Mandatory Credit: Photo by Jenny Goodall/ANL/REX/Shutterstock (6203463a) Holly Black Interviews Neil Woodford Of Woodford Investment Management. Holly Black Interviews Neil Woodford Of Woodford Investment Management.
Neil Woodford © Goodall/ANL/REX/Shutterstock

Neil Woodford’s flagship fund is close to hitting a 10 per cent regulatory ceiling on the proportion of his fund that can be invested in unquoted securities, the latest concern for the British investment manager who has endured more than £1.2bn of redemptions since May as a string of investments soured.

The £7.2bn Woodford Equity Income fund had unquoted securities accounting for 9.47 per cent of the portfolio in December. However, that figure rose to 9.69 per cent last month, close to the Financial Conduct Authority’s 10 per cent “hard limit”.

The FCA is aware that the fund is coming up against the 10 per cent cap, according to a person close to the situation, which comes at a highly sensitive time for Mr Woodford. Shares in some of his top holdings, including Purplebricks, the online estate agent, and AA, the road recovery service, have fallen heavily in recent weeks.

As the value of listed investments fall, the weighting of the more illiquid unquoted part of the fund’s portfolio will often rise, risking a so-called “passive breach” of the 10 per cent cap.

The Woodford Equity Income fund’s assets under management have fallen from an all-time high of £10.2bn in May to £7.2bn this month, intensifying pressure on Mr Woodford.

“He is being hit by a perfect storm,” said one analyst. “You don’t want to sell your best-performing investments.”

The Woodford website identified 39 “unquoted” investments in the equity income fund in December, representing just under a third of its 122 investments. But last week, Woodford revamped its website and will no longer identify any investments as unquoted. It said it made the change to avoid confusion with some investments moving from unquoted to quoted.

For example, Evofem, a US biotech and unquoted Woodford investment in December, recently concluded its merger with Nasdaq-quoted Neothetics.

A spokesman for Mr Woodford said: “It [the 10 per cent limit] is something we are very aware of. There are rules in place to manage the situation and protect client interests. There has been no breach.”

In a December interview with the head of research at Hargreaves Lansdown, the funds supermarket, Mr Woodford said having unquoted investments in the fund does not make it more risky.

“It’s not a liquid part of the portfolio, but when we need liquidity we can access it from the rest of the fund. The unquoted element, I mean it will flex depending on valuation changes, how the quoted part of the portfolio changes, but over the next 12-18 months we expect that unquoted element will come down because many of the biggest positions in that unquoted part of the portfolio will be IPOing.”

When the unquoted proportion of the fund hit 9.5 per cent, Mr Woodford also said he was comfortable with that level.

“That percentage may go up and down depending on the relative price of assets both within that unquoted element and in the quoted part of the portfolio.”

“But we’re happy that the risk profile of the fund isn’t changing as a result of this exposure and we see the risk profile of the fund diminishing as these businesses mature and become cash flow generative,” Mr Woodford said.

Provident Financial, another of the Woodford fund’s biggest investments, surged on Tuesday after it announced a £300m rights issue and said it had agreed to pay a fine and compensation over issues relating to its Vanquis unit. Mr Woodford owns just over 24 per cent of the doorstep lender and has agreed to back the rights issue.

Shares in Purplebricks have also struggled since reaching an all-time high of 514.5p in August. They are now trading at just over 424p, close to 18 per cent below their peak.

The Woodford fund last week bought more shares in the AA, the day after the breakdown cover group’s stock price slid 30 per cent after a profit downgrade and dividend cut.

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