ALEX BRUMMER: The great Woodford robbery

Savers who placed their trust in Neil Woodford’s fund management empire, many on the recommendation of broker Hargreaves Lansdown (HL), now know the scale of the damage done.

The wind-up of the better, more liquid part of the portfolio will result in heavy losses. The best that can be expected is the return of 59p per share and some savers will get back just 46.5p.

This is a calamitous outcome and puts into sharp focus the disgraceful £13.8million dividend paid to Woodford and his associates in the period running up to the crisis. 

Fallen fund manager: Savers who placed their trust in Neil Woodford’s fund management empire, now know the scale of the damage done

Just as contemptible are the supercharged profit margins made by HL on the back of hapless savers, and hopeless enforcement by the Financial Conduct Authority.

Trust in HL has been damaged enormously by the fact that it managed to steer 300,000 of its 1.2m clients either directly or indirectly into Woodford funds.

The probe into the collapse needs to look carefully into the complicity of HL and whether its relationship with Woodford, in effect, made it a related party, which would be an offence.

There are also major questions to be asked about the flaccid oversight by Link, the authorised corporate director. 

As painful as the Woodford experience has been for savers (including this writer), it has dealt an extraordinary blow to the reputation of cult or ‘star’ fund managers and active management in general.

People pay higher fees for active fund management so as to militate against the risk of directly investing in the stock market and for superior outcomes. Better returns might have been achieved on the 2.30 at Doncaster.

Savers have been voting with their feet. Active funds experienced the highest outflows on record, haemorrhaging £32billion in 2019 in spite of healthy stock markets.

Some cash has moved across to lower-cost tracker funds which saw inflows of £19billion. 

The main feature of these vehicles is that they follow the herd. Index funds buy when a share price has risen and sell when it has fallen. 

They are an echo of the deals of other players who, in many cases, will already have taken the cream off the milk.

The Woodford affair has done enormous disservice to those individuals and big investors, such as Kent County Council, who put their trust in the fallen hero’s record. It is a much broader blow to the whole savings culture.

Speed limits

Amid efforts to kill HS2 by a thousand leaks of cost overruns, the ultimate purpose of the high-speed link between London and the North is often forgotten.

Shaving the travel time from London to Birmingham and beyond will have economic advantages. 

But the idea that the HS2 money could be better used improving existing Victorian infrastructure, and focused on connecting Northern cities, is ill-informed. 

As we disclose today Network Rail, which runs the tracks, takes an entirely different view. 

Existing lines between London terminals and the North are at almost full capacity, especially at peak times.

Bottlenecks mean it is impossible to put on further traffic. The alternative to HS2, of an upgrade of existing lines, including bypassing the pinch-points, would be immensely disruptive. 

If engineering works were only possible when the system is down it could take up to 29 years to complete the upgrades all the way to Scotland.

Moreover, current development of Northern Powerhouse routes is based on HS2 coming into service. 

To re-engineer them around existing lines could add up to £15billion to the present cost structure. As seriously, it would require redrawing the whole plan.

HS2 is expensive and may have been gold-plated. But cancelling it would be the equivalent of removing the M6 from the motorway network.

Corruption charter

The idea that companies do bad things rather than the executives who run them is preposterous, yet the system of anonymised financial justice rolls on.

The latest beneficiaries are present and past top bosses at Airbus. It has agreed to pay fraud authorities in Britain, France and the US up to £2.5billion in penalties to settle charges of corruption dating back more than a decade.

A structure of more than 250 agents dishing out the cash to secure orders has been disbanded. 

But controlling minds, as the Serious Fraud Office calls them, escape untainted, with bonuses intact.


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