Woodford fund administrator Link faces potential £306 million fine

The Financial Conduct Authority says the fine does not reflect the amount that affected investors would receive. 

The Financial Conduct Authority (FCA) has said that it is “likely” to fine fund administration firm Link Fund Solutions up to £306 million for its role in the downfall of Neil Woodford’s Equity Income fund, which was closed in 2019 after it could not keep up with investor requests to take their money out.

However, if this fine was paid by Link, it would not necessarily go into the hands of investors who were trapped in the fund and then saw the value of their holding decline due to asset write-downs and forced sales.

The FCA said: “This redress proposal reflects the FCA's current view of Link Fund Solution’s failings in managing the liquidity of the Woodford Equity Income fund. It does not reflect any amount which may be owed to anyone else, including members of the fund, as a result of potential wrongdoing by other parties.”

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The watchdog adds that it is “likely to seek to require Link to pay a financial penalty and/or consumer redress”, but this was not its final decision and any proposed action could be challenged by Link.

The statement comes as a result of a takeover bid for Link by Dye and Durham, a Canadian financial software company.

The FCA, which regulates Link, has approved the takeover, but only on the condition that it puts aside £306 million as a potential fine.

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The watchdog did not say what action it would take to compensate consumers who lost money due to the actions of Link, or other parties involved in the rise and fall of Woodford’s fund group.

It said: “The FCA understands that investors will be keen to understand the impact that this may have on them, including any potential to receive redress, and will provide an update as soon as it is able to do so.”

Its latest update was in December 2021 when it said that it had gathered “all key evidence” and the investigation “remained a priority”, but it did not give an indication of exact timelines or the result of its investigation.

It adds: “The FCA is continuing to investigate matters relevant to the operation of the fund. FCA-determined redress is based on misconduct rather than losses caused by fluctuations in the market value or price of investments.”

Link has said it will challenge the FCA. It commented: “As stated in the FCA announcement, this is not a final decision. Link Fund Solutions will explore all options, including challenging any warning notice that may be issued at the Regulatory Decisions Committee and further through the Upper Tribunal, as Link Fund Solutions does not agree with the FCA's view.”

The background

For more than 25 years at his previous employer Invesco, Neil Woodford gained a strong reputation for consistently beating the UK stock market and rival fund managers. In 2014, having left Invesco, he set up his own fund management business, Woodford Investment Management.

Many investors followed Woodford to his own fund shop and the Woodford Equity Income fund grew to around £10 billion at its peak in 2017.

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However, Woodford’s performance turned sour. A series of bad stock selections led the fund to underperform and caused many investors to get itchy feet. The fund shrank to around £3 billion in size prior to its suspension. 

On 3 June 2019, shockwaves rippled through the fund management industry as Britain’s most prominent fund manager barred investors from accessing their cash.

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, Link Fund Solutions stepped in and fired Woodford.

As a result, the fund was wound up and investor money was set to be returned to investors.

Link Fund Solutions appointed BlackRock and Park Hill to help sell the remainder of the assets, with the proceeds given to investors in the fund over a series of payouts. The completion of the winding up of the fund may roll on until 2023 because the final private stocks are proving difficult to sell.