Scottish Mortgage Investment Trust manager James Anderson has joined a growing group of industry voices, including the Financial Conduct Authority (FCA) and the Treasury Committee, calling for Neil Woodford to waive fees on his suspended Equity Income fund.
Speaking at a press event on Tuesday, Anderson (pictured) said it was “completely wrong” that the fund manager had not yet abandoned the fees on the £3.7bn fund investors are currently locked out of, adding there is an ethical duty to do so.
He said: “My view on that is it is completely wrong. Those ethical issues which are under you control, yeah we [as fund managers] should absolutely be responsible for.”
Anderson said the fund suspension damages not just Woodford’s reputation but also that of active fund management and the finance industry more generally.
“I do think we have this terrible mismatch in much of finance between those operating the system and those who invest in the products and strategies,” he said. “I am not trying to say we are perfect in any way, but I think in those circumstances there is an ethical responsibility to lower you fees, give your money back.”
UK too limited for what Woodford was trying to do
In Woodford’s defence, Anderson said: “I think he was fundamentally trying to do something useful but he was trying to do it on a canvas – the UK – which was too limited to do it and in a structure that was not ideal for it.”
But he also questioned “how much skin Woodford had in the game” in relation to his personal investment in the fund versus taking out fees and dividends. “We have a huge amount of skin in the game from that point of view,” he added.
Woodford Investment Management’s latest set of results recorded £41.7m profit before tax and £33.7m after tax in the year ended 31 March 2018. It paid £36.5m dividends during the period but did not disclose how much went to the firm’s two directors, Woodford and chief executive Craig Newman.
Anderson also said he is worried about the repercussions of potential increase in regulation.
“It is a real problem if the most natural course of events is people don’t invest in active funds, don’t invest in unquoted companies. If there is more regulatory pressure on this I don’t think that is going to drive a more intelligent, educated risk-taking in the future which we will need in the future,” he said.
FCA weighs in on fees
Anderson’s comments come after the FCA chief executive Andrew Bailey said Woodford should “consider very seriously his position” on fees.
Speaking on the Radio 4 Today programme on Tuesday, Bailey added: “However, we need him to manage these assets now more than ever because his job now is to get this fund back into a position where there can be orderly trading. He has his work cut out now.”
Bailey said Woodford’s management of the fund, including listing certain unquoted companies on stock exchanges in other jurisdictions, was “allowable” under the rules, but added: “I don’t think it is right because I think investors should be able to determine where their assets are held.”
On the same programme, Treasury Committee chair Nicky Morgan also said Woodford should waive fees on the fund.
She said: “Others have suspended taking fees and I think Mr Woodford should too, for the sake that I think it is something like £100,000 a day potentially in fees – that is a huge amount of money and there are investors who have often put their life savings or money needed for important investments in and they are watching that value drop, and it would be a gesture for Mr Woodford not to have those fees.”
Morgan said the Treasury Committee’s role is to scrutinise the FCA on its approach to Woodford, including how long the suspension could be, how it views fees charged during the suspension, as well as its contact with the Guernsey authorities and the rules around floating illiquid stocks.
The FCA is due to give evidence to the committee on 25 June.
“We need to see where the questions lead both in terms of Mr Woodford but also in terms of Hargreaves Lansdown who obviously had the Woodford fund in their top 50 wealth list,” she added.
