Long-suffering investors in the Woodford Equity Income Fund will receive much less than the £306mln of redress they might have expected from the fund's corporate director, with the saga likely to drag on into its fourth year.
Not only is the £235mln maximum payment from Link Fund Solutions (LFS) confirmed by the Financial Conduct Authority today less than the £306mln determined in its initial assessment last September but LFS said the amount of redress expected "will not reach the full redress total".
LFS said it will pay "all of our available resources", which currently represents a net balance of cash and capital resources of £47mln, to those who were invested in the fund at the time of its suspension in June 2019.
It is also in talks with its insurers as it holds "relevant" insurance cover of up to £48mln.
Its parent, Australia's Link Group has "voluntarily" agreed to contribute what it makes from the sale of LFS, which has been agreed with Ireland's Waystone Group for £110-140mln.
If the lower amount was combined with the current assets of LFS it would amount to £157mln and if the full insurance amount it received it would take this to £206mln.
The FCA said the payment was reduced from the £306mln it felt LFS should have to may for its failings, as the original redress total was "substantially greater than the remaining assets" of LFS.
The scheme will also require court approval, with the FCA also pointing out that it remains a live investigation with other parties remaining under investigation.
Also on that note, Meriel Hodgson-Teall, partner at law firm Leigh Day, said they are “urgently considering this latest announcement”.
Leigh Day is one of three law firms pursuing class actions against LFS, with its joint action with Harcus Parker representing around 13,000 investors.
Three-quarters of the total
The Woodford fund was worth about £10bn at its peak but around £3.7bn at the time of its collapse and shuttering in the summer of 2019.
About 300,000 investors were locked in at the time of the collapse.
So far, LFS has returned just over £2.5bn to investors of the assets at the time, promising another £50mln in its last update in October and revealing that the net asset value (NAV) of the fund was just under £80mln as of 30 September 2022, down almost a third in the preceding quarter.
Following these distributions over the past three years, if the full redress payment is made it could take the recovery level to roughly 77p in the pound of the value of the fund on suspension, the FCA said (nearer 75% according to my working).
Although significant hurdles remain to be overcome, given the FCA's public announcement, it should be assumed the regulator has "a strong level of confidence that the sale of the business will go through", said Ryan Hughes, head of investment partnerships at AJ Bell, who added that it would be a surprise if Woodford investors did not approve the deal given how long the saga has dragged on for.
With other parties remaining under investigation and the likely time it will take for the redress process to complete and for payments to be made, the drama looks on course to drag on past the four-year mark.