Fund house Invesco Perpetual has been fined £18.6m by the Financial Conduct Authority (FCA) for taking too much risk with investors' money.
The company's flagship Higher Income and Income funds - which were managed by Neil Woodford until he left earlier this year - were among the affected funds. Thirteen other funds were also involved, with total actual losses of nearly £5.3m having to be reimbursed across the board.
Investors who were invested in these 15 Invesco Perpetual funds between May 2008 and November 2012 were exposed to "greater levels of risk than they had been led to believe", including the non-disclosed use of derivatives, according to the regulator.
According to the FCA, Invesco Perpetual introduced leverage of up to £1bn into some of its funds through the use of derivatives (equivalent to 5 per cent of the net asset value of these funds), without properly informing its investors. The FCA also found that the company breached rules on diversification designed to ensure that investors were not excessively exposed to any individual company.
The FCA also said the company placed investors at a risk of loss over a two-year period between 2010 and 2011, because at least 9 per cent of trades in fixed-income funds were not recorded on the day of execution, creating a risk that the daily valuation of these funds would be inaccurate.
Mr Woodford was in charge of the Higher Income and Income funds for the full period during which the risk controls failed, and he announced his departure a year after, in October 2013. Management duties for the funds passed to Mark Barnett at the start of March, two months earlier than expected. Mr Woodford left the company on 29 April, a day after the FCA announced the fine.
We could not reach Mr Woodford for comment. When questioned by Investors Chronicle, an Invesco Perpetual spokesperson did not deny that the star manager's exit was related to the regulatory failings.
The company said: "Last October he stated publicly that his decision to leave was a personal one based on [his] views about where [he] sees long-term opportunities in the fund management industry, and that his intention was to establish a new fund management business after his departure."
Invesco Perpetual has paid out compensation to the funds, and has settled early with the FCA, which has reduced its fine by 30 per cent. The fine is still the largest in fund management history.
