Portfolio Adviser quotes Richard Ellis on the FCA's first public findings against former fund manager Neil Woodford

Former fund manager Neil Woodford reportedly had a “defective” understanding of his responsibilities in the run-up to the collapse of his £3.7bn Equity Income Fund, UK regulator the Financial Conduct Authority (FCA) has said in its first public findings after a long-running probe.

The FCA claims Woodford’s “unreasonably narrow understanding of his responsibilities for managing liquidity risks” ultimately led to the fund’s downfall in 2019. The collapse of his company, which affected around 300,000 investors, left them with significant losses in one of the UK’s biggest investment scandals.

Commenting for Portfolio Adviser on this development, Richard Ellis, Partner in our Financial Services Regulation & Funds team, comments:

This provides a stark reminder to authorised corporate directors of the need to think holistically and over the long-term. When faced with investors wanting to redeem their investments, there may often be a temptation to meet those redemption requests by liquidating the fund’s more liquid assets.

"This temptation should be resisted. Once the more liquid assets are gone, only the less liquid assets will be left. This means that the liquidity profile of the fund will inevitably deteriorate – to the detriment of the remaining investors.

"It is against this backdrop that the FCA identified breaches not only of the firm’s duty to conduct its business with due skill, care and diligence but also of its duty to pay due regard to the interests of its customers and treat them fairly. Certainly a warning shot to other financial services businesses tempted to do the same.

Read the full article in Portfolio Adviser here.