Woodford > LF Equity Income Fund > Class actions

Moe_The_Bartender

Sterlingtimes said:

Leigh Day, at this stage, is targetting Link rather than H&L.

Link have many questions to answer, not least their oversight of Woodford as do the FCA. What an Equity Income fund, an OEIC to boot, was doing investing in unlisted assets is a mystery. They are also getting flak over disposal of unlisted stocks to Acacia at seemingly knock down prices but it seems to me that that was a case of damned if I do, damned if I don’t. It will be interesting to see how this all pans out but no one will come out of it smelling of roses.

bowlhead99

ZingPowZing  Hargreaves Lansdown also promoted a bunch of funds with a weighting in Woodford. For those funds, getting ramped by Hargreaves Lansdown was like getting on the first page of a Google search, so I doubt Hargreaves Lansdown even had to coerce them to include some "dirty Woodford" below the line.

Do you have some examples of the bunch of funds you think they 'ramped' which had a weighting to Woodford's failed fund and which were really grateful for HL promoting them while appearing to be independent? 

HL were promoting their *own* branded multimanager funds-of-funds which contained an allocation to Woodford among other portfolio holdings. AFAIK, they were not recommending that people use rival fund-of-funds products which contained an allocation to Woodford above or below the line. Why would they do that, when they want their customers to use their own HL-managed products? You probably misunderstand what you read somewhere.

So yes they promoted their own products and in some of those products their portfolio management team chose to use Woodford among other managers to allocate the capital. Offering or advertising your own investment product, or even advising customers to use your own product, where part of the product ends up losing money in line with the risk warnings it carries while other parts make money, is not something that breaks financial regulations. And nor should it, as it would be a nonsense to prevent the offering of a collective investment scheme just because some of the investments within the portfolio had a risk of falling in value.

Sterlingtimes said:

Leigh Day, at this stage, is targetting Link rather than H&L.

Which makes more sense, as Link had responsibility for oversight of governance and valuations, and the timing of firing Woodford as manager of the Equity Income fund he had created, and the timing of exit of its various holdings once it decided to liquidate it, because Link were the ACD.

HL didn't have those responsibilities, so a class action pursuing them for (e.g.) suggesting that the Woodford fund had potential to make money as part of a broader portfolio, or even using it as one part of their own portfolios, is unlikely to get far. 

I'm not suggesting that HL's actions are commendable, or that they have covered themselves in glory. However, those actions of not covering themselves in glory are things that have been out in the public domain for ages. Everyone already knows that they promoted the failed fund right up until it was gated, and once it was gated it never reopened, and investors who used it in the last couple of years of its life or stayed in it until liquidation, lost money. People assuming HL will be successfully sued, or be amenable to some sort of voluntary payout, are barking up the wrong tree.

talexuser

I agree the talk of legal restitution from HL is pie in the sky. However it does seem the system does not work with some "too big to fail" aspect when after having it in their multi funds they can just carry on as if nothing has happened when many customers would have lost money. There were plenty of advisors saying dump Woodford long before it imploded. I dumped it for a much more successful UK fund (Evenlode) in 2017 and the fast downward trend in Woodford was matched by an equivalent fast upward trend in Evenlode. It does seem strange that HL would keep such a drag in their multi fund(s) when they should have had some self interest in having a better performing fund.

Alexland

talexuser said:

It does seem strange that HL would keep such a drag in their multi fund(s) when they should have had some self interest in having a better performing fund.

Maybe HL were worried that if they pulled their own brand fund money out of the Woodford fund it would cause the liquidity problem to occur sooner? Much better for it to fail once Mark Dampier had arranged his retirement party.

[Deleted User]

bowlhead99 said:

 You probably misunderstand what you read somewhere.

 People assuming HL will be successfully sued, or be amenable to some sort of voluntary payout, are barking up the wrong tree.

Yes, I saw a couple of headline figures and jumped to the wrong conclusion. 
Given the huge number of investors affected by Woodgate who were mainly clients of Hargreaves Lansdown, I couldn't see any other explanation than a wide scattering of Woodford allocations across a range of funds on the HL platform. 
Also, if I had been charged with landing a fund on a coveted space on the HL platform I would probably have volunteered to add Woodford funds to my portfolio, knowing HL to have a vested interest in their product. Perfectly legal. 
But on further reading Masonic looks right, all the damage was done to investors directly in the Woodford funds or HL's own brand multi manager fund where the Woodford element was a whopping 11%.. Which makes HL's strategy more transparent, at least.

I have to agree that HL have done nothing illegal. Are we still awaiting the FCA findings on this?

bowlhead99

ZingPowZing said

Also, if I had been charged with landing a fund on a coveted space on the HL platform I would probably have volunteered to add Woodford funds to my portfolio, knowing HL to have a vested interest in their product. Perfectly legal. 

I do think you misunderstand this. The way to 'land a fund on a coveted space on the HL platform' (assuming by coveted, you mean a space that was actively promoted among the 'best' funds on their Wealth lists) was to offer a special discounted  (lower-fee) share class to HL's customers while not being in direct competition with HL's own funds.  In that way, from HL's perspective, the HL platform fee appears cheaper to their customers (because the total cost of investing in your fund product is no more expensive than if the customer had bought your fund through a cheaper rival platform), and HL would not be missing out on  any asset management fees because your fund is not in competition with HL's own inhouse multimanager funds.

So if you were running a fund-of-funds in competition with HL and were not also offering their customers better fee rates than you would offer to other platform's customers (thereby absorbing some of HL's platform fee yourself) you would be very unlikely to get any sort of nod of recommendation from them.  HL would make literally nothing out of the fact that you, a rival fund-of-funds manager providing a multi-manager alternative to their own in-house products, chose to include the Woodford fund within your holdings. Using Woodford among your holdings is not playing to a 'vested interest' that could be worth precious Wealth-150 or advertorial space on HL's site - why would they want to recommend your portfolio of funds as a good option over their own portfolio of funds that earns them management fee?

I have to agree that HL have done nothing illegal. Are we still awaiting the FCA findings on this?

Using the 'royal we', I know I'm not waiting for any FCA findings on HL...

But FWIW, HL have always denied there was a direct explicit investigation to their behaviour and simply disclosed that they have conversations with, and provide info to, the regulators all the time, e.g. about the types of funds they may include in marketing lists or the risk of industry contagion if a failing fund is held through other people's funds (e.g. HL's or Jupiter's multi-manager funds etc).

While, as you can imagine, HL will usually decline to comment to the press on the likelihood of litigation from law firms trying to have a pop at them on behalf of aggrieved investors, you would expect that as a FTSE listed company they would need to disclose some direct exposure to FCA sanction if there was some. Generally, it makes sense that FCA don't always disclose who they are investigating for whatever reasons because of potential disruption to markets or adverse effects on an investigated firm's business if it were publicised that they were investigating someone that ultimately came to naught.

[Deleted User]

bowlhead99 said:

I do think you misunderstand this.
HL would make literally nothing out of the fact that you, a rival fund-of-funds manager providing a multi-manager alternative to their own in-house products, chose to include the Woodford fund within your holdings. Using Woodford among your holdings is not playing to a 'vested interest' that could be worth precious Wealth-150 or advertorial space on HL's site - why would they want to recommend your portfolio of funds as a good option over their own portfolio of funds that earns them management fee?

Really, bowlhead99?

“The clients have been stuffed in this horrible Woodford fund. I’ve drawn this big dividend. Nothing to do with me and I’ve been very successful. What do they want me to do? Give the dividend back to the unit holders?” said Mr Hargreaves in defence of the £64 million dividend he received from the company that he is entitled to as he is a 32% shareholder.

bowlhead99

ZingPowZing said:

bowlhead99 said:

I do think you misunderstand this.
HL would make literally nothing out of the fact that you, a rival fund-of-funds manager providing a multi-manager alternative to their own in-house products, chose to include the Woodford fund within your holdings. Using Woodford among your holdings is not playing to a 'vested interest' that could be worth precious Wealth-150 or advertorial space on HL's site - why would they want to recommend your portfolio of funds as a good option over their own portfolio of funds that earns them management fee?

Really, bowlhead99?

“The clients have been stuffed in this horrible Woodford fund. I’ve drawn this big dividend. Nothing to do with me and I’ve been very successful. What do they want me to do? Give the dividend back to the unit holders?” said Mr Hargreaves in defence of the £64 million dividend he received from the company that he is entitled to as he is a 32% shareholder.

You suggested that Hargreaves Lansdown also promoted a bunch of funds with a weighting in Woodford and that for those funds, getting ramped by Hargreaves Lansdown was like getting on the first page of a Google search, so you doubted that Hargreaves Lansdown "even had to coerce them to include some "dirty Woodford" below the line".

I explained that HL didn't actively encourage their customers to invest in multi-manager funds-of-funds which were run by rival fund managers and which might have taken an allocation to Woodford within their investee fund holdings; it would be counterproductive to HL's aim to sell their own managed products.

You suggested that still, someone charged with 'landing a fund on HL's coveted platform' (presumably a non-HL fund manager who wanted to have their fund promoted by HL as an intermediary) would want to have their fund invest some of its money into the Woodford fund because HL would like to promote you and give you the scarce and coveted referral spot on their platform if you invested in Woodford because HL also had a 'vested interest' in Woodford.

But that doesn't follow at all. If you were a fund of funds manager offering a managed product which gives exposure to a portfolio of equity income funds - which would necessarily be a rival to HL's inhouse funds-of-funds products which also do that - why would HL want to promote you and give you a 'coveted' promo spot on their platform just because you chose to offer exposure to the Woodford fund?  They have their own multimanager funds range which featured an allocation to Woodford. So someone else's multimanager fund range that also offered diversified exposure to a fund-of-funds investment strategy which includes Woodford's equity income fund among its holding, would be a direct rival to their own products. To promote your rival fund in a 'coveted' recommendation slot on their website would have the effect of diverting the potential multimanager funds-of-funds management fee income which they would have been hoping to earn in Hargreaves Lansdown Fund Management Limited, away from that HL group company - and give it to you, the rival fund manager who wanted to offer a multimanager product that offered Woodford exposure in competition to HL's own multimanager funds.

That seems a very strange conspiracy theory as it doesn't make any logical sense. You creating a rival fund to theirs, taking exposure to the same investee funds as they did (including Woodford) is not the sort of thing that would endear you to them and get you a top promotional spot.  What gets you the top promotional spot would be for you to offer their customers an exclusive fee discount while NOT offering a fund product that competes with their own Hargreaves Lansdown Fund Management Limited products such as the 'Income and Growth' fund or whatever they call it, in offering multimanager exposure to investee funds such as Woodford. 

You seem to think that Mr Hargreaves wants people to invest in his rival's products rather than those run by his own fund management company, and would therefore give a coveted recommendation to the rival fund on his own platform to push his customers' money into that fund instead of his own fund, so he can make a bit of a platform fee off it. When instead Mr Hargreaves could promote other funds that give discounts to his customers and don't compete with what his own management company offers. The fact that the rival wants to offer exposure to Woodford is not a positive for HL.  HL were already selling direct access to Woodford funds (directly offering the fund with a discounted share class) and also selling indirect access via their own managed funds such as HL Income and Growth, where they earn management fee on top of platform fee. HL do not make a greater margin if you the rival offer exposure to  Woodford instead of not offering exposure to Woodford, as their 'vested interest' in Woodford's stockpicking performance is not something that is improved if you a rival manager choose to buy a piece of Woodford as a competitor to HL's own inhouse funds.

I think you are probably misunderstanding the difference between HL making money from providing a platform service (for their own funds or third party funds), versus making money from managing a fund that invests in equities, vs managing a fund that invests in other people's funds (such as Woodford's funds). Which is fair enough as you don't use funds yourself so may not have properly got your head around how funds (and funds-of-funds) work.

[Deleted User]

I think you have probably exhausted the Fantasy Fund Manager angle, bowlhead; I have already said that I got the wrong end of the stick about how a quarter of a million Hargreaves Lansdown customers lost money in Woodford. 

What they wouldn't know from reading  "HL would make literally nothing out of the fact that you . .include the Woodford fund within your holdings,".is HLs beneficial interest in Woodford funds, by which investment in Woodford by whatever channel was a win for HL and may help to explain explain their assiduous promotion of the fund up to the day it was gated. 

bowlhead99

ZingPowZing said:

I think you have probably exhausted the Fantasy Fund Manager angle, bowlhead; I have already said that I got the wrong end of the stick about how a quarter of a million Hargreaves Lansdown customers lost money in Woodford. 

What they wouldn't know from reading  "HL would make literally nothing out of the fact that you . .include the Woodford fund within your holdings,".is HLs beneficial interest in Woodford funds, by which investment in Woodford by whatever channel was a win for HL and may help to explain explain their assiduous promotion of the fund up to the day it was gated. 

Clearly they would want Woodford's fund to succeed, because they and their customers were invested in it. But seems a stretch to say that a retail investor's investment in Woodford by whatever channel (especially via a rival multi-manager fund manager poaching investor capital away from HL's own managed products) was a great thing for HL. 

For example, I or HL could have a 'vested interest' in the performance of a Vanguard or iShares index fund, by being an investor in it - but if someone else also puts their £1000 into it we don't make extra money out of the investment fund because the fund's gross performance won't change simply by having more capital at work, and the fund fees charged by Vanguard or iShares are levied on a percentage-of-capital basis so our cost exposure doesn't improve simply by the addition of an extra customer.

So if I were HL with coveted slots on my advertising/ promotion list, I wouldn't be particularly keen to give the slot to a rival indirect investment route to Woodford, because extra money in Woodford doesn't improve my customers' returns from Woodford, while customer money going into a rival's product rather than my own will lose me money.

It's almost certainly the case that HL would have wanted Woodford to be able to maintain his fund size and avoid liquidity issues to stave off failure, so were keen to channel their clients' money to him by promoting direct access to his fund, although they did reduce their own inhouse funds' exposure. The text you snipped out from the middle of my comment made it clear that my comment was in the context of your idea that they would want to pimp out other peoples funds rivalling their own funds simply because it would get more money to Woodford. But they don't make money from other people's funds investing in Woodford; they lose revenues if people are choosing to do it through a rival managed product to their own.