Neil Woodford investors to receive third payment, but losses unclear

Woodford Equity Income investors to receive a third payout from the collapsed fund, but the scale of losses are at this stage unclear. 

Investors in the stricken Woodford Equity Income fund have been informed that they will receive a third payment.

But, at this stage, it is unclear how much money investors will receive and indeed what the size of losses will be. In addition, the timing of the payment has not been spelled out.

In a letter, penned by the fund’s authorised corporate director Link Fund Solutions, investors were informed that Woodford Equity Income has around £58 million in cash to return to investors and that further share sales will be made over the next three weeks.

Investors will receive further letters, the first, which will be sent “on or around” 19 August, will detail the total amount of money that will be returned to investors in the third payment. In another letter, to be sent on or around 21 August, investors will be informed how much they are entitled to and when the payment will be made.

Following the third payment, Link notes that “further capital distributions will be made as and when suitable amounts of cash have been received”. 

In June, a deal was struck to sell 19 of the fund’s healthcare assets (both listed and unlisted businesses) in return for up to £223.9 million. The shares will be sold over the next six months.

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How much money has been returned to investors?

Investors have so far received more than 75% of the assets from payouts made in January and March 2020.

The first payment to investors, which was made at the end of January, was £2.1 billion, which is equivalent to around three-quarters of the fund’s assets.

Investors were, and will continue to be, paid an amount that is based on the number of units or shares they hold. In the first payment, investors received between 46p and 58p per unit, depending on the share class. These figures were significantly below both the initial unit price of the fund at launch (100p) and the current unit price (around 76p per share, depending on the share class).

In March, another payment was made, with investors receiving 3.1p to 3.9p per share, depending on the share class. This second sell-off raised £143 million.

Currently, around £500 million of assets remain in the fund. 

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The background

More than a year ago in June 2019, the suspension of the LF Woodford Equity Income fund was described as a temporary move in order to give fund manager Neil Woodford “time and space” to raise cash to meet investor redemptions, which had risen to high levels following a period of poor performance.

Ordinarily, equity fund managers would sell down their holdings, but the issue that exacerbated the problem for Woodford was a large weighting to illiquid investments in the form of unquoted shares, which are not easy to trade quickly.

In the months that followed, Woodford attempted to move the fund away from these illiquid holdings, but two months prior to its scheduled re-opening in December 2019, the fund administrator Link Funds Solutions stepped in and fired Woodford.

As a result, the fund was wound up and investor money (with a haircut of around 30% to 40%) was set to be returned to investors.

Link Funds Solutions appointed BlackRock and Park Hill to help sell the remainder of the assets, with the proceeds given to investors in a series of payouts.