FCA quiet as Woodford adds to illiquid positions

Investors remain trapped as holding companies receive fresh funding


The Financial Conduct Authority has refused to comment on the fact Woodford Investment Management has been adding to positions in Proton Partners and Evofem at a time when he is meant to be increasing liquidity in his suspended Equity Income fund.

In the week after Woodford Equity Income suspended, the equities manager invested a further £25m in Proton Partners and $10m (£8m) in Evofem, which a Woodford spokesperson told Portfolio Adviser were “historical commitments”.

The FCA would not comment on whether it had been liaising with Woodford about the investments. In May, it was revealed the regulator had been in touch with Link Asset Services, the authorised corporate director (ACD) of Woodford Equity Income, regarding liquidity in the face of outflows from the fund.

Woodford Equity Income suspended due to the fact its illiquid positions made it difficult for the manager to meet redemptions from the underperforming fund.

Funding announcements came days after suspension

A regulatory filing from Proton Partners on 6 June, three days after Woodford Equity Income suspended, stated that £25m raised from Woodford Investment Management would be used for general corporate purposes, including the potential repayment of loans and to provide additional working capital for the group.

The £25m represents the first part of an £80m commitment made by Woodford in February.

Four days later a press release from Evofem revealed it had raised $10m each from Woodford and his former employer Invesco in the second tranche of $80m strategic financing that would help with the commercial launch of its contraceptive drug Amphora, which it is aiming to get regulatory approval for by Q2 2020.

Evofem said the funding represented the second and final tranche associated with a securities purchase agreement executed in April 2019.

A Woodford spokesperson said it cannot comment on where the investments had been made from its stable because the “funds have now gone dark”. The companies had been held in both Woodford Equity Income and Woodford Patient Capital.

‘Jumping the queue’

Seven Investment Management senior portfolio manager Peter Sleep said it would “impolitic” for a company to seek funding after Woodford Equity Income has suspended. “This could be seen as jumping the queue ahead of the gated investors,” Sleep said.

Portfolio Adviser asked Proton Partners for the specific date when it requested the £25m and is awaiting details. A spokesman said: “It was agreed prior to our listing on the Nex exchange in February this year, that the company would be accessing the commitment of funds from Woodford Investment Management. This was an agreed and documented part of our business plan and is unconnected to any other matter.”

A Woodford spokesperson said the fresh funding was a question of historical commitments, not prioritisation of activities.

Willis Owen head of person investing Adrian Lowcock said the funding commitments yet again shines the spotlight on the suitability of of long-term patient capital investments in open-ended funds. “It is clear Woodford hadn’t been prepared for the scale of money flowing out of his funds and his commitments in the good times are coming back to haunt him,” Lowcock said.

Failure to honour pre-existing commitments would likely be a breach of contract and would result in the company or fund possibly being sued, he said. “In addition, a lack of financial support could lead to a worse outcome for investors and the fund, possibly seeing the investee businesses collapse thus losing investors more money.”

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