Pension fund caught off guard after manager suspends trading in fund


Pension Funds

London-based Woodford Investment Management on Monday halted trading of its £4.3 billion ($5.5 billion) equity income fund, the same day that a U.K. local authority pension fund said it planned to redeem its £263 million investment in the fund because of performance concerns.

The £6.4 billion Kent County Council Pension Fund, Maidstone, Kent, decided May 31 that it would redeem its investment in LF Woodford Equity Income Fund on Monday, a spokesman said.

The investment, which was made in two tranches of £200 million in 2014 and £60 million in 2016, reached £317 million in January 2017, when it started to deteriorate, the spokesman said Tuesday. In March, the authority’s fund committee said it planned to reconsider the investment at its June 21 meeting. But on May 31, the fund decided not to wait for a review and proceed with redeeming its interest in the fund, the spokesman said.

Morningstar’s data shows the LF Woodford Equity Income Fund had a one-year return for the year ended May 31 of -18.1%, compared with -3.2% for the FTSE All Share index. Over five years, the fund returned -0.8% compared with 5.3% for the index.

Link Fund Solutions, the operator of the Woodford fund, suspended dealing in shares in the fund Monday “with immediate effect and until further notice,” Woodford Investment Management said Monday in a statement. Trading suspension prevents investors from redeeming their investments following the manager’s announcement.

“This period of suspension is intended to protect the investors in the fund by allowing Woodford, as previously communicated to investors, time to reposition the element of the fund’s portfolio invested in unquoted and less liquid stocks, in to more liquid investments,” Woodford said in the statement. The manager said it would keep investors informed about the duration of the trading suspension.

In a separate emailed comment, Kent County Council’s spokesman said Tuesday that the pension fund is involved in a negotiation over “managed redemption” and expects to receive the money back at a later time.

“The announcement on Monday that trading in the investment fund was suspended was not anticipated. KCC is disappointed that, as a major investor in the fund, we did not receive this prior notification,” the spokesman said, adding that it wasn’t known “whether the decision to suspend trading was linked to the council’s decision to redeem.”

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