Woodford efforts to skirt 10% unquoted limit falls flat

FCA gives Woodford six months to get fund in order in his latest breach of Ucits rules

Woodford’s efforts to skirt Ucits rules limiting unquoted holdings to 10% has fallen flat as Benevolent AI and Industrial Heat get delisted from the Guernsey stock exchange.

Under FCA guidance, he now has six months, by the end of January 2020, to get his unquoted stocks below the limit.

A Woodford spokesperson said: “Following the inadvertent passive breach, action to bring the fund back into compliance is already underway.”

The spokesperson said Woodford announced in May that he would be significantly reducing unquoted holdings “including those listed on exchanges where there is currently little or no trading activity”. The delistings would therefore have no effect on how the assets are managed within the fund, he said.

Woodford would not tell Portfolio Adviser how much of the fund is now classified as unquoted.

However, the FCA estimates the figure is approximately 20% when including the Guernsey-listed companies, according to Andrew Bailey’s letter to the Treasury select committee, submitted in June.

‘A direct outcome of Woodford gaming the rules’

However, Woodford’s efforts to shirk responsibility for the Ucits breach did not wash with investors.

“I don’t buy that this is an inadvertent breach: it is a direct outcome of Woodford’s attempt to game the Ucits rules,” said one wealth manager, who did not want to be named. “Insofar as anyone is interested, the key statistic was laid out in Andrew Bailey’s letter to the Treasury select committee that Woodford not only had no liquidity but was overdrawn at the time of its suspension.”

That letter showed that a third of the Woodford Equity Income portfolio would have taken between 180 and 360 days to sell.

Nutmeg chief investment officer Shaun Port said the rules on unquoted holdings are clear.

“The sleight of hand that was used to avoid previously breaching this limit has now been exposed, and a significant portion of these assets will have to be liquidated rapidly, putting performance further at risk.”

Bailey has previously accused Woodford of following the “letter, but not the spirit” of the FCA’s rules at the regulator’s recent annual general meeting.

Investors in the dark

Others felt Woodford’s statement was scant on detail.

Willis Owen head of personal investing Adrian Lowcock said he was disappointed Woodford was silent on his plans to address the unlisted element.

“The reversal of the listings after such a short period is likely to raise speculation about the next steps for the businesses,” Lowcock said. “Clearly the restructuring of the portfolio is proving to be very complex and only Woodford Investment Management know whether it is going according to plan.”

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