Link Fund Solutions has agreed to pay around £235m to investors in the LF Woodford Equity Income Fund, following an investigation by the FCA.

The redress will be paid to over 300,000 investors in the fund as a result of failures by Link as the authorised corporate director in managing the liquidity of the fund.

The agreement with the regulator is subject to the completion of the sale of the Link Group’s Fund Solutions business to the Waystone Group and the approval by investors and the Court of a scheme of arrangement to resolve all Link’s liabilities related to the LF Woodford Equity Income Fund.

The redress includes LFS’s assets, plus the proceeds from the sale of Link Group’s Fund Solutions business.

Link has a net balance of cash and capital resources of approximately £47m. It also holds relevant insurance cover of up to approximately £48m and, according to the FCA, discussions with its insurers are ongoing.

The sale of Link Group’s Fund Solutions business will generate up to approximately £140m in sale proceeds.

Link managed the LF Woodford Equity Income Fund until its collapse in June 2019.

Star stock-picker Neil Woodford had picked assets for the £3.7bn fund but restricted withdrawals after a plunge in value.

FCA said its redress figure reflects its view of Link’s failings in managing the LF Woodford Equity Income Fund, based on misconduct rather than any losses caused by fluctuations in market value or price of investments.

The FCA originally calculated the losses arising from failures in liquidity management to remaining investors as being up to approximately £306m, which is substantially greater than the remaining assets of Link. 

The regulator has been in discussions with Link to reduce the shortfall as much as possible since September.

Link was keen to point out that its contribution was a voluntary one, and that it has no legal responsibility for the obligations of Link Fund Solutions, including losses caused to investors in the LF Woodford Equity Income Fund.

The FCA’s investigation did not raise concerns about the wider Link Group, which did not have any involvement in Link Fund Solutions’ role as authorised corporate director of the Woodford Equity Income Fund.

If the sale is completed and the Scheme becomes effective, Link will agree to settlement of the FCA’s investigation. The findings of the investigation including an analysis of how the findings amount to breaches will be published at that stage. This will end the FCA’s enforcement case against Link Fund Solutions and enable payments to investors to be made.

If the Scheme is not approved, the FCA will proceed with its enforcement case against Link Fund Solutions, which Link has indicated will be fully contested. The FCA’s case includes a proposed financial penalty of £50m which the FCA would not enforce if the Scheme is approved given that all of LFS’s funds, as well as the contribution from Link Group from the sale of the other assets to Waystone, will be used to pay the redress liability and creditors of LFS.

If the Scheme is not approved, Link Group has indicated it will not make the redress contribution, which would mean any redress would be dependent on the outcome of a contested case between the FCA and LFS and any redress would be limited to the net assets of LFS, less litigation and any other costs.

Therese Chambers, executive director of enforcement and market oversight at the FCA, said: “The FCA’s investigation raised serious concerns about Link Fund Solutions’ management of the liquidity of the Woodford Equity Income Fund. LFS’s actions appear to have caused significant losses for those investors who remained in the fund when it was suspended.

"We believe the proposed Scheme offers investors the best chance to obtain a better outcome than might be achieved by any other means and it is in the investors’ interests they be given the chance to consider it.”

The regulator added that there were other “parties under investigation” in relation to the circumstances that led to the suspension of the LF Woodford Equity Income Fund. These investigations continue.