Kamran Vojdani and analyst Jonathan Garvey assess the recently published annual report of Link Fund Solutions, the Authorised Corporate Director of the Woodford Equity Income Fund
Link Fund Solutions Limited ("Link"), the Authorised Corporate Director of the Woodford Equity Income Fund ("WEIF"), recently published its annual report for the period 1 January 2019 to 31 March 2020. It had been 13 months since Link, in the form of an interim report, had provided full disclosure on the fund's assets.
Between the date the fund was frozen to withdrawals, 3 June 2019, and the date it was decided to wind-up the fund, 15 October 2019, the value of the fund decreased by nearly £600 million as a result of revaluations of unsold unquoted assets (£172m), market price changes in unsold quoted assets (£260m), and unmet expectations on sold unquoted assets (£116m). These changes suggest that a proportion of the fund's assets had higher values than what could be achieved in the market.
Looking at the fund's primary share class, WEIF's performance for the period indicated in the report (1 January 2019 to 17 January 2020) was -25.64%. In the same period, the return on the FTSE All Share Total Return was +20.98%, indicating a WEIF underperformance of 46.62%.
The wind-up of the fund's assets commenced on 18 January 2020.
The sale of WEIF's securities included a deal Link made for the sale of 19 healthcare assets – a mix of listed and unquoted stocks – to a company called Acacia Research Corporation. The agreed sale price was £223.9 million. Link has reported that a decrease of £91.1 million in the fund's overall value, in August 2020, reflected an adjustment for the Acacia deal (i.e. selling some of those assets for less than the value at which they were held) and the sale of certain unquoted assets at a price less than they had been previously valued.
At 1 September 2020, the assets remaining in WEIF were valued at £288 million by Link. At its suspension, the fund was valued at £3.61 billion and through three capital distributions, investors have so far received back a total of £2.45 billion. Should the remaining assets be realised and distributed to investors at their current value (£288 million), a possibility subject to uncertainty given the nature of the assets, then distributions will total 76% of the fund's value when it was frozen in June 2019.
The proportion of the fund's value that has been lost during the wind-up process illustrates the difficulty Link has had in selling assets at the price they had been valued previously. This, in addition to the time the wind-up process has taken, can also be said to illustrate the extent of the fund's illiquidity – a risk that retail investors in an open-ended fund should not have been reasonably expected to shoulder. Indeed, a key feature of open-ended funds is that they are highly liquid. We also consider the write down in asset prices and poor performance of the fund in the period covered by the report cannot be attributed to the Covid-19 market panic because nearly all the asset sales were made before the pandemic's impact.
Finally, Link expects to make its next payment to investors on 30 November 2020, with some asset sales unlikely to be completed until mid to late 2021. So, it may be closer to 2022 when the fund is fully wound-up. Until the end of March 2020, £13 million in investors' money had already been used to hire firms to help dissolve the fund.
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