On 18 June, a fortnight after Neil Woodford’s Equity Income Fund was suspended, Chris Hill wrote to the Treasury Select Committee to outline the impact on Hargreaves Lansdown (HL.) customers. At the time trading in the fund was halted, the investment platform's chief executive explained, some 291,520 accounts were directly or indirectly invested in the fund. This week, those clients learned that the fund, which the platform consistently plugged through its best buy lists, would not reopen.
To many analysts, Hargreaves has scraped through the episode in surprisingly good shape. Through its multi-manager funds and 'Wealth 50 list' the retail investment platform provider remained a staunch backer of the fabled stockpicker despite external criticism, rising redemptions and poor performance by Mr Woodford’s flagship fund. But despite an early wobble in its share price, and contrition from its management team, Hargreaves maintained its operational momentum in the three months to September, adding £1.7bn in net new business.
But the FTSE 100 group could soon face its greatest test in this messy saga.
Link Asset Services, acting as corporate director of the equity income fund, on Tuesday sacked Mr Woodford as manager, and appointed BlackRock and investment bank PJT to expedite the sale of the underlying assets, thereby exacerbating the possibility of further losses.
For investors exposed to the fund, the development is another painful – if predictable – sting in the tail. But for Hargreaves, any blowback so far appears to have been contained. Customers have now had months to voice their frustration and move the rest of their portfolios elsewhere. If anything, the platform’s recent decision to waive exit fees has made this process easier.
Indeed, the addition of 35,000 net customers in the last quarter suggests that those affected have either moved on, or apportion little blame to the platform which recommended Mr Woodford's funds whilst securing cut rates for investors in exchange for distribution privileges.
However, the picture isn’t entirely rosy. One reading of Hargreaves’ third quarter numbers is that inflows from existing clients actually softened, as the lion’s share of new business came from direct back book transfers from JP Morgan and Baillie Gifford, and flows into the group’s “active savings” portal. For its part, the FTSE 100 group blamed the weak underlying investment sentiment on “Brexit and political uncertainty in the UK and wider global macro issues such as trade tariffs”.
But with the renewed push by Link to “return part of investors’ cash as soon as possible”, Hargreaves shareholders will be eager to know whether the true fallout has simply been delayed.
It is likely to be weeks or months before investors’ likely returns are quantified, and whether this will impact Hargreaves’ shares. A more immediate reaction to the news of the wind-up was seen in the shares of core Woodford holdings, many of which were once again hit by selling pressure. Link said that while it would aim to avoid a fire sale by disposing of the fund’s assets “over a reasonable period of time”, it would need to balance liquidity with securing a “reasonable value of the assets”.
Litigation finance house Burford Capital (BUR), online estate agents Purplebricks (PURP) and doorstep lender Provident Financial (PFG) were among the stocks to see a drop in their market price, as investors bet on increased selling pressure in the coming weeks. Those sales may already have started. On the day the wind-up was announced, Woodford's stake in technology investor Allied Minds (ALM) dropped from 22 per cent to less than 5 per cent. Selling of liquid listed assets included in the fund will be handled by BlackRock, which will use the proceeds to purchase money market funds and FTSE 100 index instruments. PJT has been instructed to sell “certain unquoted and less liquid assets”.
Another of those liquid assets (if not its own underlying holdings) is Woodford Patient Capital (WPCT), in which Woodford Investment Management held a 9 per cent stake. On Tuesday, Mr Woodford resigned as portfolio manager of the early-stage venture capital firm, after WPCT’s board told the market it was reviewing “management arrangements”. The shares plunged to fresh flows on the news, to trade at half the group's net asset value.
