The Financial Conduct Authority (FCA), the UK’s financial watchdog, has fined former star fund manager Neil Woodford and his investment firm almost £46 million. This major penalty reflects the deadly impact of their conduct. This penalty comes in the wake of the 2019 collapse of the Woodford Equity Income Fund. That disaster caused more than $10 billion in financial losses to over 300,000 investors.
Woodford, once celebrated as a high-flying city fund manager and referred to as the UK’s equivalent of Warren Buffet, saw his reputation tarnish dramatically as the fund’s value plummeted. At its height in May 2017, the Woodford Equity Income Fund reached £10.1 billion in assets. When it was suspended in March, the fund was down to £3.6 billion in value. This extreme contraction was primarily due to an inability to deal with liquidity management, or lack thereof.
Investors started to redeem their money at a rate quickly outstripping the fund’s capacity to fulfill those redemptions. When the suspension happened, just 8% of Woodford’s holdings were liquid within a week. Investors expected they would be able to reach liquidity on their investments in only four days.
Steve Smart, joint executive director of enforcement and market oversight at the FCA, emphasized the importance of responsibility in financial leadership.
“Being a leader in financial services comes with responsibilities as well as profile. Mr. Woodford simply doesn’t accept he had any role in managing the liquidity of the fund.” – Steve Smart
It criticized how Woodford and his firm reacted as the fund’s value fell and liquidity diminished. This lack of oversight led to larger redemptions from investors.
Woodford was fêted as the man who had, quite literally, made middle England rich. His downfall uncovers significant mismanagement of fund finances and further undermines the confidence of these climate-focused investors. The FCA’s actions serve as a reminder that those entrusted with managing public funds must uphold a standard of diligence and accountability.