Herding , Woodford and platforms

woodford

Adam Norris , the genius behind much of Hargreaves Lansdown’s success told me how he switched money in bulk from Equitable Life onto the HL platform.

He read the society’s rules and discovered that as an Equitable policyholder, he was entitled to a list of all of the other policyholders in the society together with other identifiers

When the list came his way, he matched Equitable policyholders to HL investors, there was a remarkable fit. People who liked Equitable liked Hargreaves Lansdown. All that remained to be done was to invite those who matched to transfer funds to HL on special terms and one of HL’s  most successful marketing campaigns commenced.

I tell the story following the decision taken by various investors to sack Woodford as their fund manager. This from the FT

Wealth manager St James’s Place has terminated its £3.5bn relationship with Neil Woodford, in a devastating blow that leaves Britain’s best-known fund manager fighting to save his business.

The decision — which wipes out 40 per cent of Mr Woodford’s assets under management — continues a disastrous week for the famed stockpicker, who was forced to freeze his flagship fund on Monday to halt an investor exodus.

Money that comes easy, leaves easy and the rules of diversifying your distribution apply equally to Terry Smith and Nick Train (Fundsmith and Lindsell Train respectively). If your investors are coming to you in herds, then you had better have an effective way to manage them leaving in herds.

The FT also report that the FCA , he UK’s financial watchdog is examining the approach of the fund and its stance on European rules that cap investments in unlisted assets.

I hope they are considering the role of platforms too. The action of SJP will do little for the remaining investors who are standing by Woodford and his funds. They will now have to suffer the consequences of Woodford losing 40% of his funds under management. It will be interesting to see what happens when the gate re-opens

The consequences of any disinvestment will be felt most amongst the companies into which the funds are invested, many of which have not got much liquidity. What SJP’s action means is that many people’s jobs will be put at risk as well as a lot of shareholder equity.

Where stocks are sold where there is market liquidity, then the consequences of disinvestment on this scale will include huge spreads as the market sees the trades coming. This of course will impact SJP’s holdings in former Woodford funds.

Shareholders accepted Woodford’s money on the basis of it being long-term “patient” capital, Woodford presumably saw SJP as a long-term partner as well.

I am quite sure that the consequences of SJP’s actions will be severe and widespread. I am far from clear they are in the best interest of anyone.

Woodford’s recent statement on the gating of his flagship fund came before the news from SJP


Herding, Woodford and Platforms

The blog started by demonstrating how well organised platforms can move money in bulk. The Equitable Life policyholders were naturally attracted to Hargreaves Lansdown who have served them well since.

HL removed Woodford from its Wealth 50. Its statement on its position on Woodford’s funds and the gating can be read here.

SJP has not entered a fire sale (the mandate has been passed to Columbia Threadneedle who will be charged with re-organising the fund). ,But SJP, like HL – have severely undermined confidence in Woodford and further undermined confidence in active fund management.

I hope that matters will work out for SJP and Hargreaves Lansdown investors, but can see few winners from this. Platforms, model portfolios and lists like Wealth 50 encourage a concentration of investment which carries the risks of herding.

When things go wrong for the crowd, as Equitable Life found, they go wrong big-time.

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to Herding , Woodford and platforms

  1. Robert Davies says:

    The comments about Smith and Train are well made. But when will intermediaries, and investors, stop following brand names and marketing hype and start looking under the bonnet at what these funds actually do.
    Due diligence by advisers is notable only for its absence.

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