By Tom Winnifrith | Saturday 3 April 2021
Link seems to have a habit of shooting itself in the foot at the former Woodford Equity Income Fund as it prepares to defend itself against a legal onslaught from Harcus Parker on behalf of 6,500 folks whose investments were mis-managed into the ground by Neil Woodford, overseen by Link acting as authorised corporate director (ACD). Most recently, it has announced that it has invested some of the fund’s cash into a company called Mafic and the mainstream media has been having a field day as cash supposedly due to be handed out to beleaguered Woodford investors has headed in the opposite direction.
The last fuss was because Link admitted that it had no idea that Woodford had been advising Acacia, which took on a portfolio of Woodford investments at a huge discount, only to profit grotesquely almost immediately on subsequent disposals.
But the accusation that Link didn’t have its eye on the job is surely all the more apparent when one considers the fund’s NAV and distributions since the unit trust was gated back in 2019. Link, in its latest missive to the fund’s investors who are still waiting for what’s left of their money back, says:
we are writing to provide you with an update on the winding up of the Fund and to provide further information and corrections in relation to some recent media reports which could be misleading and causing you concern.
It then goes on to detail how distributions reduce the NAV (no shit, Sherlock) but the bigger accusation – which is totally ignored – is that the NAV at the time the fund was gated sat at £3.7 billion. On the stated NAV, Link tells us:
As the Fund’s authorised corporate director we are required to ensure that the values attributed to assets held by the Fund reflect the fair value of those assets when taking into account all relevant market information and circumstances
What Link fails to mention in the latest fundholder communication is that the stated £3.7 billion NAV as the gates were shut turned into £2.93 billion just four months later – a whopping drop of 21%. During a bull market.
Worse still, link details the distributions made thus far, totalling £2.55 billion and tells us that as at 26 February there were £164 million of assets left over. So out of £3.7 billion at time of gating, investors might expect to get around £2.7 billion back. Eventually.
If the media wishes to point the finger at Link for mis-managing the assets post gating, surely one has to consider the 21% drop in NAV in the four months post-gating from £3.7 billion to £3.93 billion as a series of the fund’s assets were written down in the wake of the gating. In my view, it is this which suggests that Link’s eye was not on the ball. The subsequent drop since then, amounting to a further 8% fall is a huge disappointment, not helped by Link’s admission that it did not know that Woodford had been working with Acacia, but I believe it is the 21% drop in four months post-gating which shows where the real shortfall lay.
As for the recent investment into Mafic, the situation is rather more complex than is explained by Lucy White for the Daily Mail HERE. My understanding is that when the Woodford funds were gated, they controlled the equity, but had no cash to invest. As a result, the loss-making company was unable to do a fund-raise as the Woodford funds just vetoed plans to rattle the tin. As the impasse continued, the coffers slowly emptied and despite the company showing at least some promise (some say quite a bit of promise) its hands were tied. With Woodford unceremoniously dumped, and – one assumes – thus the impasse broken, the company was finally able to rattle the tin but by this time the coffers were so bare that any new investor wishing to come in could demand a huge proportion of the company in order to bail it out – or get it via a pre-pack from the Administrators. That background suggests to me that provided Link secures an early exit which retrieves a surplus to the latest follow-on investment, its latest funding for Mafic was the only sensible thing to do: the alternative would have been to write it off altogether.
We will have to await the result of that: if the funding injection allows a proper sale (as opposed to a fire-sale) then all well and good. If, on the other hand, it turns out to be good money after bad then Link will have shot itself in both feet as it tries to outrun the lawyers.
But the chief problem here was Neil Woodford – overseen by ACD Link – which secured a block on new investment that he didn’t like and then ran out of cash. And running out of cash – something foreseen on these pages months and months before the mainstream media caught on – was the issue as Woodford over-invested in cash-hungry unlisted start-ups and other dogs instead of sticking to the implied mandate of an “Equity Income” fund. As the ACD, Link has to take ownership of that in my view, and as with the stated NAV it seems to me that once again Link’s eye was not on the ball.
Link’s dribbling excuse-fest of a shareholder letter last week, trying to deflect blame away from itself seems to me only to expose the extreme weakness of its position. As we await developments with mi’ learned friends, that will, I expect, only encourage Harcus Parker, the leading law firm in the chase to get Woodford’s former investors made good.
I am expecting to hear that Harcus Parker has filed against Link in a matter of days – not a Letter Before Action like Leigh Day or Iraq infamy but an actual claim. Harcus Parker is way ahead of the pack: the team already has form against Link, funding is in place, the letter before action was sent last year and as such it is the obvious choice for former Woodford fundholders who want compensation and quickly.
For details of how to get signed up with Harcus Parker – at no risk – click HERE.