The UK Financial Conduct Authority (FCA) has levied substantial fines amounting to approximately £46 million against both a prominent fund manager and their associated investment firm due to significant shortcomings in the management of the Woodford Equity Income Fund (WEIF).
The FCA has fined the manager nearly £5.9 million and prohibited them from fulfilling senior managerial roles and overseeing funds for retail investors in the future. Moreover, the investment management company faces a hefty penalty of £40 million.
Management of the WEIF fell under the responsibility of the fined individual and the investment firm, crucially ensuring there was sufficient liquidity for investors to redeem their shares and secure repayments. Unfortunately, the fund was suspended in June 2019, which left many investors, primarily retail customers, unable to access their investments. At its peak, the fund’s value exceeded £10.1 billion in May 2017; however, it plummeted to around £3.6 billion just before the suspension.
An FCA review revealed that between July 2018 and June 2019, the investment firm and its manager executed decisions that were both unreasonable and inappropriate. These decisions involved disproportionately liquidating more easily sellable investments while acquiring less liquid assets. Consequently, when the fund was suspended, a mere 8% of the investments in WEIF were sellable within seven days, while regulations at that time stipulated that investors should be able to access their funds within four days.
The management team failed to respond appropriately to the fund’s diminishing value, worsening liquidity, and the subsequent withdrawal of investors’ capital. This mismanagement ultimately disadvantaged those who remained invested in the fund compared to those who had withdrawn their investments prior to the suspension.
The FCA determined that the fined manager exhibited a flawed and excessively narrow interpretation of their responsibilities. Despite their senior role, they demonstrated a lack of understanding regarding their duty to oversee the fund’s liquidity management, as evidenced in interviews conducted by the FCA. Furthermore, the manager did not adequately supervise the firm’s interactions with Link Fund Solutions, the fund’s authorized corporate director, even after concerns were raised about the liquidity challenges facing the fund.
The regulator concluded that the failings on the part of both the manager and the investment firm significantly heightened the risk of fund suspension.
Prior investigations had also scrutinized Link Fund Solutions for its part in the suspension process, which resulted in a £230 million redress scheme aimed at compensating investors who found themselves stranded in the fund when it was frozen.