US Edition
Investors who lost nothing in the Woodford collapse will profit from the compensation while potentially thousands of those affected will not receive a penny.
Hargreaves Lansdown funds that were invested in Neil Woodford’s flagship fund are to receive a cash injection this month when the first compensation payment is made. The first redress payment is due on 28 March. However, investors who actually held these funds at the time of the debacle in 2019 and later sold out will not get any of their money back.
Customers of Hargreaves Lansdown accounted for £1.6bn of the £3.7bn trapped inside the fund manager’s collapsed equity fund. Almost 134,000 were invested directly in Woodford Equity Income Fund, while a further 158,000 had indirect exposure through Hargreaves Lansdown’s funds, including the popular Multi-Manager range. One of these six funds – the HL Multi-Manager Income & Growth trust – had an 11pc stake.
Like other investors, Hargreaves Lansdown was blocked from taking its money out.
But investors holding the multi-manager funds were free to redeem their cash – and many rushed for the exit.
Data from research firm Morningstar shows investors pulled £500m out of the multi-manager funds over the six months following the Woodford fund’s collapse.
Compensation will go not to these investors who ran for the door but will be paid back into the funds instead. This is despite the fact that many customers likely sold up when the fund was falling in value and are likely to have lost money as a result.
Hargreaves Lansdown said the money will be reinvested by the fund managers according to the relevant fund’s strategy.
This means those holding funds at the time of the first redress payment will indirectly benefit from the compensation, even if they never invested in Woodford.
One investor, who held all six of the multi-managed funds through Hargreaves Lansdown’s Portfolio Management Service, said: “It seems intuitively unjust that those who held the funds at the time of the suspension but no longer hold the MMFs will lose out.”
The Woodford fund collapsed after the stock picker, who had loaded up on illiquid holdings, was unable to sell assets quickly enough to meet a surge in withdrawal requests from investors.
Link Fund Solutions, its administrator, was later accused by the Financial Conduct Authority (FCA) of mismanaging the liquidity of the fund. It has denied any wrongdoing.
A High Court judge in February approved a £230m compensation scheme for investors. An initial £183.5m payout will be made next month.
Investors had already received some of their money back after the fund was liquidated.
The FCA has backed the scheme, saying it provides the “quickest and best chance” for redress. However, campaigners have argued the package is not enough and criticised the scheme for removing their rights to further compensation.
Hargreaves Lansdown declined to comment.
A Link Fund Solutions spokesman said: “We are pleased the scheme has become effective and our focus is now on ensuring that the Woodford Equity Income Fund (WEIF) will make payments to scheme creditors in the near future.
“We have always believed the scheme was the best option to provide investors, who continued to hold investments in the WEIF at the time of suspension, with a substantial level of redress, with certainty of payment in the near future.”