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FCA SINKS TEETH INTO WOODFORD.

Byline: JAMES BOOTH @Jamesdbooth1

THE FINANCIAL Conduct Authority (FCA) said yesterday it had launched a probe into the suspension of stock picker Neil Woodford's PS3.7bn equity income fund.

FCA chief executive Andrew Bailey confirmed the investigation in a letter to Treasury Committee head Nicky Morgan MP.

"We have opened an investigation but cannot comment any further," Bailey said.

The letter also revealsed the FCA had been concerned about the liquidity of the Woodford Equity Income Fund (WEIF) since February last year.

The FCA said it contacted the fund's manager Link Fund Solutions in February and March 2018 regarding breaches of the 10 per cent limit on unlisted securities.

It then held monthly meetings with Link from April to December 2018 to monitor the deteriorating liquidity within the fund.

In April last year, 25 per cent of the fund was invested in securities that would take between 180 and 360 days or more to liquidate. By April 2019 the proportion had risen to 33 per cent, with 32 per cent of stocks taking between 20 and 280 days to liquidate.

By 24 April, Link was sending the City watchdog daily reports on flows in and out of the fund. During May, net outflows averaged one per cent of net asset value (NAV) per week.

The redemption requests between 31 May and 3 June amounted to PS296m, representing 8.2 per cent of NAV. Link was forced to suspend the fund as it would not be able to meet client requests for their cash.

Bailey also said EU rules which allowed Woodford to list stocks on the International Stock Exchange (Tise) in Guernsey to stay within the 10 per cent cap of unlisted securities may need to be changed.

"The events surrounding the WEIF have underlined that just because securities are listed on an eligible market does not automatically mean that those specific securities are liquid," he said.

The FCA said unlisted securities within the fund hit 20 per cent of NAV in February 2019, prior to the listing of some securities on Tise.

The FCA said the fund used EU rules that allowed a security to be excluded from the 10 per cent limit if its issuer planned to list it within 12 months.

A Woodford spokesperson said: "We can confirm we have been contacted by the FCA... and will be co-operating fully with its investigation."

A Link spokesperson said it "will continue to co-operate fully with the FCA throughout this process".

CAPTION(S):

Former star trader Woodford has seen his fortunes crumble

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Publication:City AM (London, England)
Date:Jun 19, 2019
Words:423
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