Link Fund Solutions sale to generate redress for Neil Woodford investors

The purchase of Link Fund Solutions (LFS), the compliance firm involved in the Neil Woodford fund collapse, will see over £200 million in redress to investors.

Waystone Group, an asset servicing firm and compliance provider, said on Wednesday (19th) it had signed definitive agreements to acquire the Irish and UK businesses of LFS from Australia’s Link Group.

On Thursday, the UK’s Financial Conduct Authority (FCA) said that following an investigation, LFS has agreed to provide, with a material voluntary contribution from its ultimate parent, Link Administration Holdings (Link Group), a “significant redress” payment to investors in the LF Woodford Equity Income Fund (WEIF) of up to approximately £235 million.

The redress includes LFS’s assets and the proceeds from the sale of LFS, which will generate up to £140 million in sale proceeds. 

For Waystone Group, the deal adds over US$190 billion in assets under oversight and administration, taking the group assets to over $2 trillion. Also, 600 staff globally join the firm.

Rachel Wheeler, CEO global management company solutions for Waystone, said: “We believe that Waystone is uniquely positioned to take LFS forward, providing quality global solutions to support its fund sponsors, investment managers and their underlying investors.”

She added that Wastone’s support would mean the LFS team would be able to focus on “continuing to provide exceptional service”.

Karl Midl, CEO of LFS, added: “We are delighted to be joining Waystone who are well known as a leading European fund services provider in our industry.”

The redress is to cover losses to over 300,000 investors in the fund as a result of failures by LFS, as the fund’s authorised corporate director (ACD), in managing the liquidity of the fund.

The FCA said the redress is subject to completion of the LFS sale to Waystone Group, as well as approval by investors and a court relating to the redress scheme to resolve all LFS’s liabilities relating to the WEIF.

The £235 million in redress includes LFS’s assets and the proceeds from the sale of Link Group’s Fund Solutions business which will generate up to £140 million in sale proceeds – around £80 million in net proceeds from selling LFS’s business, together with a contribution of up to approximately £60 million from the sale by Link Group of the rest of its Fund Solutions business.

The FCA’s investigation found that, as ACD, “critical mistakes and errors” were made in managing WEIF’s liquidity with the result that the fund failed to have a reasonable and appropriate liquidity profile from September 2018. 

By November 1, 2018, LFS’s failure to have properly measured the liquidity of the WEIF meant that investors leaving the fund from that point onwards benefited disproportionately from access to the most liquid assets in the fund which were sold, the FCA said, and the regulator said it considered those investors who continued to hold investments in the WEIF at the time of its suspension were treated unfairly because this left them with a disproportionate share of the remaining assets which were more illiquid. 

The FCA said it was concerned that LFS breached an obligation to carry out its activities with due skill, care and diligence and to treat all customers fairly. 

The FCA noted the contribution by Link Group is a voluntary one and that Link Group considers that it has no legal responsibility for the obligations of LFS, including losses caused to investors in the WEIF.  The FCA added that its investigation into the fund failure has made “no adverse findings in relation to and did not raise concerns about Link Group.  Link Group did not have any involvement in LFS’s role as ACD of the WEIF. The FCA acknowledges the cooperation of Link Group and LFS throughout the enforcement process, and in particular, in the voluntary contribution by Link Group”.

If the sale is completed and the redress scheme becomes effective, LFS will agree to the settlement of the FCA’s investigation. The findings of the investigation will be published at that stage, and the enforcement case will end.

The redress offered in the proposed scheme will not provide fund investors with the full redress amount of £298 million. What they will have recovered is 77p in the pound, but the FCA considers it is in the interests of the investors to be given the opportunity to consider the scheme. 

Therese Chambers, executive director of enforcement and market oversight at the FCA, said: ”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.”

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