Link Fund Solutions (LFS) has agreed to provide Link Administration Holdings (Link Group) a significant redress payment to investors in the Woodford Equity Income Fund of up to approximately £235m.

The redress follows an investigation by the Financial Conduct Authority (FCA) and is to cover losses to more than 300,000 investors in the Woodford fund as a result of failures by LFS, as the authorised corporate director (ACD) of the fund, in managing its liquidity.

Up to £235m in redress includes LFS’s assets – its cash, capital resource and potential insurance proceeds – as well as the proceeds from the sale of Link Group’s fund solutions business. The agreement is subject to the completion of this sale, which is estimated to generate approximately £140m in proceeds.

LFS has a net balance of cash and capital resources of approximately £47m and also holds relevant insurance cover of up to approximately £48m. The FCA stated that discussions between LFS and its insurers are ongoing.

The FCA’s investigation found that, as ACD, LFS had responsibility for ensuring the Woodford fund operated with appropriate liquidity risk management and controls, and that all investors in the fund were treated fairly. The regulator has suggested that LFS made “critical mistakes and errors” in managing the fund’s liquidity with the result that the fund failed to have a reasonable and appropriate liquidity profile from September 2018.

The redress offered in the proposed scheme does not cover investment losses which may have come as a result of any poor financial performance of the investments held by the fund. Instead, the FCA revealed that it covers the losses that flowed from LFS’s conduct which it considers fell below the required standards.

Executive director of enforcement and market oversight at the FCA, Therese Chambers, commented: “The FCA’s investigation raised serious concerns about Link Fund Solutions’ management of the liquidity of the Woodford Equity Income Fund.

“LFS’s actions appear to have caused significant losses for those investors who remained in the fund when it was suspended. We believe the proposed Scheme offers investors the best chance to obtain a better outcome than might be achieved by any other means and it is in the investors’ interests they be given the chance to consider it.”

AJ Bell head of investment partnerships, Ryan Hughes, said the FCA’s redress announcement will come as a “significant relief” for the thousands of investors who have been waiting for some form of compensation.

“Essentially, poor liquidity management meant investors in the fund were left with disproportionately high exposure to illiquid assets which ultimately brought down the fund as it could no longer repay investors who wanted to sell their holdings,” Hughes commented. “The scale of this illiquidity can still be seen today with some assets remaining unsold nearly four years later.”

He added: “While approval of this redress scheme with LFS would close the case and liabilities against them, the FCA points out that this remains a live investigation with other parties remaining under investigation.

“As a result, the Woodford drama will drag on past the four-year mark but many investors will no doubt be glad that significant progress now looks to have been made. While it will take some time for this redress process to complete and for payments to be made, investors are one step closer to being able to finally put this whole sorry episode to bed.”

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