A World Beyond Woodford: could we change the unlisted asset market for the better?

Fluyd Ltd
Fluyd Ltd
Nov 6 · 3 min read

If a financial figure as powerful as Neil Woodford can be defeated by the unlisted asset market, you’d be forgiven for thinking there is little hope for anyone else. But innovation may bring liquidity, and possibly new beginnings.

The news that Link Fund Solutions has wound up Woodford’s £3.1 billion fund and sacked Neil Woodford as its manager is still sending shockwaves through the financial community.

It’s the final curtain on a drama that started in June, when trading in the Woodford Equity Income Fund was suspended due to over-investment in illiquid assets. Collectively, investors in the fund were estimated to be paying out around £100,000 in fees daily*, despite being unable to withdraw funds.

The aftershock of the Woodford saga is likely to be felt for some time. Regulators are already working furiously to ensure consumers are protected from similar situations. Once more, the unlisted asset market has proven itself to be a riddle that cannot be solved.

Will this market ever gain the efficiency and transparency it needs to provide investors with reliable opportunities?

Tackling a challenging market

Link has split the fund into two portfolios which will now be sold down. One portfolio will be made up of listed assets, one of unlisted and highly illiquid assets. Link expects to start delivering the first in a series of payments to investors by the end of January 2020.

The company now tasked with selling down the portfolio of unlisted assets have a big task ahead of them.

Data from the FCA suggests that only 8% of holdings in the Woodford Fund could be sold in a week. The rest would take a good deal longer — about a third would need six months to more than a year**.

For anyone who works with unlisted assets on a regular basis, this will come as no great surprise. The market is famed for its opacity and inefficiencies. Processes are slowed down by legacy systems, communications are often by phone, fax or even post.

The infrastructure is simply not in place to support smooth, efficient trading. This leads to illiquidity.

Searching for solutions

The media continue to dissect Neil Woodford’s actions and bemoan the impossibilities of the unlisted asset market. But Woodford is a smart man, he knew there was money to be made, even if the inefficiencies and resulting illiquidity ultimately proved insurmountable.

As innovators, we might begin to see a problem that needs solving.

What if increased liquidity could be achieved for those challenging markets, making those assets easier to manage in the first place? Wouldn’t that begin to solve the problem?

Streamlining processes

By bringing unlisted asset data out of back offices and hosting it in a digital space, we make it more accessible, more secure and much easier to manage.

Once the information is accessible to all who need it, we can use the same platform to connect people who might need to communicate with each other — say, to update terms or make a trade.

Investors, lenders, issuers, solicitors — everyone can connect easily without needing to pick up a phone.

The more of this kind of transparency and connectivity we can give to the market, the safer and more liquid it will become. Unlisted assets previously considered ‘hard-to-trade’ would be given a new lease of life.

From great problems come great solutions

The fallout from the Woodford case risks putting off novice investors and denting confidence in financial services at large. But the reality is far from doom and gloom. The wisest among us will look to build trust and find solutions in new methods.

As Albert Einstein said: “The world as we have created it is a process of our thinking. It cannot be changed without changing our thinking.”

If we take a step back and look to the horizon together, we will find a better way.

*Investor payout figure quoted here.

**Information on the liquidity of assets in the Woodford fund is listed here.

Fluyd Ltd

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Fluyd Ltd

Introducing Fluyd Connect: a new way of accessing and managing unlisted assets.

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