Woodford Equity Income Fund redress

Link Group will pay up to £60m to the Settlement Fund, if the Scheme is approved, and a further £2.5m to LFS to help pay for the costs of the Scheme. This money is in addition to the contribution being made by LFS. In the absence of the Scheme, Link Group will not make these monies available to LFS to pay redress.

The reserve is designed to allow LFS to meet its contingent liabilities. Contingent liabilities are liabilities which might never arise or, if they do, might be in lower amounts than provided for under the contingency.

Any leftover money from the reserve will be distributed to investors covered by the Scheme. The operation of the reserve will be supervised by the Scheme Supervisors (who are independent of LFS and required to act in good faith with reasonable skill and care in the interests of the Scheme Creditors as a whole). We will ask the Scheme Supervisors to update us on the operation of the Reserve, and input into that process as we consider appropriate. We will monitor when and how distributions are being made.

By holding this reserve, LFS expects to be able to pay a significant distribution of between £183.5m and £200m to WEIF investors during the first quarter of 2024, with possible further tranches to paid at a later date depending on what can be released from the reserve.

The FSCS offers compensation to eligible claimants up to a limit of £85,000 in respect of clams that are deemed to be ‘protected claims’ under the FSCS rules. Not all investors will be eligible for coverage.

The FSCS is a fund of last resort and only offers compensation for claims made against firms that are in default. Currently LFS is not considered to be in default by the FSCS and so it has not made any determination in relation to whether any of the conditions are met that would enable it to pay compensation. For example, whether there are protected claims in respect of LFS and whether claimants are eligible for FSCS protection. If FSCS could ultimately pay compensation, given the need for FSCS to assess claims under its rules, it is likely to take longer to receive a payment from the FSCS than it would to receive a payment in the Scheme.

In the event that the Scheme is approved investors would have no recourse to the FSCS in relation to claims released by the Scheme.

The FCA has engaged with LFS regularly throughout the Scheme process on a range of subjects. This has included distribution of relevant Scheme documents.

LFS should be in touch with those who invested directly in the WEIF.  If you invested via a broker, platform and/or intermediary, that broker, platform and/or intermediary should pass on communications in respect of the WEIF to their customers.

In any event, all Scheme documents are available for online viewing at the website created for the Scheme at https://lfwoodfordfundscheme.com/documents/[5]

The Scheme does not include any investor who redeemed all of their investments in the WEIF before the suspension date. The redress proposed reflects our assessment that those who held investments when the Fund was suspended lost out compared to those who got out before this. 

A summary of the FCA’s proposed findings has been included with the Scheme documentation and is available on the dedicated website[6].

The FCA considers that investors leaving the Fund between 1 November 2018 and 3 June 2019 enjoyed a “first mover advantage” in that their units were redeemed by sales of more liquid assets, while the illiquid assets remained in the Fund and their proportion increased.Therefore, the FCA considers that an appropriate means to assess these losses is to compare the difference between:

• monies that the investors in the WEIF received post suspension; and
• what those investors would have received had the proceeds of the sale of assets realised from 1 November 2018 onwards been shared equally between those who redeemed their investments during that period and those who remained invested in the WEIF at the time of suspension.

The FCA concluded that the most effective way of quantifying the harm borne by the investors remaining in the Fund at its suspension was to divide the sale proceeds of all investments starting from 1 November 2018 (including those sold subsequent to suspension) among all investors from 1 November 2018 and to allocate the same proportionate amount of pre- and post-suspension sales to each investor.

The restitution proposed by the FCA reflects the FCA's position that loss was caused by LFS’ failure to comply with Principles 2 and 6. It does not, nor is it intended to, reflect any losses caused by a deterioration in the performance of the underlying investments in the Fund.

A table setting out the FCA’s calculation is available in the document entitled "FCA Investigation Summary and the FCA Redress Calculation" on the dedicated Scheme website[6]. It is important to note that LFS has accepted the calculation of loss for the purposes of the Scheme only. If the Scheme is not implemented, LFS has indicated that it intends to dispute the FCA's conclusions and findings of harm.

Questions should be addressed to LFS or to the Investor Advocate. To contact the Investor Advocate with comments and questions please email [email protected].  To contact the LFS, email [email protected] or call their dedicated helpline at +44 (0)20 3991 0224.