By Tom Winnifrith & Nigel Somerville | Sunday 14 February 2021
Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
Lucy Burton of the Sunday Telegraph will this morning be celebrating her scoop of the year. It may win her prizes such is the corruption of modern journalism. In a faustian deal she gets to break the news that disgraced and crooked fund manager Neil Woodford is planning a comeback. In return she publishes a blow off interview in which Woodford paints himself as the victim of what happened, tells blatent lies and those lies go unchallenged. This is not journalism it is revolting PR ands Ms Burton should be drummed out of the industry. She won’t. She will be praised and promoted. And the deadwood press wonders why it is ever less trusted and its reader numbers slide?
Of course, like most of the MSM the Sunday Telegraph was still blowing off Woodford in return for scoops right the way through 2018 and into the year of his downfall, 2019. This website exposed him from 2015 onwards with more than 1000 articles, videos and podcasts – the 50 most read, including by folks at the FCA, are HERE. It seems that Burton’s Newspaper is still showing no contrition for its part in promoting the old rogue and is preparing to do so all over again. That this interview was driven by Woodford’s PR machine is not hidden by Lucy. At one point we are told that Woodford is very angry with Link, which carried ultimate responsibility for his funds, at which point his phone pings, and he has his answer from his PR man. He will not sue Link, they did their job and are not to blame for anything. And Lucy dutifully relays that message.
To be fair, Lucy’s colleague Jeremy Warner seems so shamed by her piece that he has penned one saying that he was a Woodford unit holder to the end and he sticks it to Neil. But that is a side note, it is Lucy’s splashed scoop that the wretched paper is boasting about on twitter today.
Woodford starts by saying that he is a victim of what happened, it forced him to sell his £30 million house and he has not worked for two years. Lucy does not challenge that but it is obviously a whopping lie. Woodford made a fortune during his 26 year career at Invesco before starting his own firm. Owning property during the Invesco era would have compounded his gains.
But even when gated, his Equity Income fund continued to charge management fees to investors who wanted their cash but couldn’t get it. But let us not forget that Woodford and his partner Craig Newman enjoyed £12.7 million in dividends from Woodford Investment Management between 30 Sept 2016 and 31 March 2017, £36.5 million in the year to March 2018 and a further £13.8 million during FY19. That’s £63 million so far. But before Woodford Investment Management came Woodford Investment Management LLP which ponied up £4.5 million in the year to March 2015, £25.7 million in the year to March 2016 and I don’t know what after that (there are no accounts) but the outfit was struck off in February 2018.
So I make that around £93.2 million to be shared between Neil Woodford and his right-hand man Craig Newman on a 65/35 basis. Oh, and whatever might be left over at Woodford Investment Management. So lets call it £60 million for Neil. Okay, there is tax on dividends at 38.1% but that still leaves Woodford with £37 million. So while Woodford might have sold his £30 million house the idea that he HAD to becuase his funds were gated is quote obviously a total lie. It is a 100% slam dunk porky. Yet Lucy does not do any maths and fails to point that out. Poor Neil, of course you are the real victim.
To have earned almost £40 million from WIM means that Mr Woodford is not a victim at all. The victims are folks who entrusted their savings to an equity income fund to then discover that they were getting sod all income – because the fund manager was investing in companies that paid no dividends – and then losing much of their equity during a bull market as a result of the appalling decisions taken by Woodford. Neil fails to accept this, so to suggest that he feels genuine contrition and is almost saying sorry, as Lucy does, is obscene. Lucy, do you not realise that real victims reading this will be revolted by what Woodford says? He has broken their finances, you are breaking their hearts in not challenging the old bastard? If you want to do PR go into PR, this is not journalism.
No Lucy wants to pretend she is a journalist so swallows the lies and says that Woodford really is sorry for what he did wrong. And what he did wrong appears to be mixing unlisted stocks with main market stocks in a retail fund. He says he won’t do that again. So that’s all right then? Er, no!
The issues were manifold. Yes, he was mixing unlisted and listed stocks but amongst the listed stocks came a series of disasters such as the AA, Imperial Brands, Keir, Stobart Group and its AIM-listed little brother, Eddie Stobart Logistics and whole raft of others. The fact is he made a massive series of almost exclusively bad calls. That is why the performance of the two unit trusts suffered initially. But after a while, investors sensed the direction of travel and started to desert him.
At the same time, his mix of investments was far too bottom-heavy so when investors wanted their cash out he was having to sell the bigger stocks, which eventually ran out, leaving him with a liquidity crisis. The denouement was obvious more than a year earlier.
Then there were all those stocks listed on junior markets, which showed exceptionally poor stockpicking and which had to be bailed out over and over again at far too high a price. And there was another problem, because his holdings in those tiddlers were so large that they couldn’t be sold without trashing the share price, and even then it would have taken months and months.
There were the asset transfers between the equity income and patient capital funds which loaded yet more loss-making cash-guzzling unlisted dross on Patient Capital which had not the cash available to support them, and which were surely distressed sales by Equity Income, yet there was no discount.
There was Proton Partners, now Rutherford Health, which was listed on NEX (now Aquis) at a ludicrous price because Woodford threw £80 million on the IPO at a much inflated price ( he could have set it lower as he was the only investor ) – but this meant his management fees at Equity Income went up as his earlier investments were revalued higher as a result. But since he was the only holder apart from management, nobody was selling and there was almost no trading if the stock the listing was pointless. Even now there is almost no trading of the stock, but the cash is running out and that means a fundraise. While the Sunday Times belew Woodford off on this crazy IPO deal we pointed out that whilst it made him personally richer, via higher management fees, he had no need to invest at the IPO price – as the only investor he could have demanded a much lower price – so he was needlessly wasting investors cash. Now with Rutherford out of cash again what will the shares now crash to?
And there were those shares listed on the hubristically titled Guernsey International Stock Exchange where Woodford was the only holder of the class of share in question and had no intention of selling. Woodford makes out that it was nothing to do with him:
the controversial decision to list some of his investments on the tiny and obscure Guernsey stock exchange was not his but the start-ups themselves, although it was seen as an attempt to bypass rules that cap how much of his fund can be invested in unlisted stocks. “That’s a complete and utter lie,” Woodford snaps.
But he then explains that:
We made it very clear that if they wanted us to remain as shareholders, we said there’s pressure building on us in terms of our exposure in unquoted assets, if you want us to remain a shareholder you have got to list your shares, otherwise we will breach our unquoted limit
Obviously a complete and utter lie, then: there is no possibility that he held a gun to the heads of those investees. Hmph!
But the unquoted assets limit is there for a reason – and that is liquidity. But if Woodford is the only holder and not selling, then it adds nothing to the liquidity of his funds and thus surely should be ignored.
In any case, four investees just happened to come up with exactly the same solution – a listing in Guernsey. That’s quite a co-incidence, eh Neil? There is no mention of that in the interview.
Nor does Lucy challenge him on the series of Hail Mary investments in the lead up to his equity income fund being gated and eventually closed. In the last few months, with cash at critical levels at the equity income fund and withdrawals running apace and the equity income fund running an overdraft, Woodford continued to pour money which he hadn’t got into Keir Group. It was, as I suggested at the time, his last Hail Mary in a long line of Hail Mary’s – the desperate act of a struggling fund manager trying to avoid a career-ending disaster – and like the others, it too failed.
He is apparently furious at Link – the ACD for all of his funds. He suggests that suspending and then closing Equity Income during the Summer and Autumn of 2019 was incredibly damaging to investors. The implication is that Link was too hasty but I would argue it was way too slow and again Lucy Barton does not challenge him on this. Even a year before gating it surely would have been possible to rescue the fund, but Link sat by and allowed Neil Woodford to continue unabated.
And whilst Woodford’s long term record was excellent (once upon a time) it was, I suggest, largely based on two brave and correct calls: to ignore the dot.com madness around the turn of the century and to keep away from banks as the financial system imploded in 2008. After that, he had to find something else to offer outperformance and in his later years at Invesco he started piling money into crazy unlisted ideas, such as the trackable pallet company RM2. As things progressed (or didn’t) further funding rounds were conducted at ever higher prices which allowed gains to be booked but which would surely affect the risk of investing in his Invesco funds. But with seemingly unlimited funds at Invesco, he was safe for a while. The interesting point is that just after he left Invesco, the firm was slapped with fines by the FCA and all the transgressions were to do with funds managed by….Neil Woodford, but there is no mention of that in the interview.
Undaunted, and now with his own investment house, where he was the boss, his taste for unlisted investments grew and although a good many ended up with an AIM listing they needed bailout after bailout. The list of abject failures is almost endless: RM2, laws-of-physics defying Industrial Heat, Verseon, BenevolentAI, Eve Sleep, Sphere Medical, Xeros, Thin Film – the list goes on and on. And on. Woodford wants us to focus on the successes, pointing to Oxford Nanopore, Synairgen and Kymab. But if you look at the NAV of what was the Woodford Patient Capital Trust since he abandoned ship it was down by 33% in the year to September 2020….so much for being vindicated! But again, this is not raised in the blow-off interview.
Woodford may be angry at Link, but his investors will be furious both with him and Link, for they are very heavily out of pocket and still have not got all of what little remains of their money back. I certainly won’t be shedding any crocodile tears for the poor victim with his share of around £93 million who apparently has had to sell his home! Sorry Neil, that just doesn’t wash. Indeed, I suggest that – just like your claim that there wasn’t a cash crisis and that Equity Income fund was not a forced seller at the WPCT AGM which Tom Winnifrith attended to challenge Woodford, while the FT waited patiently to do another blow job interview, in 2019 , that is just bollocks.
And with a series of highly questionable activities we would argue that he should not be allowed near fund management again. In the light of this PR stunt of an interview, I think the FCA needs to announce first thing tomorrow that it will not allow Neil Woodford to practise again, permanently.
With a desire to go back into unlisted biotechs and healthcare, surely a look at what happened to Patient Capital will persuade the FCA that it has to act, and act now. Neil Woodford may dismiss his disgrace as being two years ago, but those who invested are still paying the price while he and Craig Newman count their winnings from an exercise which ShareProphets was explicit would end in abject failure long before the mainstream media started asking questions.
And worse still, he has been advising Acacia – the fund which bought a bunch of Woodford stocks at a huge discount after he had been given the boot and sold them on for a quick and tasty profit. How much did Woodford earn from that? He is not asked.
Apparently his new investors will be a different breed to the retail punters because they have a long term view. But Patient Capital was a closed-ended fund so there were no liquidity issues from investors wanting to sell up and look what happened to it! It borrowed money from the bank but had too many cash-hungry mouths to feed in the first place, which was massively exacerbated by the asset swap with Equity Income when it handed over liquid investments in return for more cash-hungry mouths to feed, and it hadn’t the cash. As per our coverage of Immunocore’s listing on Nasdaq, it seems that the bank is in the box seat and even with a big winner, shareholders don’t get all that much back.
I suppose it is fine to have a feature on Woodford – free speech, and all that – but it is not fine if the uncomfortable truth is not put to him. This exclusive yet again shows all that is wrong with mainstream media financial coverage and shows that there is, in my view, no remorse to be found towards Woodford’s investors. What folks like Lucy Burton or that creep from Sky News or Harriet Dennys of the Mail on Sunday fail to understand is that while their faustian pact scoops may win them plaudits in a corrupt industry, real folks who earn far less than them make duff financial decisions on the basis of what they write. Folks like Lucy, Mark and Harriet do not seem to care about that and that makes them, like Woodford himself, part of the problem of corruption in financial services. Not part pof the solution.
As for the claim that it will be different this time……unless the FCA pulls its finger out and given him a life ban, that is just laughable. Surely, surely the FCA would not risk a repeat, would it? The article concedes that an FCA enquiry is ongoing. Surely this news is the cue it needs to wrap that enquiry up, to ban Woodford for life and to fine him £40 million?
Woodford does clearly think that Link is to blame for his downfall although he also says hostile media coverage caused redemptions. At that WPCT AGM he singled out one journalist in particular for that, Mr Tom Winnifrith. But we suspect that Link blames Woodford for the problems he created. If it loses a big claim from a firm like Harcus Parker we suspect that it might launch its own claim against Woodford and his business partner Craig Newman. And that makes it all the more imperative that Harcus Parker – which is months and months ahead of Leigh Day and anyone else who might go after Link – launches its claim asap. We would urge anyone who did lose money on Woodford to abandon any other lawyers talking about going after Link and to sign up with Harcus Parker NOW, as this case gets underway. That is another way to sink Woodford’s comeback, even if the FCA fails to act as it should.
The idea that someone can presiude over such a disaster, then serve less than two years away from the coalface, before returning to “business as normal” work is just obscene. It is not as if the world is crying out for more fund managers, least of all one who lies and cheats in the way that Woodford has, enriching himself and ruining so many others in the process.