Business

Family offices often employ tarnished investment managers, where they bounce back. Could that happen to Neil Woodford?

Expect UK equity manager Neil Woodford to consider taking on business offered by family offices, when the time is right, despite the trashing of his reputation in the media over recent weeks.

An adviser familiar with his investment boutique said mistakes were made and Woodford needed to let the dust settle following the forced closure of his boutique. He has zero plans for his future, right now. 

Family offices have a sneaking respect for tough cookies prepared to stand up for themselves…

But the adviser added: “If, one day, Neil is offered the chance of managing money for a family office, he’ll find it hard to resist.” 

Woodford’s skill in dealing with corporate managements could even tempt job offers from activist funds. Some corporate advisers warned Woodford would not find a comeback easy.  But they conceded wealthy clients have facilitated the return of controversial characters, as time has passed (see below). 

One said: “If I was advising Neil Woodford, I’d advise him to disappear for quite a while. Maybe go on one of those boats that sail around the world, and never berth.” 

Another was less sanguine, warning that active management had become hopelessly oversupplied with talent following gains by passive strategies, which do not suffer human failings.

Woodford has been forced to wind up his UK-orientated boutique,  just over five years after inception, following bad performance and a run on its funds.  It suffered as a result of investing in large value stocks, which have been out of favour for the longest period on record. 

Woodford took the view that small companies were the cheapest way into the more popular growth sector, after being applauded for backing ventures seeded out of British universities. But this strategy required years to come good, which Woodford lacked. In the interim, his smaller stocks remained illiquid, forcing him to sell larger listed stocks when his clients started to remove their money.  

Woodford failed to foresee the negative sentiment thrown up by delays in Brexit. He chose to disclose all his stock positions, which led to them being shorted when problems developed.

His confidence in his own abilities were a strength in dealing with corporates, but he failed to build a team capable of standing up to his views. In years gone by he clashed with executives at his former firm, Invesco Perpetual, on several occasions.

Clients invested £15 billion ($19.3 billion) with his boutique near the peak. They went on to redeem investments worth billions over the last year. Those who stayed loyal may lose half their money following the abrupt decision of administrator Link Fund Solutions to pull the plug on Woodford’s core equity income fund which led to the closure of his boutique.

There’s no doubt that it will take time for wounds to heal and litigation to subside. 

But Woodford need not give up hope. Link, rather than Woodford, is likely to be criticised for its abrupt closure of his equity income fund, which leaves clients with no chance of getting their money back. Some of the criticism is shifting over to wealth advisers, who collected fees from their clients to put them into Woodford and other problematic funds. The regulator is broadly seen to have been insufficiently proactive.

Family Capital has been told that a large number of private clients, rich enough to wait for recovery, were horrified by Link’s move. They saw through Woodford’s recent media roasting and decided it was overdone, given the complexity of the situation. 

It is probably fair to say that family offices would share Neil Woodford’s suspicions of the media and appreciate his steady approach in trying to deal with an impossible situation.

Family offices have a sneaking respect for tough cookies prepared to stand up for themselves, like Woodford. Even when the going got rough, in July 2019, Woodford found time to back a bid by Non-Standard Finance to take over Provident Financial for £1.3 billion. 

He pushed for a restructuring of Glaxo Wellcome which came to pass. He frequently got involved in a series of corporate actions when he worked for Invesco, famously helping to stop the merger of BAE Systems and its rival EADS in 2012.

Which suggests that a wealthy investor may choose to build an activist fund around Woodford, not least because activism is currently seen as a growth sector. Alternatively, a family office might choose to employ him to look after a share portfolio and play a role in assessing its corporate opportunities. 

Of course, at 59, Woodford might just retire, to spend more time with his horses. But someone with his talents, albeit currently tarnished, retirement isn’t likely to be a priority. 

Those who’ve bounced back

There are no shortage of financiers who have come unstuck as a result of challenging events, but many of them have ended up winning support of wealthy investors at new businesses. 

Family offices have frequently been their godfathers to such people, keen to regain their wealth and reputation.  

Elsewhere, a small army of managers have quit different firms following unpopular takeovers, or controversies, such as Mercury Asset Management and Deutsche Asset Management. They had no problem winning family office backing in their later careers. 

Others, like George Soros, have sought to avoid the risk of criticism by excluding third-party clients from their hedge funds and converting them into family offices. For, others, however, it took work to rebuild their reputations in the wake of disaster. 

Regulators banned Steve Cohen from managing third party funds after he pleaded guilty to insider trading in 2013. But he developed Point 72 Asset Management, which was set up as a family office and now takes outside money. Cohen found it was “actually, not hard” raising billions from investors when his ban was lifted. 

A year after the rescue of US hedge fund LTCM, founder John Meriweather won $3 billion in backing for JWM Partners although he closed it when it was hit the 2008 financial crisis. 

Despite the near-collapse of UK investment bank Slater Walker in the early 1970s, the late Jim Slater achieved mythical status from the backing of private investors in succeeding years. His son Mark continues to run a top-quartile fund strategy using his father’s strategies. 

UK-based Tony Dye and Gary Brinson were criticised for sticking to their value strategies at UBS, prior to being justified by the 2000 crash. Dye went on to win backing for his Contra hedge fund, prior to his premature death. Brinson continues to run a respected charitable foundation.

John Duffield presided over the demise of UK-based New Star in 2008, but went on to win business at a family office boutique called Brompton Asset Management.

Health issues for Jim Cox at Schroders in the UK, following a period of underperformance for his funds, led to his decision to step down and join the Rausing family’s investment office, Alta Advisers – while there, his funds fully recovered but he passed away in 2011. 

Bill Gross was given the chance to run a bond fund at Janus Henderson after being eased out of Pimco, the US firm he founded.  But the Janus fund failed to motor, and Gross retired again in 2019 to take charge of his family office, arguing that equities now represent better value than bonds.

One senior colleague pointed out that Gross performed well at Pimco because of the quality of ideas presented to him by his teams, along with checks and balances. He enjoyed little of this kind of support at Janus. 

 

 

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