Surprise, surprise. Neil Woodford, a fund manager who saw no problem in charging £60,000-a-day fees on a fund that was suspended, also thought it acceptable for him and his business partner to pay themselves a £13.8m dividend when returns for investors were on the slide.
The precise timing of the dividend was not revealed in the accounts of Woodford Investment Management but since it was an “interim” payment in a financial year that ended in March 2019, it was probably around December 2018. That was before the Equity Income fund was suspended in June 2019 but well within the period when red flags were raised. Even the dozy Financial Conduct Authority and Woodford’s one-eyed cheerleaders at Hargreaves Lansdown had been asking questions about the flagship fund’s overexposure to illiquid investment.
Woodford, we may guess, was still high on hubris at that stage and rationalised that his management firm was still profitable – indeed, it went on to make operating profits of £18.3m in the full year – so where was the problem in distributing dividends to him and Craig Newman. Or, if he had an inkling that investors could end up trapped in an underperforming fund, it looks appalling to be seen to extract one last payday. Neither interpretation will console the 300,000 investors in that position.
If they wish to be properly enraged, however, those investors should read a line in accounts that was written in late July 2019, several weeks after the flagship fund was suspended. Newman blamed the rush of redemptions, which led to the suspension, on investment underperformance plus “a period of sustained and negative press coverage”.
This claim to victimhood, or so it reads, is astonishing. Woodford was the highest-profile fund manager in the land. He had become fabulously rich but the Equity Income fund was near the bottom of performance tables in the past year. He had baffled even his fan club with his obsession with small unquoted stocks, a different world from the universe of large income-paying stocks where he made his reputation. And the FCA’s chief executive had said the tactic of listing some of those illiquid stocks on Guernsey’s tiny’s stock exchange was a case of “sailing close to the wind”. What sort of press coverage was Woodford expecting?
The defiance, even after calamity had struck, suggests Woodford’s sense of entitlement went even deeper than suspected. The FCA investigation continues but, in the meantime, investors have received a useful lesson in how the retail investment industry’s hype-machine works: it is a fee-generating marvel for those at the top.
Woodford and Newman are thought to have collected about £112m from a venture that blew-up five years after launch. It could only happen in investment management.
Aston Martin is towing a caravan of debt
Urgently required: an Aston Martin enthusiast with deep pockets willing to back a company whose financial forecasts cannot be relied upon.
Yes, it’s another profits warning from the luxury carmaker that has delivered only grim news for the naive investors who backed the October 2018 flotation at £19 a share. The stock now stands at 435p and chief executive Andy Palmer’s refrain about how “we don’t make cars, we make dreams” reads as a bad joke.
Even last summer’s downwardly revised financial forecasts have been exposed as dreamy. Instead of selling 6,300-6,500 cars in 2019, Aston Martin managed 5,809. Worse, the accompanying profit margin will arrive at roughly 13%, instead of the predicted 20%. The net result is that top-line profits for 2019 will almost halve to £130m to £140m.
The unsustainable part is the balance sheet. Net debt is roughly £880m, or 6.5 times top-line earnings, an absurdly high ratio for a business where the sole source of optimism is the level of early orders for a new SUV model. The company is now reduced to borrowing like a pauper from the junk bond market at 12% and 15% to buy some breathing space.
Discussions with “potential strategic investors” continue and “may or may not involve an equity investment in the company”, said the statement. Well, somebody needs to stick in some equity if the main shareholders – a Kuwaiti fund and Italian private equity house Investindustrial – won’t recycle the £1bn of cash they collected by selling a 25% slice at the inflated float price.
Lawrence Stroll, a Canadian billionaire owner of a Formula One team, is a name mentioned. He’s in a strong negotiating position. Aston Martin is going nowhere while it is towing a caravan of expensive debt.
