Blog – June 2019

There has been a lot of talk about the Woodford Equity Income Fund following the decision to temporarily prevent clients from removing their funds. Whilst the performance of the fund does not appear to have been great, the primary issue is really one of liquidity. A significant element of the investments were in unquoted companies and as the more saleable holdings were cashed in, the fund became more and more illiquid.

I understand that some of the investments were in the Tech sector, either directly or via an investment company – many also in unquoted businesses. This is a high-risk area, normally the domain of early stage private equity, and appears at odds with the level of oversight possible in a £10bn fund, operating without the luxury of a long-term view . Even with the very best investment approach, the reality is that only 1 or possibly 2 investments in 10 will achieve their promise, whilst a few will wither and die, and the remainder grow more slowly.

This is a useful reminder to those tempted to accept some form of share-for-share exchange when selling their company. Unless the stock is actively traded, you will in likelihood be waiting for an offer to be made for the company, which may take many years to come about, if at all. In the meantime, existing shareholders may seek to consolidate their holdings and you can expect to receive offers from the company to buy back your shares – often at a substantial discount to the eventual sale price.