Link Fund Solutions has been slammed one last time by the UK regulator for its part in the 2019 Woodford Equity Income Fund (WEIF) debacle that seriously harmed late-exiting investors from the liquidity-compromised vehicle.
The Financial Conduct Authority (FCA) says in its final report on the Woodford affair published mid-April that only a parent company-funded investor remediation plan saved the Link UK business from a fine of £50 million for failure “to act with due skill, care and diligence” as the once £10 billion plus WEIF seized-up.
“The [remediation] Scheme, which has been subject to a court-approved process including a vote by Relevant Investors, will involve the disposal by Link of substantially all of its value and, because it includes an additional significant voluntary contribution from Link’s ultimate parent, Link Administration Holdings Limited (“LAHL”), will result in the payment of restitution of up to £230 million, significantly above what would otherwise be available to Link,” the FCA report says.
Link Fund Solutions, previously part of the ASX-listed Link fund administration business, was sold to the Dublin-headquartered global asset servicing company, Waystone, last year.
Meanwhile, the Link parent group itself is subject to a takeover bid from Japanese financial conglomerate, Mitsubishi UFJ Trust and Banking Corporation, with a shareholder meeting scheduled for this Wednesday. Link Market Services NZ is part of the Australian listed group.
The Woodford fund collapse, however, marked a low point in the Link corporate trajectory, putting a dent in the group’s global ambitions.
Run by former star UK investment manager, Neil Woodford, the WEIF halted redemptions soon after a large institutional client, Kent County Council, pulled almost £240 million from the fund, which had shrunk to £3.5 billion from a peak of more than £10 billion in June 2017.
The final FCA report details a more than two-year liquidity deterioration in the strategy as Woodford increased exposure to unlisted UK companies.
Furthermore, the regulatory documents show Link was concerned about the worsening WEIF liquidity dynamics as early as 2017 but “failed to take adequate steps to deal with the problem”, leaving investors “who did not redeem prior to the point of suspension at a disadvantage”.
Therese Chambers, FCA joint executive director of enforcement and market oversight, said in a statement: “Link Fund Solutions’ job was to properly manage the Woodford Equity Income Fund and to protect investors’ interests. Their failings led to losses for those trapped in the fund when it was suspended.”
Link Fund Solutions acted as both administrator and supervisor (in NZ terms) for the WEIF.
The Woodford scandal also raised the alarm for global regulators, including the Financial Markets Authority (FMA) in NZ, over retail fund liquidity management.
For instance, the FMA introduced new liquidity guidance for licensed fund managers in 2021 with a revised version slated for release this week.
Also last week, the FCA laid out plans to reverse the troublesome MIFID (Markets in Financial Instruments Directive) rules that ban the sale of ‘bundled’ research and trade execution services to fund managers.
The proposed change “will allow the ‘bundling’ of payments for third-party research and trade execution, and would exist alongside those already available, such as payment from an asset manager’s own resources or from a dedicated account”, the FCA release says.
“The new plans are also compatible with rules governing research payments in certain other major jurisdictions, making it easier for asset managers to buy research in the same way, across borders.”
UK firms adopted the MIFID regulators as part of European-wide reforms introduced in 2014. Post-Brexit, the country has been unwinding EU-related financial entanglements as outlined in the so-called ‘Edinburgh reforms’ released in 2022.