In one sense, it is difficult to imagine a more spectacular fall from grace, at least since the financial crisis. Yet, in another, all the signs were there. Neil Woodford’s name may be splashed across the news pages of national and international press now, but for some time questions have been raised in the specialist financial and investment media.
The blame game has of course now started. Much of this has been directed towards the man himself and legitimately so. But questions are, and perhaps should, also be asked of others. Commentators have begun to raise queries as to how regulators allowed things to get to such a stage, particularly as liquidity issues have led to the Woodford Equity Income Fund to be closed to withdrawals. The funds’ authorised corporate director has come in for similar criticism. This is a debate that is likely to last for some time.
Whether the industry likes it or not, it is also a debate likely to be increasingly wide-ranging. Neil Woodford might currently be the lightning rod for attention, but it is conceivable and even probable that these events will, in due course, lead to a new round of increased scrutiny of the asset management sector.
There are ultimately three major lessons that the asset management industry needs to learn from the Woodford example. First, and most important, is that bad news is cumulative – the crisis facing Woodford Investment Management comes after a prolonged period of underperformance which, critically, was never adequately explained or communicated. Ongoing engagement and dialogue with underlying investors is critical in any scenario, but particularly crucial in more challenging periods. Proactive, open explanations can go a long way to engendering some measure of good will.
Second, structures matter. Investors, the media and other audiences are interested in the results of investments decisions; less so perhaps in how the decisions themselves are made. The autonomy that Woodford exercised is now being questioned, with commentators suggesting the lack of internal scrutiny he faced (compared to his celebrated time at Invesco) is a major factor in his downfall. This is certainly not to critique the “star fund manager” approach by any means, but asset managers under close scrutiny from asset owners and their advisers, need to proactively explain the decision-making structures they employ and the reasons for doing so.
Third, but by no means less notable, asset management is now mainstream. Though he will doubtless have not welcomed the attention, Woodford’s recent media difficulties have not come from the specialist media; they have come from the more general national press and social media channels. The actions of the investment industry are no longer the purview of a specialist set of media outlets. A video response has admittedly been issued by the company by way of apology and explanation, but this has been far too little and far too late. In an area of 24/7 news coverage where events in the investment world are national and international news, asset managers must be more strategic and comprehensive in their communications planning to avoid or at least limit negative headlines.
So, yes, the pressure is on Neil Woodford right now but don’t be surprised if this attention turns into a critique of the investment industry more generally. Questions are coming and asset managers will need to have the answers.