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Woodford leaves the UK industry for China

Timing of China business trip expected to leave Woodford Equity Income investors ‘appalled’.

Neil Woodford and Craig Newman have left the UK investment industry stunned over the timing of a trip to seek out opportunities in China while investors remain trapped in their funds.

Bloomberg reports the duo are in China having exploratory meetings with investors interested in early-stage companies.

The reports come less than a week after Link officially renamed Woodford Equity Income to the LF Equity Income fund as part of its wind-down. Only 56% of the £3bn portfolio has been sold with the most illiquid companies in the portfolio remaining in the fund.

The business also left its office space in Oxfordshire earlier this month.

Portfolio Adviser, FSA‘s sister publication, understands the pair made a similar trip to the Middle East earlier in 2019. Woodford has co-invested with Chinese investors in early-stage companies in the past.

Woodford investors unlikely to have much appetite for forgiveness

Willis Owen head of personal investing Adrian Lowcock said given the issues around Woodford Investment Management remain unresolved from a regulatory and a customer perspective he would have expected Woodford to have taken some time out to reflect on how he got into the situation he did and learn from it.

Several others in the industry had a similar response.

“This speaks to ego and an absence of empathy,” said SCM Direct co-founder Gina Miller, who noted some investors that had invested at the fund’s peak had lost over half their money.

Candid Financial Advice director Justin Modray expected investors trapped in both Woodford Equity Income and Woodford Income Focus would be “appalled” at the reports Woodford is on a business trip to China. “I doubt many will ever forgive him for pocketing fees whilst the Equity Income fund was suspended, especially if it transpires some of this cash is used to fund a new venture.”

Woodford Investment Management refused to waive charges for investors trapped in the suspended Woodford Equity Income meaning he was taking in nearly £100,000 in management fees a day. Woodford and Newman are forecast to receive £20m in dividends from the last financial year on top of the £100m ($130m) they have already reaped from the boutique fund house.

No surprise Woodford is continuing to dip in early-stage companies

Chelsea Financial Services managing director Darius McDermott said he was surprised to hear Woodford and Newman are in China but noted details were currently scant on the purpose of the trip.

It was not surprising that Woodford appeared to be focusing on early-stage investments in his discussions with Chinese investors, McDermott said. “It was the area that Neil had been most passionate about since Woodford Investment Management was launched. I still remember going to a launch event for Patient Capital and you could tell these early stage companies were what was floating his boat.”

The timing of the trip would not look good to investors back in the UK, he said.

Former Fidelity star fund manager Anthony Bolton famously struggled when he tried to adapt his stockpicking strategy that had delivered decades of outperformance on his Fidelity Special Situations fund to Chinese equities.

Lowcock was surprised Woodford is looking at opportunities in China given it is not an area he has much experience of investing in. “The question will be whether he is looking to provide UK investors access to Chinese companies or Chinese access to the UK market.”

But CWC Research director Clive Waller said Woodford’s career in the UK is finished even if “his ego won’t accept that”. “I do not see him being accepted back in the UK by FCA, advisers or the investing public – far too tarnished,” Waller said in an email.

Misalignment between fortunes of fund managers and investors

There is a misalignment between the fees raked in by star fund managers and the performance enjoyed by their investors, said fees campaigner Robin Powell.

“Many of Woodford’s investors are not particularly well off,” Powell said. “Many have a large proportion of their wealth trapped in these funds. For them, seeing Woodford and his business partner jetting off to China to plan their next project while they’re still stuck in limbo must seem like indecent haste.”

In contrast, he said fund managers earn fees regardless of performance. “If worst comes to worst and your fund blows up — or even your whole business, as has happened with Woodford — you can still walk away a multi-millionaire.”

Powell thought Woodford would have wanted to spend more time restoring his reputation given both he and Newman had already amassed “extraordinary” personal wealth.

“Now approaching 60, Woodford is running out of time to salvage his professional pride, but he could transform his personal profile at a stroke by repaying some of the £8.7m in fees that he’s extracted from his clients since his Equity Income Fund was gated in June.

“That sort of money is loose change to Woodford and Newman, but it would make a real difference for investors if they could just do something to soften the financial blow.”

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