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9 Jun 2020

Woodford fund one year on: when will investors get their final payout?

Some 50% of the remaining funds have now been sold

Half of the remainder of Neil Woodford's failed Equity Income Fund will be bought by US-listed patent licensing firm Acacia Research Corporation for up to £223.9m. So how much closer are investors to receiving the rest of their long-awaited payouts?

Last week marked a year since the initial suspension of Neil Woodford's flagship equity income fund, which left investors in limbo when it froze their savings inside, following a surge in investment withdrawals.

By March this year, hundreds of thousands of investors who had invested their life savings in the fund had received a £2.3bn payout representing around 75% its total value. The remainder of the fund, which includes a few listed shares and a chunk of the unlisted companies was valued at £444m as of 3 June 2020.

Link Fund Solutions, which is overseeing the suspension and liquidation of the fund, says that the recent sale will enable it to make further capital distributions to investors 'in due course', but it's unable to confirm the exact dates and amounts. Link says it will update investors no later than 29 July.

Here, Which? looks at what's happened since the saga began, and how much investors could expect to get back.

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What happened with Woodford's fund?

Neil Woodford was one of the country's most successful investment managers, with funds earning billions of pounds that were very popular with investors.

At its peak in May 2017, the Woodford Equity Income Fund held a record £10.7bn of investors' money.

However, by May 2019, withdrawals were averaging £9m a day, and the fund was suspended on 3 June 2019, trapping £3.7bn of investors' money.

Worse still, investors still had to pay fees, despite being unable to access their money. Woodford was sacked by Link Fund Solutions in October when a decision was made to close the fund. The same month, Link announced it would close the two remaining Woodford funds, although one - formerly known as Woodford Income Focus but now ASI Income Focus - re-opened mid-February.

In January, £2.1bn was paid out to investors, and a further £143m was paid out in March.

Although the Financial Conduct Authority (FCA) opened an investigation into the events leading up to the suspension of the Equity Income fund last June, it has yet to reveal any findings.

Which parts of the fund are still trapped?

The first payout in January was carried out by US investment bank Blackrock.

It was hired to sell the liquid parts of the portfolio - assets which are easier to sell and convert into cash. Funds investing in FTSE 100 shares, for example, are more liquid, as millions of these shares are bought and sold every day.

But the fund's remaining illiquid assets have proved hard to sell.

Investment bank PJT Park Hill was hired to try and sell the fund's illiquid holdings, and the latest sale to Acacia Research Corporation means around half of the illiquid assets are still yet to be sold.

Find out more: what is investment risk?

How much can investors expect to get back?

The sale to Acacia was an agreed selection of up to 19 of the fund's healthcare assets in return for up to £223.9m.

However, Link's update last week noted that the fund has decreased in value once again, meaning future payouts are likely to be even lower.

Its value now stands £114m less than the £558m estimated by Morningstar as at 20 May 2020, meaning there has been a 20% slump since then.

Link Fund Solutions has not said whether the agreed price with Acacia had seen the overall value of the fund fall.

Generally, the fund has lost 24.5% since the coronavirus sell-off began on 20 February, which has seen many investors take a hit to their savings amid a huge market tumble.

The uncertainty around the virus is likely to make the rest of the assets harder to sell, so it's not yet clear how much of the remaining fund investors can expect to get back.

AJ Bell head of active portfolios, Ryan Hughes, says that news of the sale can be 'cautiously welcomed by investors as it moves them one step closer to being able to draw a line under this sorry situation'.

Hughes adds: 'However, there will no doubt be huge frustration at the valuation achieved by Park Hill, which has been managing this process, given the valuation may be lower than other offers that had reportedly been received and rejected previously.

'This highlights the very real problem of being a forced seller with all potential purchasers knowing that Park Hill and Link were in no position to try and push the price higher. At the end of the day with such illiquid stocks, these assets are only worth what someone is prepared to pay for them.

'Ultimately, the challenge for Link has been to find a balance between getting a fair price for the assets and the time taken to achieve this.

'Given one year has already passed since the initial suspension, I'm sure many investors will feel like this has dragged on long enough and it is time to finalise the winding up of the fund - even if it does mean taking yet another hit on the value of their original investment.'

Will investors be compensated for their losses?

Unfortunately, no. The Financial Services Compensation Scheme doesn't cover investments that perform poorly.

Only those people who lost money as a result of negligent advice or fraud, those whose investment company goes bust, or anyone who has received poor financial advice would be eligible for protection. If any of these apply, you would be covered for the first £85,000.

How is coronavirus impacting other property funds?

Equity income funds, where a professional manager invests money directly in property or in property shares, have been popular for many years.

But with companies cutting and scrapping dividends as a result of coronavirus, these funds have taken a hit.

Some 18 major UK property fund suspensions take place so far, with a total of £22.4bn trapped in various funds.

How can you protect your investments in uncertain times?

All investments involve risk, and investment funds should never be treated like easy-access savings accounts.

You should be prepared to invest your money for at least five years, to ride out dips in the market.

But there are ways to minimise risks. For example, you could diversify your portfolio by selecting a range of assets and holding some cash savings. It's also important to continuously monitor any funds you are invested in to see whether any worrying trends are emerging.