Words: Tom Ward
There was a time when Neil Woodford, 60, was regarded as Britain’s best fund manager. It might seem hard to believe now, but during his 25-year tenure at Invesco, Woodford rode out the pitfalls of both the 1990s dot-com bubble and 2008’s devastating financial crash, emerging relatively unscathed at times when the world of finance was being turned on its head.
With a (then) reputation as a long-term investor who took a hands-on approach to his interests, Woodford was known to hold shares for around 15 years. Clearly, he was a man in it for the long-game, a man who cared not just about protecting his end, but your profit, too.
Headlines at the time called him ‘Invesco’s Perpetual Kingmaker’ while a recent Telegraph piece recalled that at his height, Woodford seemed to possess ‘the magic touch’.
But, it would be Woodford’s next endeavour that would receive the most headlines. Founded in 2014, Woodford Equity Income quickly grew into a multi-billion pound fund – until Woodford came under suspicion of deflating the fund’s coffers by withdrawing an estimated £50 million as dividends between 2017 and 2019.
An FCA investigation was launched, followed by Woodford’s removal as investment manager, and the eventual closure of the company.
The resulting fallout saw Woodford regarded as a financial pariah and reportedly forced him to sell his £30m estate in the Cotswolds.
A little over 16 months later, Woodford is making headlines once again. This time by announcing he will return to the fray as head of a new investment firm based in Jersey. Naturally the news has not been met with universal enthusiasm.
“How CAN this clown return as a fund boss?” Jeff Prestridge quotes a reader as enquiring in a piece for thisismoney.co.uk. “Certainly, judging by the contents of my mailbag over the last few days, there is little love left for the investment manager who turned a traditional equity income fund into one horribly exposed to risky unlisted securities and illiquid stocks,” writes Prestridge, calling Woodford “A wolf in sheep’s clothing”.
So, after emerging as one of the brightest starts in British finance, where did it all go wrong?
Woodford was described as “A farmer in his spare time with a degree from Exeter in agricultural economics”...
Born in Berkshire in 1960, Neil Russell Woodford graduated in Economics and Agricultural Economics from the University of Exeter before joining the Reed Pension Fund and TSB, going on to join Invesco Perpetual in 1988.
It was here, as head of the Invesco Perpetual Income, and Invesco Perpetual High Income funds that Woodford made his name. In charge of assets of £10.36 billion and £13.64 billion respectively, Woodford was called ‘the City’s kingmaker’.
Back then, Woodford’s funds were the largest shareholders in 30 of the companies in the FTSE 250. Built mostly from £50-a-month savers and £5,000 Isa deposits, Woodford’s funds demonstrated his considerable financial savvy, while the fact he was not an Oxbridge graduate and worked out of a business park in Henley-on-Thames rather that the city meant he was feted as finances’ rogue outsider.
A 2012 Guardian profile describes him as “A farmer in his spare time with a degree from Exeter in agricultural economics”, while noting that “As global stock markets were swept up in the technology, media and telecoms exuberance, Woodford stood back. He refused to buy “new economy” stocks and by early 2000 his one-year performance was the worst in the market.”
At his peak, Woodford was an admired investment commentator
But, as the FTSE collapsed between 2000 and 2003, Woodford was almost alone in having his funds go up, thanks to savvy investments in an underlined sector: tobacco. “No tobacco company deal in Britain can now be struck without Woodford’s approval,” the article states.
Speaking to Patrick Collinson and Jill Treanor, the article’s authors, Woodford is quoted as saying
“I’m very conscious of my responsibility…I am just doing my job. My job is to represent the people who have trusted with me their money.”
Buoyed by this success, Woodford struck out on his own establishing Woodford Investment Management LLP (WIM) in 2014, and the Woodford Patient Capital Trust in 2015 and the equity income fund LF Woodford Income Focus in 2017.
It seemed as if nothing could go wrong, yet, after two years of dire performance in which fund assets shrank by over £5 billion, it seemed Woodford may have become less conscious of his responsibility to the people who had trusted him with their money.
In his thismoney.co.uk article, Jeff Prestridge accuses Woodford of channelling his excess dividends into fast cars and horses. (He and his wife are said to be avid riders).
What is clear is that following a Sunday Times investigation into Woodford Equity Income, it was found that the fund held less than 20 percent of assets in FTSE 100 companies, compared to the 50 plus percent it had held just a few years earlier.
Shortly afterwards trading in the Woodford Equity Income fund was suspended following a large withdrawal of funds by investors, forcing Woodford into a desperate sell-off that only rocked belief in his funds further.
“Star fund manager Neil Woodford has sent shockwaves through the stock market by dumping an estimated £1.4bn of shares in the past six months, scrambling to raise cash as unhappy investors withdraw money from his funds,” Sabah Meddings wrote in the Telegraph at the time.
Then, the hammer came down at Woodford was dismissed from his flagship fund and announced his decision to quit his two remaining funds, calling it a “highly painful decision”.
“I personally deeply regret the impact events have had on individuals who placed their faith in Woodford Investment Management and invested in our funds,” Woodford said in a statement.
With such a storied career, the question remains: what has changed, and why should investors now put their faith in Woodford’s new fund?
"I personally deeply regret the impact events have had on individuals who placed their faith in us..."
Announcing his plans for new investment management firm, Woodford Capital Management Partners (WCM) in the Sunday Telegraph on the 14th of February 2021, Woodford expressed that he felt hurt at criticism of his role in Woodford Investment Management LLP.
One person who is standing by him is his former chief exec Craig Newman, who now joins Woodford in the new Jersey-based business. (“Neil Woodford’s ‘no monkey’ says new partner Clifford Press,” ran one Telegraph headline.)
Aiming to serve institutional and high-net-worth professional investors as opposed to WIM’s retail clients, the company has already bagged its first client in the form of US-listed Acacia Research which WCM will advise on a number of life sciences companies previously owned by the Woodford Equity Income fund.
Of course, many aren’t happy to see Woodford’s return. “It’s rubbing salt on the wounds of the thousands of investors who lost their money by investing in his ill-fated funds,” former WIM investor Vishal Agarwal told the BBC.
A small obstacle to WCM’s future is the fact that before he can start rebuilding his empire (and reputation), Woodford requires the Financial Conduct Authority (FCA)’s permission to form a new business in the UK, as the FCA itself reminded Woodford in a public, after-hours statement following the announcement of WCM. This is a highly unusual step for the FCA to take, indicating that Woodford is at the forefront of its mind.
“In taking any decision on whether to authorise a firm, we consider whether it is ready, willing and organised to comply, on a continuing basis, with our requirements and standards. That includes, for example, the sustainability of the firm’s business model and the fitness of its management,” Mark Steward, the FCA’s director of enforcement and market oversight said.
With approval pending, as well as an ongoing FCA investigation into WIM’s collapse, a number of pending court cases and class actions, and a continued investor backlash, just how many clients WCM will be able to attract remains to be seen.
Tied in to the funds success is Woodford’s own chance of redemption. With his apology to former investors mostly met with derision, it seems he may still have a long way to go.
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