Savers who lost out when Neil Woodford’s flagship investment fund collapsed four years ago are finally being offered up to £235million in compensation – but face a further wait before they receive the cash.
More than 300,000 investors had around £3.7billion trapped in the Woodford Equity Income fund when it was shuttered by supervisor Link Fund Solutions (LFS) in June 2019.
Now, LFS parent company Link has agreed with the Financial Conduct Authority (FCA) to compensate those who lost out, partly funded by the pending sale of LFS and other assets.
That adds to the £2.56billion already recovered from the sale of the investments in the fund, meaning investors are on course to recover 77p in the pound, the FCA said.
More than 300,000 investors had around £3.7bn trapped in the Woodford Equity Income fund when it was shuttered by supervisor Link Fund Solutions in June 2019
It comes 1,419 days since the fund was suspended by LFS amid an exodus of investors. It was subsequently wound down.
But investors still have to vote on the compensation proposal, which will not happen until after 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 lump of illiquid investments made by Woodford – meaning that they were hard to turn quickly into cash.
When investors started pulling out 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, because they were left with a disproportionate share of the remaining, more illiquid assets, the FCA found.
It concluded that LFS ‘made critical mistakes and errors in managing the fund’s liquidity, which meant the fund failed to have a reasonable and appropriate liquidity profile from September 2018’.
Therese Chambers, executive director of enforcement and market oversight at the FCA, said: ‘LFS’s actions appear to have caused significant losses for those investors who remained in the fund when it was suspended.’
The watchdog calculated investors should be entitled to receive £298million in compensation.
However, Chambers added that the £235million offer was ‘the best chance to obtain a better outcome than might be achieved by any other means’.
That is because the sum already includes all of LFS’s funds as well as additional contributions from the sale of Australia-based Link’s assets to Irish firm Waystone.
The FCA also said it would not enforce a £50million fine against LFS if the scheme is approved.
If it is not approved, the watchdog would have to pursue a contested case against Link, meaning any compensation would be limited to the remaining assets of LFS, less legal and other costs.
Ryan Hughes, head of investment partnerships at AJ Bell, said the announcement ‘will come as significant relief for the thousands of investors who have been very patiently waiting for some form of compensation’.
Hughes noted there were still ‘further hurdles to overcome’ including Link’s sale to Waystone – expected to complete by October – and investor approval.
But he added: ‘It would be a surprise if Woodford investors didn’t approve the deal given how long this has dragged on for.
‘While it will take some time for this redress process to complete and for payments to be made, investors are one step closer to being able to finally put this whole sorry episode to bed.’
Law firm Leigh Day is representing more than 13,000 investors in a claim against Link.
Meriel Hodgson-Teall, a partner at the firm, said: ‘We are urgently considering this latest announcement from Link.’
This post first appeared on Dailymail.co.uk
