Once respected as a star fund manager, Neil Woodford’s name is now more infamous in the investment industry. Almost five years have now passed since the Woodford Equity Income Fund was suspended, resulting in around 300,000 people losing money.
In February this year, a High Court judge approved a compensation scheme to give Woodford Equity Income investors some redress. This payment is on top of the money investors already received from the sale of the fund’s investments.
The first of the compensation payments is being delivered from 28 March.
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How much compensation will Woodford investors receive?
Following the February ruling, the Woodford compensation scheme will see investors receive up to £230 million. The payment being delivered from 28 March is the first and largest, coming in at £185.7 million.
The administrator, Link Fund Solutions, has said that it expects further, smaller payments to be made once its “final cash position and other costs and liabilities are known”. On 14 December last year, it confirmed that investors had voted overwhelmingly in favour of the scheme.
Investors have already received £2.56 billion in compensation prior to this point through the sale of the fund’s investments. This, combined with the £230 million payout, will take investors to around 80% of the value of their investment from the day of suspension in 2019.
The administrator has contributed £60 million to the compensation pot.
Is the Woodford compensation enough?
“This settlement scheme is not without controversy”, says Ryan Hughes, interim investments managing director at AJ Bell. Although an overwhelming majority of investors voted in favour of it (94%), many will be left with a bitter taste in their mouth – and most will simply want the whole debacle to be over.
In Hughes’ view, the vote reflects the fact that most investors recognise this as “their best chance of receiving some form of redress”. The FCA has said something to a similar effect, stating: “The FCA considers the Scheme to be the quickest and best way to return as much money to investors as possible compared to other means”.
While the total compensation now amounts to around 80% of the fund’s value at the time of suspension, it is worth remembering that many investors will have lost money prior to this point as a result of poor performance.
What happened to the Woodford Equity Income Fund?
Woodford was once known as a star fund manager, and many investors flocked into his fund on account of his strong reputation. His flagship fund had assets worth more than £10 billion at its peak.
Woodford held many small, private businesses in his fund – which prompted liquidity concerns from investors. When the fund started to underperform, more investors wanted to redeem their funds and Woodford could not exit his positions in the illiquid holdings quickly enough.
As a result, the redemptions were suspended in June 2019, meaning investors could not access their money. The fund was later closed and investors are now being compensated for some of their losses.
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