The enduring wind-up of the Woodford Equity Income fund has thrown the “mind boggling” fees administrators charge for fund liquidations into question as administrators Blackrock and PJT Park Hill rake in over £13m in fees.
An annual report for the fund, now called LF Equity Income, released by authorised corporate director Link last week revealed the high costs shouldered by investors in winding up the fund thus far.
Blackrock, which has been tasked with selling down the listed stocks in Portfolio A, has raked in close to £10m since the liquidation of Neil Woodford’s former flagship fund began on 15 October 2019, picking up £6.6m in the final quarter of last year and another £3.3m for its help in the sales this year.
PJT Park Hill, which has the more arduous task of selling down the unquoteds in Portfolio B, is set to collect £3.2m in fees, £2.8m of which will become available once the £224m sale of 19 biotech stocks with Acacia completes.
Cost of winding up LF Equity Income
| 15 October 2019-17 January 2020 | 18 January 2020 – present | |
| Blackrock | £6.59m
|
£3.28m |
| PJT Park Hill | n/a | £3.16m |
| Debevoise & Plimpton | n/a | £2.49m |
Source: Link Fund Solutions; LF Equity Income investor communication 30 September 2020
JB Beckett, independent fund board director and former fund selector, reckons investors rarely benefit from fund closures, mergers or corporate actions.
“The costs soon add up as does time out of the market,” Beckett says, adding that “often investors are caught in a ‘no man’s land’ between outgoing and incoming manager.”
In the case of fund liquidations, he says the associated costs can be “mind boggling” depending on the size and type of assets being disposed of. He says there is often little price competition for these types of services.
“The only winners are often those able to charge fees against a fund in distress,” Beckett says. “These parts of our industry suffer from oligopolies and the FCA and CMA should look further into this.”
See also: Hargreaves clients suffer £400m hit from Woodford as execs enjoy bonuses
Willis Owen head of personal investing Adrian Lowcock says the exorbitant costs and sluggish pace of the Woodford wind-up is evidence the system needs overhauling.
“We cannot have a situation where investors are at the mercy of faceless ‘administrators’ who seem to be able to charge whatever they like for winding up the fund.”
Costs add up with offloading illiquid assets
Brokerage fees would have been payable on the sale of any quoted or unquoted assets before suspension and afterwards had the fund reopened regardless.
“So, in many respects it’s not a case of these fees being over and above what would have been normally incurred,” says AJ Bell head of active portfolios Ryan Hughes.
However, what he finds “surprising” is the £5.5m fees accrued by PJT Park Hill and law firm Debevoise & Plimpton for disposing of the fund’s unquoted assets. Some of these holdings were among the 19 biotech stocks sold to Acacia Research at a bargain price of £224m. The 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.
“That’s the bit that people don’t ever really think about,” he says. “When you’re selling a normal listed equity, you don’t have any lawyers involved, it’s nice and straightforward. When you’re selling unquoted equities, there is extra complexity involved, and, therefore, additional costs too.”
Link claims PJT received ‘standard brokerage rates’
Link has claimed the £3.2m paid out to PJT represents “standard brokerage rates” for the sale of the kind of assets in Portfolio B and described the £2.5m awarded to Debevoise & Plimpton for its services as “competitive”.
It is difficult to know whether the fees awarded to PJT and Debevoise & Plimpton for assisting with the sale of the fund’s illiquid assets are fair value, Hughes says.
Link has gone into a granular level of detail in the LF Equity Income’s annual report, due to the high-profile nature of the fund’s blow-up, providing cost breakdowns that most funds wouldn’t include, Hughes notes, which makes comparisons tricky.
“We never have any visibility of selling a basket of unquoted assets as to how much that would cost,” he says. “So, I suppose we have to take Link’s and the auditor’s word”.
Fee caps should be introduced for liquidations
In addition to providing investors with more clarity on fees related to the liquidation process, Lowcock argues there should be greater regulation around charging structures, including the introduction of fee caps.
Communications sent to investors is another area that requires major work, Lowcock adds, describing Link’s outreach to clients as “shocking and poor”.
“The communications that have been produced have been very industry toned and focused, they don’t really talk to the end customer. Ultimately, it’s their money that is in this fund, it’s not Woodford’s money, it’s not Hargreaves’ money.”
LF Equity Income gatekeepers snagged £24m in fees as fund was in crisis
Attention has also turned to the lack of competition in the ACD and fund depositary markets and charges for their services following the Woodford saga.
See also: Woodford suspension sparks debate on in-house versus external ACDs
Link and other administrators charged with safekeeping clients’ money walked away with over £24m in fees during a time when LF Equity Income had entered a full-blown crisis, the fund’s annual report shows.
Between 1 January and 14 October 2019, the day Link announced it would be liquidating the fund, depositary, custodian and administrator Northern Trust, auditor Grant Thornton and Woodford’s own investment business pocketed £21.1m in total for their services.
Link retained £360,951 for its ACD services from the beginning of 2019 up until LF Equity Income’s suspension on 3 June at which point it waived its fees.
Northern Trust joined Link in waiving its fees from 15 October, a move which resulted in a £4.8m rebate that was ultimately handed over to Blackrock as it disposed of liquid holdings in the fund.
