Woodford suspends trading in flagship fund after investors flee

Neil Woodford has suspended trading in his flagship fund after investors withdrew £10 million ($13 million) a day last month. The surge in outflows follows sustained poor performance by the fund that culminated in it being among the worst performers in May.

Woodford left Invesco Perpetual in 2014 with a record of outperforming the market and a reputation as a successful backer of biotechs. However, the funds Woodford set up since going independent have been hit by a succession of blows, in many cases because the bets he placed on drug developers such as Circassia, Northwest Biotherapeutics and Prothena failed to pay off. 

The Woodford Equity Income Fund has significantly underperformed the U.K. stock market over the past few years, leading investors to reconsider their positions. Last month, a U.K. county council said (PDF) it was reconsidering its £250 million investment in the fund, citing “adverse publicity associated with Woodford.”

With other investors withdrawing £10 million a day in May, according to ratings agency Morningstar, the rate of outflows and potential for it to accelerate led Woodford to suspend trading in the fund. Trading in Woodford’s other funds is unaffected by the action.  

Woodford framed the suspension as a way to protect existing backers by giving him time to move more of the fund’s holdings from illiquid investments to easy-to-trade stocks. The desire to sell stakes in private companies and illiquid stocks could affect Woodford’s biotech holdings.

At the last count, about 9% of the equity fund was invested in five private companies involved in life sciences: AMO Pharma, Benevolent AI, Immunocore, Kymab and Oxford Nanopore. Another tranche of the fund is held in thinly traded stocks that would be hard for Woodford to sell quickly in the event investors asked to withdraw large sums of money.

The fund has always backed unquoted biotechs—Woodford helped Immunocore to its $320 million series A in 2015—but the proportion held in private companies increased as investors pulled money out. Across 23 consecutive months of net outflows, the assets held by the fund have shrunk from £10.2 billion to £3.7 billion. Sales of stocks funded the outflows requests, causing the proportion of the fund held in private companies to rise toward 10% last year. 

With Benevolent AI, Immunocore, Kymab and Oxford Nanopore all mooted candidates for IPOs, the holdings could become more liquid and boost the value of Woodford’s fund in the near future, if he holds on to the shares that long. For now, the focus is on righting the ship.

“While this news is clearly not going to be received well by those who might have wanted to withdraw in the near future, it is in the best interest of remaining investors that the fund is stabilized and not forced into a fire sale of existing assets,” Jason Hollands, a managing director at Tilney Investment Management, told The Guardian