The Woodford flagship fund will be wound up

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Almost five months after Neil Woodford’s Equity Income Fund was frozen it is going to be wound up – and some investors aren’t happy about it. Find out why the Woodford fund is being wound up.

The background

In case you haven’t been following this story closely, here’s some context. Neil Woodford was a ‘star’ fund manager at an asset management firm called Invesco Perpetual. His biggest fund was an equity income fund – one that invests in shares of companies that pay a dividend (or share of their profits).

He left Invesco Perpetual six years ago (almost to the day) to set up his own fund management firm. At his firm, Woodford Investment Management, he launched four funds. The biggest, by a long way, is the Woodford Equity Income Fund.

The problem

The fund initially performed well, comfortably beating the FTSE All-Share index. But in 2016 and 2017, it produced almost no return at all. Now, investing is for the long term and some funds will have periods of no or very little return. That doesn’t necessarily mean it’s time to switch.

However, some investors also noticed that the make up of the fund had changed – namely, it had invested quite heavily in smaller companies that weren’t making a profit and weren’t paying a dividend. For example, Purplebricks, the online estate agent, was its seventh biggest investment at the end of 2017, but it wasn’t profitable at the time.

Unquoted shares

Another problem that Neil Woodford had invested a portion of the fund in unquoted shares. These are shares that aren’t traded on a stock exchange. When large numbers of investors started withdrawing their money from the Woodford Equity Income fund, Neil Woodford couldn’t sell his unquoted shares to repay the investors.

Instead, he had to sell the shares in bigger companies (ones that were quoted on the stock exchange). The more of these shares he sold, the higher ratio of unquoted to quoted shares in his fund. The regulator, the Financial Conduct Authority, places limits on how much an investment fund can invest in unquoted shares, to make sure that these funds aren’t too risky.

Fund frozen in June

On June 3rd, the Woodford Equity Income Fund was frozen. This decision was taken by Neil Woodford who says he was acting ‘protect investors’. What this meant was that by stopping anyone else from taking their money out, it was – hopefully – going to give him time to stabilise the fund. At the time, Neil Woodford was heavily criticised for continuing to levy charges on this fund – but it’s a decision he stuck by.

The last we heard was that the fund would remain frozen until December 2019.

What the fund winding up means for investors

Yesterday, Link Fund Solutions, which is authorised corporate director of the fund, said that the fund would be wound up. Neil Woodford is also no longer the manager of the fund – instead, BlackRock have been appointed as interim manager. Neil Woodford makes it plain on the Woodford website that he isn’t happy about the decision to close the fund – and he’s also announced that he’s going to close his other funds. This means the Woodford Funds business itself (and not just the equity income fund) will close down. You can read his statement here (and if you want to know what some investors think, there are plenty of comments at the end of the article).

SAVVY TIP: An ‘authorised corporate director’ is responsible for sorting out the legal and accounting side of running an investment fund. It means that the fund manager(s) can focus on the investment side of things, rather than doing all the administration.

Winding up the fund means that investors’ holdings in it will be cashed out. This could mean that some investors see a fairly hefty loss on their investment. What some of them are – understandably – angry about, is that they weren’t consulted about this.

What happens next?

The equity income fund can’t be wound up without FCA approval. If the FCA agrees to this, the winding up would probably happen in mid January. It looks likely (very likely) that the FCA will give its approval – not least because it has published a statement about the winding up explaining why it thinks this is in investors’ interests.

The equity income fund has been divided into two parts:

  • Portfolio A: This is all the shares that were traded on different stock exchanges. These are the shares that are easy to sell.
  • Portfolio B: This is all the shares that were not traded on stock exchanges.

The idea is that BlackRock will start selling shares in Portfolio A so that investors’ money can start to be returned to them.

How much money will you get back?

Firstly, your money will be paid back by whoever you bought the fund through. So, if you invested through a platform (fund supermarket), they’ll return your money to you. If you invested directly, you’ll get the money back through Link Fund Solutions.

The amount you get back will depend on how much BlackRock can sell the assets in the fund for – and what charges are taken out. You may get back a lot less than you originally invested.


The FCA has said that costs for winding up the fund will be higher than the charges levied by Woodford before the fund was frozen. It doesn’t say how much higher they could be.

Useful links:

You can read the letter that Link Fund Solutions is sending to investors in the Woodford Equity Income Fund here

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