Hargreaves Lansdown clients have suffered a £400m loss from their investment in the former Woodford Equity Income fund, according to its long awaited annual accounts, which had been postponed during the fund’s suspension and subsequent wind-down.
The revelation comes weeks after it was revealed that Hargreaves Lansdown executives have raked in punchy bonuses collectively worth £2.1m, despite pledging they would not do so “until investors can access their money” in the fund, which has been renamed LF Equity Income.
Authorised corporate director Link admitted to investors still stuck in the fund on Wednesday that they could face up to a year’s wait time before they get the rest of their money back. So far £2.45bn of frozen funds have been returned to clients, representing 90% of the fund’s net asset value, but around £288m of assets, which are mostly illiquid, remain to be sold.
Details of investors’ losses were brought to light in the fund’s annual report which was finally published by authorised corporate director Link after being delayed by a month.
The report shows that between 1 January 2019 and 31 March 2020 the fund racked up £1.4bn worth of net capital losses. This figure takes into account £1.6bn worth of realised losses on the portfolio holdings from large chunks of the unquoted assets being written down and falls in share prices of the liquid assets.
Almost a third of those losses were borne by Hargreaves clients.
LF Equity Income losses can’t be blamed on Covid
This is the second year running LF Equity Income’s losses have exceeded £1bn. According to the fund’s 2018 annual report, it lost around £1.3bn, a large spike from 2017’s losses of £98.8m.
7IM senior portfolio manager Peter Sleep finds it staggering that one fund has lost so much money over a single accounting period.
“Given that nearly everything was sold when the market was high and well before Covid came along, that is an abysmal investment performance,” he says.
The sizeable loss is one of several pieces of bad news investors in Woodford’s former fund have had to stomach this week. In the same annual report shareholders also were rudely confronted with the fact they have had to foot a £16m bill of winding up the fund so far. Though Sleep says this figure “looks pretty insignificant” when put against the fund’s losses over the last 15-months.
AJ Bell head of active portfolios Ryan Hughes says even considering the fund’s net asset value was around £5.3bn at start of the reporting period, the size of the loss is “still painful”.
At the time Woodford’s former fund suspended on 3 June 2019 assets had already tumbled to £3.6bn. By the end of March assets in the fund stood at £499m with Link having returned £2.45bn of money trapped in the fund to investors.
Hughes agrees the losses “cannot be put down to a Covid effect”. “Lockdown happened in March and UK markets started falling really only a month before the end of these reporting accounts so absolutely this is down to portfolio management and investment decisions made long before any impact of Covid”.
See also: Neil Woodford becomes the man who could halve a £1,000 investment
Robin Powell, editor of The Evidenced-Based Investor says the latest report is a remainder of “just how bad a state Neil Woodford left the fund in”.
“It had already lost investors substantial money over what was a very positive period for the stock markets generally. Yet it continued to haemorrhage money long after Woodford’s departure,” Powell says.
“This sort of downward spiral is not unusual with toxic funds,” he continues. “The good stuff has to be sold off, and what’s left is the real dreck.”
Hargreaves Lansdown customers have lost £788m in four years backing Woodford
Revelations of the fund’s massive losses will make for painful reading for Hargreaves Lansdown customers who represented 30.8% of the fund during the reporting period. Over the last 15-months these investors will have lost around £400m collectively.
The losses for 2019/2020 are on par with 2018 where Hargreaves customers suffered a £385m hit. Since 2016 the D2C firm’s customers, which have consistently made up around a third of total assets in the fund, have lost £788m from being invested in Woodford’s fund.
LF Equity Income
| 2019/2020 | 2018 | 2017 | 2016 | |
| Net capital losses/gains | (£1.38bn) | (£1.26bn) | (£98.81m) | £66.57m |
| Hargreaves customer losses/gains | (£399.67m) | (£384.63m) | (£27.54m) | £23.42m |
Source: Link Fund Solutions
Powell says investors will be less than impressed by Hargreaves’ “apparent lack of interest” and “the way that its senior executives continue to prosper while so many issues surrounding the Woodford saga remain unresolved”.
“Chief executive Chris Hill said he would forgo bonus ‘until investors can access their money’. They still can’t — and it appears they won’t be able to for at least another 12 months. And yet Hill and his colleagues have just pocketed bonuses worth £2.1 million.”
RNS filings from 22 September show Hargreaves nine directors were handed share awards ranging from around £51,000 to just shy of £829,000. Hill received the largest of these awards, scooping up a bonus worth £828,794, as part of a £2.7m pay package.
In June 2019, weeks after the Woodford Equity Income fund suspended, Hargreaves confirmed to Portfolio Adviser that Hill would waive his bonus “until investors are able to access their money”. But by the time Hargreaves issued its annual results for the year ended 30 June 2019, it had changed its position to limit the waiving of bonuses to that financial year.
Therefore, the bonuses were waived for 12 months in total with less than a month covering the period after 3 June when the Woodford Equity Income fund suspended.
Hargreaves declined to comment.
Woodford unquoteds revalued three times even before Covid sell-off
Woodford’s investment decisions have come back to haunt investors particularly his penchant for investing in unlisted assets.
In the annual report it was revealed that from LF Equity Income’s suspension until the present the fund has incurred losses of £875m the bulk of which (£426m) is from hefty writedowns to unquoteds.
Link’s timeline of key events shows hundreds of millions of pounds worth of unlisted assets in the fund were revalued downwards on three separate occasions since the ACD sacked Woodford as the portfolio manager on 15 October 2019.
Reasons for the writedowns included certain unquoted assets failing to meet key business milestones or funding rounds. Link also applied £265m worth of “liquidity adjustments” to reflect the fact select unquoted assets could sell for less than fair value.
One such adjustment was made on 19 August, following the deal to transfer £224m worth of unlisted stocks to Acacia Research.
‘Multiple big boy snouts in an ever-decreasing trough’
PJT Partners, which facilitated the deal with Acacia, is set to collect £3.2m in fees for its hand in selling down LF Equity Income’s illiquid assets. Link’s deal left a sour taste in investors’ mouths when Acacia sold off several stocks in their entirety for a quick profit within days of taking ownership.
Meanwhile Blackrock has been awarded a cool £11m for its assistance in selling down the easier to trade listed stocks.
Boring Money CEO Holly Mackay says the revelation investors have had to foot a £16m bill to wind down the fund so far, on top of extensive losses, is another maddening moment in the Woodford saga where “every chapter … has been distasteful”.
From the “arrogant fund manager which didn’t do what it said on the tin but took millions off the table anyway” to the administrators pocketing millions of pounds in fees, she describes the situation as “multiple big boy snouts in an ever-decreasing trough with the end investor absolutely shafted”.
“I know this has been complex but if this had been the big boys’ money and not Mrs Miggins’ they would have found a more efficient way to manage the headache- instead they just decided to cut the head off and hope like hell that it would go away.”
Portfolio Adviser reached out to Link but did not hear back in time for publication.
