UK regulator provides update on LF Woodford Equity Income Fund

The UK Financial Conduct Authority (FCA) has earlier today published an update on the LF Woodford Equity Income Fund (WEIF).

On October 15, 2019, Link Fund Solutions Ltd (LFS), the Authorised Corporate Director (ACD) of WEIF announced that it will look to wind-up the fund as soon as practicable. LFS expects the winding-up to begin in mid-January, subject to regulatory approvals. LFS is set to request formal approval from the FCA to wind-up WEIF.

Let’s recall that, in June this year, LFS decided to suspend dealings in the WEIF in order to protect all investors in the fund following an increased level of redemptions. The suspension aimed to give Woodford Investment Management Limited, the investment manager of the WEIF, time to reposition the fund’s portfolio into more easily sold investments. This would have allowed the WEIF, upon lifting of the suspension, to meet redemption requests.

LFS sought to reposition the fund’s portfolio by early December 2019 to enable it to re-open and monitored progress to ensure that this date remained achievable. LFS considered it would not be possible to lift the suspension and re-open the WEIF until the sale of its less easily sold assets was completed. Failure to do so before the re-opening of the fund would result in a further suspension and unequal treatment of investors, particularly for those who chose to continue to remain invested in the WEIF.

The FCA explains that, since the suspension of dealings in the WEIF on June 3, 2019, the regulator has been in regular contact with LFS while the firm pursued the resolution of this matter. Although progress has been made in relation to repositioning the WEIF and disposing of its less easily sold assets, this has not been sufficient to provide reasonable assurance that the repositioning would be fully achieved and the WEIF could be re-opened in December. Because sufficient progress was not made, LFS has decided it is in the best interests of all investors to seek to wind-up the WEIF rather than continue to reopen the fund.

The FCA welcomes the removal of uncertainty that LFS’s decision provides. Winding-up the fund will allow the return of money to investors through a number of distributions, likely to begin in January 2020. This means investors should receive some of their money back sooner than had the fund remained suspended for a longer period.

The FCA advises WEIF investors to read an investor circular published by LFS.

A fund winding-up means it will close and money will be returned to investors. Returning money takes place in installments as the assets in the fund are sold. LFS expects to make these as soon as possible once the formal winding-up begins, which is expected to commence in mid-January, because three months’ notice needs to be given to investors under the rules implementing the applicable European Directive. During the period up to the commencement of the winding-up of the WEIF, the fund’s assets will continue to be repositioned in preparation for this event. In addition, some of the fund’s assets are more difficult to sell which means it may take longer to sell them for a reasonable price.

Investors should receive money from any intermediary through which they invested in the fund (e.g. a platform provider or an adviser), or LFS directly.

The amount investors will receive will depend on the fund’s value and the amount raised by selling the fund’s assets. The fund’s value fluctuates in line with the market values of its underlying assets.

As previously guided, the FCA has opened an investigation into the activities that led to the suspension of the WEIF.