The Financial Conduct Authority was warned about issues with Neil Woodford’s investment business a year after it opened its doors but did not act until the end of 2016.
Concerns over Woodford Investment Management were initially raised by founding partners, chief operating officer Nick Hamilton and chief legal and compliance officer Gray Smith, who resigned in 2015 after falling out with Woodford over his investment strategy, according to the Financial Times.
Smith, formerly a lawyer with Mischon de Reya, and Hamilton, ex-head of global equity product at Invesco, were asked to disclose the reasons behind their departures in an exit interview with the FCA in January 2015, given their senior roles in the high-profile business. But the regulator did not act on the information they gave, according to FT sources.
Hamilton and Smith had questioned the way Woodford and his team were valuing small, unlisted companies, relying heavily on data and assurances from the businesses themselves. The pair also tried to impose a limit on the fund’s investments in private companies below the 10% limit set by Ucits rules but were, instead, pushed out.
See also: Woodford accused of ‘boorish and macho’ culture
FCA responds
The FCA said in response to FT questions over the exit interviews:”Where we receive information relating to concerns about firms or individuals we follow up and take action where appropriate. But we do not conduct our supervision of firms or individuals in public.”
The FCA first intervened at the end of 2016 when the watchdog found a conflict of interest in the Woodford IM’s valuation process, former chief executive Andrew Bailey told parliament in June 2019. In 2018 the regulator began engaging with Woodford Equity Income’s authorised corporate director Link Fund Solutions after two separate breaches of its 10% limit on unquoted companies.
Woodford’s business eventually collapsed in 2019 after Link pulled the plug on his flagship fund, now renamed LF Equity Income, which was unable to cope with mass redemptions due to severe liquidity issues stemming from its investment in risky, unlisted start-ups.
Hundreds of thousands of investors remain trapped in the fund, with some being hit with losses of around 50%.
Despite the ongoing investigation, Woodford is still approved by the FCA to act as an executive director of an investment company and announced his return to the industry last month, with the launch of Woodford Capital Management Partners.
Treasury Committee chair Mel Stride has put pressure on the FCA to wrap up its 18-month investigation into the implosion of Woodford Equity Income.
See also: FCA accused of being ‘on the back foot’ in response to Woodford comeback
