Has the Woodford saga exposed a missing Link in the AFM governance model and if so, how does it evolve to improve customer outcomes?
Update: Since writing this article, Link has announced the WEIF fund will be closed and Woodford removed as fund manager. What lessons ACDs will take remains very much open…
By JB Beckett
WHEN a shoe drops in this industry, the natural reaction is to turn to the fund manager. In the case of Neil Woodford this has been no different. The “fallen star” manager has attracted most of the headlines, leaving Link, the hosting Authorised Fund Manager (AFM), mostly out of the picture.
But away from the media hysteria, there are significant lessons for Authorised Corporate Directors (ACDs) to learn from the debacle. For me, it marks the end to the hubris and self-assurance around liquidity risk, but perhaps more importantly, it has shown how so-called “independent” third parties are perceived both in and outside of our industry – and what it means for them from now on.
As a starting point, the regulator is under no illusions, as CEO Andrew Bailey’s letter to Nicky Morgan demonstrates:
“The Fund Manager has the regulatory responsibilities in relation to operating the fund and therefore, for WEIF, Link is accountable to FCA.” June 2019
Bailey’s Select Committee testimony was also clear that the Financial Conduct Authority’s (FCA) focus is on Link as the AFM, rather than Woodford, and the limitations of EU’s Undertaking for Collective Investment in Transferable Securities (UCITS) rules in dealing with liquidity risk.
But it also demonstrated the importance now being placed on the new fund boards and independent Non-Exec Directors (iNEDs) and loopholes around less liquid assets in open ended funds.
With the wholesale introduction of fund boards, the FCA, managers, third parties and incoming iNEDs are all dealing with a new animal and we have to get past our industry fears of communication, transparency and sharing for them to work.
In the spirit of sharing, this article will pull together my experiences over the past two decades, including the dangers of asset concentration, liquidity, investor herding and the challenges facing boutique asset managers. I’ll also suggest governance and reputation lessons that can be taken from this latest blow up.
Read the full article here.