.

If not approved, the watchdog would have to file a disputed case against Link, meaning any compensation would be limited to LFS’s remaining assets, less legal and other costs.

Ryan Hughes, head of investment partnerships at AJ Bell, said the announcement “will come as a great relief to the thousands of investors who have been patiently waiting for some form of compensation.”

Hughes noted that there were “further hurdles to overcome,” including the sale of Link to Waystone – expected to be completed by October – and investor approval.

But he added: “It would be a surprise if Woodford investors don’t approve the deal given how long this has been dragging on.

“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.”

Law firm Leigh Day is representing more than 13,000 investors in a claim against Link.

Meriel Hodgson-Teall, a partner at the company, said: “We are urgently considering this latest announcement from Link.”