Investors affected by the collapse of Neil Woodford’s investment empire are set to receive compensation amounting to 77p for every pound lost. This deal represents a step towards resolving one of the UK’s most significant investment scandals. The Financial Conduct Authority (FCA) has confirmed that over 300,000 investors who had invested in Woodford’s flagship Equity Income Fund will be offered £235 million in redress payments.
It has been more than three years since several popular investment funds, containing substantial savings from investors, were forced to close due to losses incurred from investments in unlisted companies. Following their investigation, the FCA found that Link Fund Solutions (LFS), the administrator of Woodford Investment Management, had failed to adequately manage the liquidity of the income fund. As a result, LFS will be responsible for making the redress payments, with support from the parent company, Link Group.
The anticipated sale of the fund solutions business to Waystone Group, an Australian investment company, is expected to contribute up to £140 million towards the payout. The remaining amount will be funded by LFS’s cash, capital, and insurance cover. The FCA has publicly stated that it has no concerns over Link Group’s involvement in the Woodford scandal and considers their payment to be voluntary.
However, the £235 million payout offer falls considerably short of the total amount owed to the affected investors. The FCA estimates that investors are owed £298 million, meaning they will receive only 77p for each pound lost. Unsurprisingly, this settlement offer has been met with criticism. Law firm Harcus Parker, which represents Woodford investors, has characterized the proposal as a “bad deal.” They will continue to fight for full compensation on behalf of their clients.
LFS, as the authorized corporate director of the Woodford Equity Income fund, was responsible for monitoring and holding the fund manager accountable. The FCA has expressed concerns over LFS’s failure to fulfill these responsibilities with due skill and diligence. Their mismanagement of the fund’s liquidity resulted in significant losses for hundreds of thousands of investors.
Since the suspension of the flagship fund in June 2019, over £2.5 billion has been paid to investors as the investments were sold. Following the suspension, Mr. Woodford, who had previously been acclaimed for his success as a fund manager at Invesco Perpetual, resigned from his other funds and closed his investment company.
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