The Financial Conduct Authority (FCA) has issued a statement in response to comments from Neil Woodford that he plans to launch a new investment business, saying the regulator would be scrutinising the “fitness of its management” before authorising a new firm.
The disgraced manager told the Telegraph over the weekend he plans to “rebuild” his investment empire under a new brand called Woodford Capital Management Partners (WCMP) alongside business partner and right-hand man Craig Newman.
Governance questions hang over Woodford’s comments as he prepares to return to an investment industry that’s seen an explosion of ESG interest recently, with many questioning the ethics of launching a Jersey investment company while the FCA still has not concluded its investigation into the collapse of his retail business just 16 months ago.
In a statement issued last night, Mark Steward, FCA director of enforcement and market oversight said Woodford Investment Management (WIM) is no longer able to offer investment services to retail clients and the proposed new business, WCMP, would need to apply for appropriate permissions before commencing any regulated activity in the UK.
“In taking any decision on whether to authorise a firm, we consider whether it is ready, willing and organised to comply, on a continuing basis, with our requirements and standards. That includes, for example, the sustainability of the firm’s business model and the fitness of its management,” Steward said.
He added it is in contact with the Jersey Financial Services Commission (JFSC) and has agreed with them to both share information on any application made in in the respective jurisdictions for both a fund or entity.
The regulator also confirmed the investigation into WIM is “progressing” despite issues accessing certain documents and witnesses during the pandemic, and called for patience in regards to a conclusion.
Steward added: “It is important to note that any comment about the scope of this ongoing investigation is purely speculation; we have not confirmed who or what we are investigating, though it is public knowledge that there were a significant number of entities in the chain of operation of the Fund. That is important for both legal and practical reasons. In complex investigations, for instance, the scope and subjects often change as further evidence comes to light during the investigation.
“I recognise the time taken to investigate causes frustration among those affected by a firm or fund failure and who are, understandably, looking for answers. They rightly look to us to provide those answers. As a result, it is vital we investigate thoroughly and investigations are not limited at their outset. Instead, we look at what all the evidence tells us before we make conclusions about what, if any, misconduct has taken place and who is responsible, if it has. It is only then that we can assess what, if any, sanction we should put in place. It is important as the decision-makers on investigations that we do not prejudge their conclusion.”
Woodford said in the interview the proposed Jersey-based fund will see him return to his former stomping ground of biotech and healthcare, investing in companies that are reminiscent of the unquoted holdings in his defunct fund, now rebranded LF Equity Income, like Immunocore, Kymab, Synairgen and Oxford Nanopore. Unlike his former fund, the new venture will be targeted at institutional and professional investors as opposed to smaller retail shareholders.
Woodford and Newman have also roped in Acacia Research, the US investor that riled investors after it snapped up a handful of biotech stocks in Woodford Equity Income at a steep discount only to flip several stakes for a profit days later.
‘Major red flag’
However, the environment Woodford is returning to may not be the same as the one he left. City Hive founder and ESG Clarity editorial panellist Bev Shah said the investment industry’s shift towards ESG and responsible investing makes Woodford’s latest venture look even less appealing.
“I would be curious to know how this new entity would pass due diligence of any institutional investor or asset owner,” Shah said.
“With so much more focus on company culture, diversity, ESG and responsible investing, the investment world has changed even since Woodford Investment Management launched.
“Woodford will always be a major red flag on all these fronts and this highly publicised comeback bid only highlights his arrogance further. Any institution investing would really need to justify to their clients why they are taking such an astronomical risk.”
Ryan Hughes, head of active portfolios at AJ Bell, added: “Investment governance is a key part of any fund management process and some may feel that the level of oversight at Woodford was found wanting given what ultimately happened to the funds.
“As a result, I’m sure any professional investor likely to consider a potential future investment with Woodford would place a very high bar on the level of internal oversight and controls in place in order to gain confidence that a similar situation couldn’t happen again.”