June 19, 2019 / 9:44 AM / 5 months ago

Nearly 300,000 Hargreaves Lansdown clients exposed to Woodford fund

LONDON (Reuters) - British investment platform Hargreaves Lansdown said nearly a quarter of its clients are exposed to Neil Woodford’s suspended fund, piling further pressure on the company for heavily backing the fund since it was launched.

The scale of retail investors’ holdings in the fund has propelled Woodford to the front of Britain’s business pages, drawing criticism from savers and politicians alike and casting doubts over his investing style.

In a letter to the UK’s treasury committee published on Wednesday, Hargreaves CEO Chris Hill said 133,769 clients had a direct holding worth 1.1 billion pounds in the suspended 3.7 billion pounds ($4.65 billion) LF Woodford Equity Income Fund.

Hargreaves - which bills itself as Britain’s No.1 “investment supermarket” - said a total of 291,520 clients with 1.6 billion pounds at stake were affected once those indirectly exposed through various fund-of-fund products were included.

The scale of the exposure is likely to raise pressure on Hargreaves and particularly how it oversees its ‘best-buy’ list of funds, which many clients rely on.

Woodford’s fund was first included in 2014, shortly after its launch, and only taken off on the day trading in it was suspended.

Shares in Hargreaves were down 1.4% at 1335 GMT, lagging a 0.3% fall in the wider FTSE 100. Hargreaves shares have lost nearly 15% in value since the fund was suspended on June 3.

(Graphic: Hargreaves lags FTSE 100 since Woodford fund suspension - tmsnrt.rs/2IoXb94)

STAKES IN PRIVATE COMPANIES

Hill was responding to questions raised by the chair of the committee, Nicky Morgan, about Hargreaves’ connections to the suspended fund. The letter comes a day after Britain’s markets regulator opened a formal investigation.

At the heart of the probe by the Financial Conduct Authority is the fund’s handling of stakes in a number of private companies, which were harder to sell quickly to meet an increase in client demand to redeem.

The FCA has said it had been in contact with the authorized manager of the fund, Link Fund Solutions, in early 2018 after the fund twice breached rules on not investing more than 10% of its assets in unlisted companies - something Hill said Hargreaves was unaware of.

“We met with the fund manager that month and urged him to address the issue. The manager committed to us that he would make no new investments into unquoted businesses from that point,” Hill said in the letter to Morgan.

“We have subsequently... found out that Woodford twice breached this limit in February and March 2018. They did not inform us of this on either occasion.”

However a Woodford spokesman said it had not breached its agreement with Hargreaves, saying it was only required to inform them if it was over the 10% threshold at the end of each month.

“Consistent with all clients, Woodford provided month-end data for investors and at no time was there a month-end passive breach,” the spokesman said.

In a separate letter to Morgan made available on Wednesday by lawmakers, Guernsey’s stock exchange said it had first contacted the FCA with concerns over the fund on April 15.

It also detailed a telephone call with the FCA on June 7 in which it shared “areas of potential regulatory concerns regarding the Fund’s composition and valuations”.

Hill also echoed the concerns of the Guernsey exchange on the valuation of the fund’s assets and said it had tried to call Link since the suspension to discuss that and when the fund would reopen, but received no response.

Link did not respond to a request for comment by Reuters.

Since adding the Woodford fund to its ‘best-buy’ list, Hargreaves staff had met or held calls with Woodford and his team 31 times, Hill said.

Editing by Deepa Babington

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