Handling Of Woodford Funds Collapse Under New Scrutiny As Buyer Flips Holdings For £21 Million Profit

Link Fund Solutions, the administrator of the collapsed Woodford funds, faces new scrutiny over its handling of the high-profile mess after a buyer of assets realised an immediate profit of £21 million by flipping the holdings. In its role as administrator, Link Fund Solutions first blocked withdrawals from the Woodford Equity Income fund last year. The company then reached the decision to wind the funds down after the pace at which holdings were being sold to raise liquidity was deemed insufficient.

However, questions are being asked after a deal was reached last month with Acacia Research Corporation over the £223.9 million sale of a portfolio of 19 healthcare and biotech stocks from the Equity Income Fund. Stock market filings show Acacia’s stake in Midatech Pharma, among the 19 acquired, was almost immediately sold on for a profit of £752,100.

On June 4, Acacia also acquired around 9.1 million shares in Evofem Biosciences at 23 centrs each, as part of the wider deal. The same day, the Evofem share price closed at $3.29 and Acacia flipped its stock in the company for $3.21 a share. That netted Acacia a profit of $27.2 million in less than 24 hours, calling into question whether Link’s sale of Woodford fund assets is being managed well.

Acacia is a California-based investment vehicle focused on companies that hold life sciences and technology patents. Both it and Link declined to comment on the transactions. Around 300,000 investors are still waiting for Link to liquidate the Equity Income Fund’s remaining assets, the proceeds of which will be returned to investors, minus Link’s fees.

There were also reports over the weekend that the Financial Conduct Authority is looking at the role of Northern Trust, the Woodford Equity Income fund’s depository, in the run-up to its failure. The job of a fund’s depository is to ensure it sticks to regulations.

The Woodford funds have been accused of clear manipulation of rules around the liquidity of holdings. Funds that target retail investors are obliged to invest a majority of capital in publicly listed companies whose shares meet basic liquidity requirements. Many of the stakes held by the Equity Income fund were in private companies.

Several went public with listings on the Guernsey stock exchange to help Woodford meet those requirements. However, the argument is that low levels of liquidity of stocks listed on the Guernsey exchange means that these were only technical public listings and did not mean the fund would be able to sell holdings at short notice if cash needed to be raised to fund investor withdrawals.