The administrator of the failed fund run by the former star stockpicker Neil Woodford has agreed to pay up to £235m to help regulators compensate more than 300,000 customers who lost their savings after its collapsed.
The tentative deal – which will mean investors recover approximately 77p to the pound – follows an investigation by the Financial Conduct Authority.
The FCA found the administrator, Link Fund Solutions, had made “critical mistakes and errors” managing Woodford equity investment fund, particularly in ensuring it was able to easily repay customers who might want to withdraw their investments.
Link was responsible for monitoring and supervising the investments executed by Woodford before the fund failed in October 2019.
While the FCA originally ordered Link to pay up to £306m, the collapse of a takeover offer by the Canadian cloud-based software company Dye & Durham in September scuppered efforts to claw back that full amount.
However, a new deal has been struck with the Dublin-based asset management service provider Waystone Group, which has agreed to buy Link’s UK and Irish operations. Proceeds from that sale will help fund the £235m allocated for the Woodford compensation scheme.
The compensation agreement still has to be approved by Woodford investors – who have so far collected £2.56bn from the sale of the fund’s investments – as well as a UK court.
Woodford’s equity fund was worth more than £10bn at its peak, but suffered from several poorly performing investments in companies including the estate agent Purplebricks, the finance firm Burford Capital and the doorstep lender Provident Financial.
That string of bad bets, combined with Woodford’s decision to put money in a number of private unlisted companies that were harder to sell, led to the fund’s suspension and eventual collapse in 2019. The administrator has since wound down the fund and returned money to many investors at a steep loss.
“The FCA’s investigation raised serious concerns about Link Fund Solutions’ management of the liquidity of the Woodford equity income fund,” the FCA’s director of enforcement and market oversight, Therese Chambers, said.
“LFS’s actions appear to have caused significant losses for those investors who remained in the fund when it was suspended. We believe the proposed scheme offers investors the best chance to obtain a better outcome than might be achieved by any other means and it is in the investors’ interests they be given the chance to consider it.”