The fall of Woodford is another element in favor of passive management | Opinion

Neil Woodford believed himself the British answer to Warren Buffett. That ego helped the fund manager become one of the best-known stock pickers in the country, but it also caused his spectacular fall in 2019. A new book shows how changes in the UK pension scheme, combined with weak regulation, they left British savers exposed.

Built on a Lie: The Rise and Fall of Neil Woodford and the Fate of Middle England’s Money (Built on a lie: the rise of Neil Woodford and the fate of English middle class money) by Owen Walker traces the asset manager’s rise from relatively humble beginnings in a suburban London town. It owes its fame to two great bets. In the internet boom of the late 1990s, he avoided tech because he didn’t understand their stratospheric valuations. When the bubble burst, his High Income fund outperformed. Years later, he made a similar call to avoid bank stocks, before the financial crisis.

These successes made investors trust him with their money. The fees allowed him to embrace a lavish lifestyle, buying a mansion that was once owned by Formula 1 mogul Flavio Briatore. It also encouraged him to leave Invesco Perpetual, one of Britain’s best-known investment houses, and start his own company.

Investors who followed him avidly knew little about the risks he was taking with their money. This vulnerability was the result of radical changes in the British pension market. Walker, journalist for the FT, explains how the closure of company pension plans based on final salary forced savers to manage their own pensions. Faced with thousands of products, they relied on financial advisers, many of whom were loyal to Woodford, as well as the “best buy” lists of groups like Hargreaves Lansdown. The £ 7bn wealth manager supported Woodford to the end.

Woodford Investment Management’s strategy, which at its peak was overseeing £ 18bn, was to invest in riskier unlisted companies, along with large holdings in dividend-paying top-tier companies such as Imperial Brands. But seemingly strong firms like Provident Financial, the home-based lender that was once on the FTSE 100, disappointed. By the time Woodford’s Equity Income fund was discontinued in 2019, only 19 of the 72 companies it owned three years earlier were showing positive returns.

The lack of liquidity of Woodford’s funds hastened its demise. When the Kent County Council, one of his loyal customers, withdrew his £ 263 million investment, Woodford had no cash to meet the demand. While savers believed they had instant access to their money, their unlisted holdings were difficult to sell, and their listed positions had grown so large that they could not be liquidated without further plunging the price.
This flaw, which goes far beyond Woodford, is the lie of the book’s title. When former Bank of England Governor Mark Carney was asked at a parliamentary appearance about the implosion, he explained that the problem could be systemic for much of the asset management industry.

Walker believes that regulators share some of the blame. The Financial Conduct Authority cleared Woodford’s new venture in record time, despite the fact that it faced an open investigation into its Invesco operations. The regulator also allowed it to use outsourcing firm Capita Asset Services as a kind of external regulator, or Authorized Corporate Director, despite the fact that the manager was also the largest shareholder in the provider’s parent company.

Internal checks and balances also failed. Woodford planned to invest $ 250 million in US bioscience firm Evofem, even though he had only met twice in London with a company executive. When Equity Income was about to exceed the limit of 10% of assets invested in unlisted, it put pressure on some of those companies to issue their shares on the opaque Guernsey Stock Exchange.

Woodford’s disappearance is also another nail in the coffin of active management. The growth of cheap index funds has put pressure on active managers to show that they can add value. His successful counter bets seemed to justify higher commissions. But his clients would have fared much better if they had entrusted their pension funds to an indexed product.

Walker juxtaposes the lifestyle of managers with the pensioners whose money they manage. Woodford spent nearly £ 14 billion on a 400-hectare retreat in the Cotswolds and tested a Ferrari on the manufacturer’s private track. Meanwhile, the owner of a bed and breakfast The 67-year-old lost part of her savings and has to continue working.

But Woodford doesn’t seem to think there is no remedy. In February it revealed its plans to launch a new fund in Jersey, managing only institutional money. But with the results of an FCA review of its rulings still unpublished, it seems unlikely that it will return to the fray. The best he can hope for is that investors and regulators will learn the lessons from his failures.

The authors are columnists for Reuters Breakingviews. Opinions are yours. The translation, of Carlos Gomez Down, it is the responsibility of Five days


Works, signings and a pandemic shoot up the debt of Real Madrid and Barcelona | Companies

FC Barcelona and Real Madrid, the ocean liners of Spanish football and leaders in turnover at the European level, see how the pandemic puts their financial foundations to the test. The accounts of both show some similarities and quite a few management differences, but reflect balances stressed by the situation.

Both have skyrocketed their net debt: Barcelona has doubled it to 488 million and Real Madrid, which had zero debt, has increased it to 354 million.

There are shared factors in this: both have resorted to bank financing to alleviate the drop in income and cash. The white club has multiplied it by four to 205 million, of which 153 are long-term. In its economic report, it recognizes that it does so to “compensate for the cash losses caused by Covid-19.”

Barcelona already had bank debt, but Covid has increased it and anticipated its maturities, placing itself in a more stressed position. If in 2019 this liability was 72 million in 2020 it touched 280, after having 117.7 million of a credit policy, in addition to other loans for your project Barça space remodeling of the Camp Nou environment.
Precisely the works are shown as a burden for both. Madrid recognizes a debt for which it undertakes at the Bernabéu of 114 million, which does not include its net debt. This article does take it into account for comparative purposes, since Barcelona does include the works of Barça space in his, valued at 110 million.

Maneuver funds

The situation in the Catalans is more problematic when it is observed that 266 million of their bank debt expire on June 30, and that their working capital is negative at 602 million. This “could raise doubts about the application of the going concern principle,” reads his report. Real Madrid also has a negative 112 million, 50 more than a year earlier, due to investments in stadium, players and treasury losses. But his memory points out that the loans without having and the treasury forecasts “mitigate all doubts” about the future of the club. Barcelona also includes mitigating factors, but while it claims to have 28 million unused credits, its white rival has them for 328.

Another important item in both is the debt for the signings. This is higher, again, in Barcelona, ​​with 323 million, of which 126.6 are short-term. In Madrid there are 204 million, of which 128 are due this year.

With all the items added, the Catalans have a net liability of 820.6 million, 57% more than the 523 for the Madridistas. To calculate the net debt, other liabilities are not included, such as commercial creditors, and mitigating factors such as pending collections from third clubs or the treasury are taken into account. With all this applied, the 488 million net debt of FC Barcelona and 354 million of Madrid result.

But the situation will get a little worse this season. Real Madrid, which last won 300,000 euros, expects losses of 70 million. Barça, in the hands of the management board and in an extreme situation, has not budgeted the result of this year, but losses of more than 33 million would put its own funds in negative. The future board of directors, which will have to come out of the next elections, will have an urgent task to solve.