I am not sure why I was invited to this very eminent salon event in Kings College. It was good to hear some high level thoughts on private assets and their increasing importance as listed assets are harder or asset managers to extract value from.
You can view the event from this link
The purpose of this event was billed as an examination of the risks of “Woodford 2.0” but I cam away thinking there are a lot of people who are very clever but that this was not making me much wiser. I get that feeling listening to Nico Aspinall, maybe I’m tone deaf to actuarial speak!
What the public needs and needs from smart people like the ones mentioned above, are three assurances
- That value for money is being delivered and that people’s savings are not supporting healthy lifestyles
- That private equity and credit is delivering net value and that funds aren’t sitting in cash waiting for too long for decisions to be taken/excellent prospects found
- That the time horizons for investments are made clear so that only long term investors get involved with assets with short term investments.
That I think is what I got from the meeting but I have to say a lot of what was said went over my head and I worry that as consultants and wealth managers promote illiquid private market investments to a new market of investors, we risk Woodford 2.0.
Woodford’s funds crashed because no-one would buy his stocks and he had investors who thought they were in unit-linked investments like the ones they were used to (eg tradeable).
My fear is not for LGPS (who seemed to have a lot of stakeholders in the salon) but for people who get caught up in LTAFs which give a false sense of security. It is Toby Nangle’s chart that sticks in my mind and his warning that fund of funds simply don’t work in delivering value for money
The chart above shows that fund of funds can deliver a lot of out-performance from clever people (as we had in the Salon) but when sold in fund of funds , they delivered to the punter net under performance. I am sure that if you run $100bn in a Canadian pension you invest internally and can manage the risks, but what about the £4bn master trust getting access to private markets from LTAFs? Fund of funds don’t cut the ice for Nangle.
Toby’s two charts show how fund of funds simply fail the VFM test. Compare the costs of fund of funds (in the ellipse) with direct investments in the rectangles and you can see the cost issue. My worry is that much of cost is to avoid illiquidity, but results in little gain over investing passively in listed markets.
Most people who didn’t invest in Woodford have a happy story to tell – both of private and listed stocks. Illiquidity does not seem to me the problem, it is the cost of keeping liquidity for people who have no desire to invest long-term or the capital to do it directly.
Woodford was good at his job. I bought in to his fund. I believe the problem was caused by commentators who did not like Woodford, resulting in panic from big investors causing a run on the fund. Stocks were then sold off at knock down prices leaving some out of pocket. Have we yet received the promised moneys from LFS? I still have a small positive figure showing on my HL account.
Was Neil Woodford to the 2010s what Tony Dye was to the 1990s?
I think the jury’s still out on both of those.
Do you still hold your view that Woodford was “good at his job”?
I note today that the FCA has fined Neil Woodford for failures over the management of his Woodford Equity Income fund.
Woodford has been fined £5.8m and banned from holding senior manager roles and managing funds for retail investors, for making ‘unreasonable and inappropriate investment decisions’.
The FCA has also fined his eponymous investment firm, Woodford Investment Management (WIM), £40m.
Woodford is appealing the decision at the Upper Tribunal.
Woodford’s fund crashed because it was unit linked. he should have set up an investment trust.
He did – Woodford Patient Capital. That crashed as well. He made some really silly investments, like a ‘Cold Fusion’ company. Schroders eventually took over the management as ‘Schroders Capital Global Innovation Trust’. -87% return over 10 years, mostly before Schroders took over.