Investors left in the lurch by the collapse of Neil Woodford’s flagship fund are set to receive compensation totalling up to £230m from April after a judge’s ruling yesterday.
It comes nearly five years after 300,000 savers saw £3.7billion of their cash trapped in the Woodford Equity Income Fund when it was shut down by supervisor Link Fund Solutions in June 2019.
They have already received £2.56billion back from their investments and the additional sum covers claims against Link.
The compensation scheme was backed by 94 per cent of investors but some groups representing those affected argued that the settlement was inadequate.
Tory MP Bob Blackman, chairman of the all-party parliamentary group (APPG) for fairer financial services, said it was ‘disastrous for Woodford investors’.
Lawyers arguing against the settlement said investors might have done better if they had been allowed instead to access an industry-backed compensation scheme. But that was rejected by the judge, Mr Justice Richards.
One campaign group, Transparency Task Force, said it was considering an appeal.
That could hold up the start of compensation payments, with between £183.5m and £200m due to start being distributed from April out of a total pot of £230m.
The rest of the money has been set aside to cover ‘certain cost contingencies’ – which have not been specified – and may be released to investors later.
Meanwhile, the Financial Conduct Authority (FCA) watchdog – which is still investigating unspecified ‘other parties’ over the episode – was accused of a ‘failure in regulation’.
The saga began after savers entrusted their money to Woodford, a star fund manager who made his name at Invesco before setting up on his own in 2014.
Feted in the City, he was once described by the BBC as ‘the man who can’t stop making money’. But it went wrong after Woodford decided to invest in small, unlisted growth companies. After they started to underperform, there was a rush to the exit and the flagship fund was suspended by Link in June 2019, leaving those who still had money in there stranded. Four months later, Link decided to wind up the fund.
A probe by the FCA concluded that Link made ‘critical mistakes and errors’ in managing the fund’s liquidity – that is, the ability to turn its holdings into cash.
Investors who started to pull out their money from the autumn of 2018 benefited disproportionately as the more liquid assets held by the funds were sold.
The FCA ruled that this was unfair to the remaining investors as the assets left in the fund were increasingly illiquid or harder to turn into cash. It judged that Link should pay £298m to compensate them but later reached a compromise agreement on a sum of £230m, 77 per cent of the amount proposed by the regulator. In agreeing to the settlement, those owed money lose the right to make any further claim against Link.
APPG member Baroness Bowles criticised the FCA for not intervening to protect investors earlier. She said that the settlement was intended ‘to prevent further scrutiny’. An FCA spokesman said: ‘We are pleased that the court has decided to approve the scheme. The small minority who objected have now had their representations fully considered by a judge, who did not agree.’