Welcome to the Morningstar series, "Market Reaction." I'm Holly Black. With me is Morningstar
analyst Peter Brunt. Hello. Hi, Holly.
: So, we've just found out this morning that Link has taken the decision to close the Woodford
Equity Income Fund. The fund suspended in June and had been slated to reopen once they
had changed its portfolio in December. That's now not going to happen. Is this a surprise?
: A little bit of a surprise. So, it was always a possibility. So, as you said, they'd given
December as a time when they were hoping to reopen the fund. Woodford Investment Management
has been trying to reposition the portfolio. They've obviously found that harder than what
they anticipated and Link Fund Solutions as the authorised corporate director have decided
that it's for the best interest of investors to take control of that situation.
: Because crucially, Link makes his decision as the sort of independent body and not Woodford
himself. : Correct. So, they have a fiduciary duty
to make sure that investors are best served, and they've decided that the best outcome
is by winding up the fund now. What does that mean for investors? Well, the process is that
the Woodford Investment Management will no longer be in control. They will no longer
be the investment manager of the fund. Link Fund Solutions has appointed Rock, the manager
for the listed part of the portfolio. The unquoted part of the portfolio and some of
the very illiquid listed equities will be managed by Park Hill. They've been involved
since the suspension and continue to be so. And they have to give a three month notice
period. So, it's most likely that investors will receive some of their money back in January
2020. From that point on, it will be as when they're able to sell those assets without
causing a fire sale. : One of the big controversies around this
is that Woodford has been continuing to charge a fee even while the fund has been suspended.
And they say that's because, you know, there's rent to pay, staff to pay. Is that still going
to be the case even when it winds out? : Yeah, it's a good point. And they've come
under a lot of criticism, rightfully so to some extent, for charging that full fee. Link
has announced that the full fee will still be charged up until the commencement of the
winding up, so January 2020. We're a little bit surprised by that, especially given that
Rock and Park Hill are only going to be selling the assets down. They're not trying to manage
the portfolio as Woodford was. They haven't given any concessions to that management fee.
Upon the first distribution Link have said that the management fee will no longer be
charged. However, there may be more costs involved for Rock and Park Hill to continue
to do their job. So, it's actually unclear on what costs will be incurred during that
period. : And something else people will be watching
closely is the Woodford Income Focus Fund and the Woodford Patient Capital Trust. I
mean, what's going to happen there? Are we going to see those wind up, too?
: So, another good question. There's a significant risk for the business right now. There's two
things that asset management firms rely on. One is fees. So, they haven't been taking
fees on the Investment Trust for quite some time because it hasn't been performing and
it only charges a performance fee. And they've just lost the income stream from the largest
asset pool that they had. So, the whole firm is now receiving far less revenue. That's
a big concern. And the other is trust. So, this whole episode has really brought about
concern and people have just lost confidence in Neil Woodford. And I think without those
two things, it makes it very difficult for an asset management company to operate. The
Focus Fund is somewhere between £200 million and £300 million right now. That is probably
enough assets to continue as a going concern, but whether investors will remain there, we
don't know yet. : And what does it mean for the industry as
a whole? This is a fairly unprecedented situation. : Yeah. I mean, it's massively unprecedented.
It's a £3 billion fund that's been wound up. It hasn't happened before. What does it
mean? It's underlining the importance between the making sure that there's a match between
the vehicle requirements and the underlying asset pool. So, that is something that we've
always looked at, but we're looking at more and more closely, and I think we're not alone
in that front, and it also underlines the importance of trust in the industry and making
sure that asset managers are fully transparent and give full disclosure where appropriate
on what they're doing. : Pete, thanks so much for your time.
: You're welcome. : And thanks for joining us.