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Woodford fallout: full transparency for fund managers is a must

One minor consolation for investors in Neil Woodford’s funds is that the fallen manager shares their pain. After all, didn’t he say on many occasions, from launch in 2014 to suspension of the flagship Equity Income fund in June, that “all my personal financial investments are in funds we run here”?

Yes, he did. So how much did Woodford invest? And, given that his jointly-owned management company received roughly £100m over the years, did he direct his slice of the dividends into his funds? And what is a “financial investment” anyway? The term would normally be taken to exclude cash and property. Is it possible that Woodford could have sold units in order to buy, say, a house or a farm or to place cash on deposit? If he had done so, he would still be able to say 100% of his “financial investments” were in his funds.

There is, to be clear, no suggestion that Woodford reduced his personal exposure to his misfiring funds at any time. The only exception is the personal sale that was disclosed – the disposal in July this year of £1m of shares in the quoted Patient Capital investment trust. The point is that formal disclosure requirements for fund managers, not just Woodford, are minimal – and almost non-existent for unit trusts such as Woodford’s Equity Income and Income Focus funds.

There is a rule that promotional messages, such as boasts about having “skin in the game”, must be “clear, fair and not misleading.” And there is a duty on firms to manage conflicts of interest. But that’s about it. The Financial Conduct Authority (FCA) confirms: there is “no requirement” on fund managers to disclose how much of their own money they have invested in a fund they manage.

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This situation looks unsustainable. All directors of public companies must promptly declare holdings and dealings in their employer. So why not fund managers with their funds?

Over in the US, they’ve had full disclosure since 2004 and the system is surely cleaner. “It is disappointing that the regulator doesn’t require transparency for manager or board ownership of funds in the UK,” says Christopher Traulsen, director at research ratings firm Morningstar. Absolutely right.

To repeat, it’s probable that Woodford still holds all his investments in his funds (aside from the £1m of Patient Capital shares) and suffered the full blast of under-performance. But we shouldn’t have to assume that’s the case. The FCA needs to address this issue. Investors expect transparency – rather than assurances that can’t be checked.

High stakes in threatened Royal Mail pre-Christmas strike

Royal Mail’s management is understandably desperate to avoid a pre-Christmas strike, as currently threatened by the Communication Workers Union, whose members voted a fortnight ago for industrial action by a majority of 97%. The company offered on Tuesday to “enter into discussions without preconditions” if the union rules out action until the end of the year.

Come back on Wednesday to hear the union’s definitive response, but an outbreak of harmony is not the way to bet. Royal Mail’s announcement was “a total sham designed to undermine the CWU and any prospect of an agreement,” said deputy general secretary Terry Pullinger.

The stakes are high in this dispute over pay, pensions, working hours and productivity. A national strike would be the first for a decade at Royal Mail and the likely date of late-November is alarming the City. It would hit Black Friday online shopping orders, which are a nice earner for the parcels side of the business.

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A strike that also falls in the latter stages of a general election campaign would add another twist. The dispute would inevitably risk becoming more politicised, not least because of Labour’s nationalisation plans for the Royal Mail. The shares shed 5% on Tuesday, the biggest fall in the FTSE 250 index. One can understand why.

The public cost of the Brexit commemorative 50p meltdown

A tragedy for collectors: the commemorative 50p coins produced to mark the UK’s (non) departure from the European Union on 31 October are to be melted down and “recycled”. Huge mark-ups on face value were being talked about. Instead, rarity value is being thrown in the smelter.

Mind you, the Treasury’s claim that there’s no cost to the taxpayer also deserves to be binned. Yes, the costs of producing commemorative coins, as opposed to coins for circulation, are met by the Royal Mint and not the Treasury. But the Royal Mint is 100% owned by the state and, since recycling coins is presumably not costless, there is an indirect hit to taxpayers.

It’s one of the smaller Brexit deceits – but the Treasury ought to know what it, and we, own.


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