The manager of the failed fund run by former star stock picker Neil Woodford has agreed to pay up to £235m to help regulators compensate more than 300,000 clients who lost their savings after its collapse.
The tentative deal, which will mean investors will recoup roughly 77 pence per pound, follows an investigation by the Financial Conduct Authority.
The FCA found that the manager, Link Fund Solutions, had made “critical errors and mistakes” in running Woodford’s equity investment fund, particularly in ensuring it could easily pay out clients who might want to withdraw their investments.
Link was responsible for monitoring and supervising the investments executed by Woodford before the fund went bankrupt in October 2019.
While the FCA originally ordered Link to pay up to £306m, the collapse of a takeover bid by Canadian cloud-based software company Dye & Durham in September thwarted efforts to recoup that full amount.
However, a new deal was struck with Dublin-based asset management service provider Waystone Group, which agreed to buy Link’s UK and Irish operations. Proceeds from that sale will help fund the £235m allocated to Woodford’s compensation plan.
The compensation deal still needs to be approved by Woodford investors, who have so far raised £2.56bn from the sale of the fund’s investments, as well as by a UK court.
Woodford’s equity fund was worth more than £10bn at its peak but was hit by several underperforming investments in companies including estate agent Purplebricks, finance firm Burford Capital and doorstep lender Provident Financial .
That series of bad bets, combined with Woodford’s decision to put money into a series of unlisted private companies that were harder to sell, led to the fund’s suspension and eventual collapse in 2019. Since then, the manager liquidated the fund and paid many investors back at a heavy loss.
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“The FCA’s investigation raised serious concerns about Link Fund Solutions’ management of Woodford’s equity fund liquidity,” said the FCA’s director of compliance and market supervision, Therese Chambers.
“LFS shares appear to have caused significant losses to investors who remained in the fund when it was discontinued. We believe that the proposed scheme offers investors the best chance of obtaining 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.”
