Shares plummet as renowned British investment manager Neil Woodford suspends flagship fund

Thousands of investors in limbo as world-renowned investor halts trading and puts fund in lockdown

British fund manager Neil Woodford has put his fund in lockdown after an exodus of savers, the move led to shares slumping on Tuesday.  Michael Walter/Troika

Renowned British fund manager Neil Woodford, who has been hit by a rising tide of withdrawals, was on the defensive on Tuesday as traded shares in his flagship fund dropped sharply in price.

Mr Woodford has placed a highly unusual stay on withdrawals to keep his £4 billion equity income fund afloat amid a mass exodus of investors – many from overseas. The unusual move followed an announcement on Monday that the fund was suspending trading owing to a high volume of withdrawals. Last month, £187 million was pulled out of the fund.

Thousands of savers have been blocked from retrieving their investments with the fund now in lockdown for at least four weeks.

Woodford Equity Income was worth £10bn two years ago and has now dropped to £3.7bn.

During early trading on Tuesday, shares tumbled 20 per cent before recovering to a 10 per cent drop with shares trading at 68p.

On Friday, investor Kent County Council requested to pull £250m, which is believed to have been the catalyst for the lockdown.

Mr Woodford, 59, built his reputation by calling major swings in technology, tobacco and other stocks over decades at Invesco Perpetual, and once managed the UK’s largest equity fund. It was during his time at Invesco Perpetual that Mr Woodford developed a reputation for correctly calling major swings across stocks, building the company’s assets up to about £33bn over two decades.

But now he faces one of the biggest crises of his career.

The move to freeze assets could further undermine investor confidence and puts pressure on his company after assets tumbled in the LF Woodford Equity Income Fund.

The move reverberated across markets, sending shares of Hargreaves Lansdown, a UK investment platform, down by as much as 4.7 per cent amid concern of an investor backlash.

Mr Woodford launched his own vehicle in 2014 and was off to a strong start before stumbling in the past year.

His flagship fund fell 18 per cent in the past year and has declined at an annual pace of 6 per cent over the past three years, putting his company near the bottom of its peer group.

The fund is down 7 per cent year-to-date, while the FTSE All-Share Index has advanced.

Woodford Investment Management incurred losses in recent years on picks such as biotech developer Prothena, online estate agent Purplebricks, and lender Provident Financial, according to March figures posted on his company's website.

The main fund’s assets shrank by £560m in May through a combination of investor withdrawals and poor performance.

His decision to freeze withdrawals gives Mr Woodford time to reposition illiquid holdings, the company said late on Monday.

A significant drop in size could undermine Mr Woodford’s ability to run the fund effectively, Hargreaves Lansdown said, explaining its decision to remove that fund and the Income Focus Fund from its "buy" list.

Freezing withdrawals "is a difficult to decision to make", said Emma Wall, head of investment at Hargreaves.

"It’s disturbing for investors. Any negative news like this is worrying. But it gives him the breathing space to get on being an investor rather than constantly worrying about redemptions. He can use these 28 days to offload illiquid assets, which he’s doing anyway.”

The halt on redemptions and purchases took immediate effect and will remain until further notice, according to Woodford’s website.

The company promised to keep investors informed about the likely duration of the suspension. A spokesman for the company declined to comment further.

The Financial Conduct Authority said it was aware of the situation and was in contact with the companies involved.

"The decision to suspend was made by the fund’s authorised corporate director, in conjunction with the depositary, and is to allow an important orderly process of asset sales to happen," an FCA spokesman said.