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Kent retirement fund faces £60m losses after Woodford fund collapse | Business News

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Local authority pension scheme members are braced for losses of more than £60m following the collapse of an investment vehicle run by the UK’s best-known fund manager.

Investors in a £3bn fund run by Neil Woodford, a former darling of the industry, will learn this week how much of their original investment they can expect to receive from administrators liquidating the assets.

Mr Woodford built a reputation for beating the markets over 20 years, but his flagship Equity Income Fund was closed last year, trapping around 300,000 investors who were unable to withdraw funds.

The Kent local authority pension fund was one of the largest investors with about £260m invested at the fund’s peak on behalf of 135,000 members, including frontline staff such as police officers and firefighters.

Kent County Council has been warned to expect losses of about a quarter, with internal auditors warning that losses will be at least £60m.

The council maintains that the Woodford investment was just 4% of its total £6.8bn pot and will have a minimal impact on members.

The failure of funds controlled by the UK’s most high-profile fund manager has raised wider questions about oversight of the retail investment industry, which has boomed since the government gave people more freedom to cash in pension pots and make their own investments.

Former City minister Lord Myners told Sky News that the Financial Conduct Authority has failed adequately to protect investors and the industry may represent “the next great mis-selling scandal”.

The council had been a long-term investor with Mr Woodford during a three-decade career in which he built a reputation for delivering returns that were better than the rest of the market.

As Mr Woodford shifted his strategy towards riskier unlisted “illiquid” assets that take longer to sell, Kent lost faith, inadvertently triggering a crisis.

When they sought to remove their funds Mr Woodford could not raise the money and the fund was suspended, trapping investors.

FCA
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Lord Myners said the FCA had not done enough to protect investors

Mr Woodford and his business partner continued to pay themselves hefty dividends in the build-up to the collapse, sharing £13.8m last year.

Martin Whybrow, a Green Party councillor, told Sky News: “We are looking at a loss from our pension fund of around £60m, 23% of the overall investment.

“The party line from here is that it’s a small percentage of the total pot but mention that to average pension fund holder on the street they won’t see it as small change.

“A copious amount of salt has been rubbed into the wound by learning how much money he took out before this all hit, that certainly has to be looked at, there are questions about his conduct and the sector as a whole, there are lessons for Kent CC and other local authorities, and for the sector as a whole.”



Mark Carney gives his view on the Woodford Equity Income Fund and other similar forms of investments



Oct 2019: ‘That which is liquid becomes illiquid very quickly’

Andy Essex, a retired civil servant, was one of the individual investors who found themselves trapped.

He invested £23,000 of his pension pot in funds run by Mr Woodford and has already lost £6,000 selling shares in one fund at a loss.

This week he will discover how much of his remaining £3,000 he can expect to be returned.

“Once they froze the fund the price has gone down and down, in the last week it’s gone down over 5% and I think 25% to 30% since the fund were closed, not being able to touch your money and cut your losses has been extremely frustrating,” he said.

“When I see how much he and his partner have earned from the Trust, they took out £13m in the last year, since he formed this company he’s made tens of millions of pounds and there is not even a word of apology from him, so basically he seems to have taken his bat and ball home, shut everything down and gone, and disappeared with the money.”

The Financial Conduct Authority has opened an investigation into the collapse of Woodford Investment Management and the wider industry.

It is expected to examine whether rules requiring open-ended funds, which can be bought and sold daily, to have sufficient liquid assets, are robust enough.

The FCA first raised liquidity questions with the Woodford funds 18 months prior to their collapse but had not informed investors, raising questions for its chief executive Andrew Bailey, who will become governor of the Bank of England in March.



Stockpicker Neil Woodford explains why his top fund had to block investor withdrawals



June 2019: Woodford ‘extremely sorry’ for fund decision

Lord Myners said the FCA has not done enough to protect investors, adding: “You have to ask where were the checks and balances?

“The FCA knew he was going to a more illiquid portfolio but seem to have been remarkably slow in asking ‘what are the consequences?’

“The FCA backs off into saying it is not our job to stop people making their own decisions, even if they are bad decisions.

“But the government freed up the rules on annuities under George Osborne, allowing people to cash in their defined pensions and make their own investments, and I am sure that history will tell us this was the creation of the greatest opportunity for the mis-selling of financial instruments.”

Neil Woodford declined several Sky News requests for interview about the failure of his funds, and our attempts to contact him at home, following the closure of his offices, were unsuccessful.

Sources close to the fund manager say he maintains the decision to liquidate the Equity Income Fund was wrong, and will ultimately mean investors receive a lower return than if he had been allowed to manage the winding down of the fund.

In a statement released when the fund was closed by administrators in October, he apologised – saying: “I personally deeply regret the impact events have had on individuals who placed their faith in Woodford Investment Management and invested in our funds.”

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