Neil Woodford, the discredited asset manager, has defended his Guernsey listings tactic and his controversial asset swap gambit which raised eyebrows in the months leading up to the collapse of his £17 billion empire.
The fund manager, who is fighting a regulatory finding of failings in running the main Woodford Equity Income fund, responded for the first time to public questioning on some of the questionable stratagems he adopted to try to save his empire as clients defected in droves in 2019.
Woodford was asked about his role in pressuring companies in his portfolio to seek listings on an obscure Guernsey stock exchange as a way of getting round liquidity rules, in a Money Maze podcast. The manoeuvre prompted Andrew Bailey, then chief executive of the Financial Conduct Authority and now governor of the Bank of England, to later observe that Woodford was “sailing close to the wind” in evidence to MPs.
Woodford was asked by his podcast interviewer Simon Brewer, a former senior Morgan Stanley executive who described himself as a friend, whether this was breaching the spirit of the liquidity rules.
“This wasn’t Woodford’s decision,” Woodford replied. “The companies made the decision to list in the Channel Islands. This is another myth.”
He added: “We didn’t do anything until we were told ‘Yes, you can do this’ by our depositary [Northern Trust], by Link [Link Fund Solutions, the administrator and authorised corporate director] and by our external legal opinion counsel.”
He accepted he had told the portfolio companies, including the biotech firm BenevolentAI: “We cannot continue to support you [in future funding rounds] if you don’t list.” But the actual decisions were up to them, he insisted.
The listings helped Woodford’s main fund, Equity Income, stay below the maximum 10 per cent ceiling it was allowed to hold in illiquid unlisted assets, although in practice they made no difference to actual liquidity because the shares were rarely if ever traded.
As Bailey said after the Woodford collapse: “Listing something on an exchange where trading doesn’t happen, as far as I can see, doesn’t actually count as liquidity.”
Woodford was found guilty of failing to act with due skill, care and diligence in a provisional finding by the Financial Conduct Authority last year. It ruled that he had “a defective and unreasonably narrow understanding of his responsibilities”.
He has denied any wrongdoing and is challenging the finding. He has argued that the fault lay with Link, which first froze his fund and then wound it up. He said he was still unable to provide “the unvarnished truth” because of legal obstacles.
Woodford was also challenged in the podcast on an unusual deal in the run-up to the collapse when the listed closed-ended vehicle Patient Capital, which he managed but had an independent board, bought £73 million of unlisted assets from Equity Income in exchange for liquid Patient Capital shares.
This had the effect of easing Equity Income’s illiquidity problem while landing Patient Capital with what turned out to be very poorly performing assets. Patient Capital struggles on to this day, now renamed Schroders Capital Global Innovation Trust and managed by Schroders, but investors have lost 89 per cent of their money, more than Equity Income fund-holders. The trust is now being wound down.
Woodford said that at the time he was “up against the outflows” in Equity Income and he proposed the transaction to the Patient Capital board and they agreed to it. He accepted he had invited entrepreneurial people familiar with growth companies “rather than investment trust experts” to sit on the Patient Capital board.
“There were some grown-ups on that board, lots of grown-ups who were perfectly capable of saying, ‘No, we don’t like this’. But they approved the transaction, their lawyers approved the transaction, Link approved it, Link’s lawyers approved it. So we did it.”
None of the Patient Capital board, led by Susan Searle at the time, has ever been publicly questioned on the matter.
In the podcast, Woodford said his “entire” personal pension scheme had been invested in Patient Capital.
More than 300,000 investors in Woodford-managed vehicles are estimated to have lost well over £1.5 billion in the scandal. Before the collapse Woodford and his co-founder took out £98 million from the main investment house Woodford Fund Management in dividends. Link was found guilty of failings and its subsequent sale raised £230 million towards compensating Equity Income investors.
