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Report on Business A spectacular fall to earth for star British fund manager Neil Woodford

With his trademark Marine-style haircut, baggy jeans and T-shirts, Neil Woodford has never been quite like any other British fund manager.

He’s the gruff outsider who gained fame during 26 years at the British fund giant Invesco Perpetual by steering clear of the tech bubble in 2000 and the financial crisis in 2008. By the time he left Invesco in 2013 to strike out on his own, he was managing £33-billion ($55.7-billion) in assets and had become so influential his advice was sought after by prime ministers and he was named a Commander of the Order of the British Empire. The media dubbed him “the man who can’t stop making money,” and investors rushed into his new venture, pouring in £1.6-billion within two weeks of its launch in June, 2014.

But misfortune has suddenly struck. Mr. Woodford is facing a spectacular collapse, brought on by a string of poor investments and a bad call on Brexit. His flagship Woodford Equity Income Fund has been hit with a rash of redemptions that reached £10-million a day in May and hit a crisis point on May 31 when Kent County Council moved to pull out its £263-million pension fund. Mr. Woodford abruptly suspended redemptions, trapping the council and thousands of other investors inside. He has promised to reopen the fund soon and vowed to rethink his investment strategy. “I’m extremely sorry we’ve had to take this decision,” he said in a video statement after the suspension. “We will use this time to reposition the fund.”

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But it may be too late. It’s not clear when the fund will reopen, and the total assets have already shrunk to £3.7-billion from a high of £10.2-billion in 2017. His company has also been fired as the manager of £3.5-billion worth of funds at the wealth management firm St. James’s Place PLC, and Hargreaves Lansdown, Britain’s largest fund “supermarket,” has dropped Mr. Woodford’s fund from its recommended list. Regulators have also started circling and parliamentarians are demanding an inquiry. “The situation now is toxic. I genuinely don’t think Woodford’s reputation can recover from here,” said Jon Beckett, a former fund manager who works as an industry adviser.

Mr. Woodford’s downfall has gripped the city and there’s been daily media coverage of his plight. The debacle has also raised questions about why investors were so taken by Mr. Woodford’s star power and whether regulators were on top of what he was doing. There are also concerns about how funds are rated by companies such as Morningstar and whether enough due diligence is being done by analysts and investors. “This was an accident waiting to happen,” said Robin Powell, who runs the Evidence-Based Investor, an online educational resource. “The star manager culture has been very strong in the U.K. per the last 20 years."

For Mr. Woodford, 59, it’s been a stunning fall from grace. He took up the investment business only after his dream of being a fighter pilot was crushed because his reflexes were too slow. He got his first job in the city in 1981 after studying agriculture economics at the University of Exeter and landed at Invesco in 1988.

He nearly lost his job in the late 1990s after refusing to invest in the budding tech sector, convinced the hype was overblown. He was hailed a hero when the bubble burst in 2000 and investors envied his boring portfolio loaded with banks and big names such as GlaxoSmithKline and British American Tobacco. He faced similar criticism in the lead-up to the financial crisis when he unloaded banks and other financial institutions, arguing they were too opaque.

By the time he left Invesco in 2013 to launch his own firm, Mr. Woodford was Britain’s top fund manager and had all the trappings of celebrity. He drove a Porsche, became a horse lover and bought a six-bedroom mansion on a cliffside outside Devon. He enhanced his image as an outsider by basing his company in Oxford instead of London, and told a reporter: “A good fund manager has to have a balance of arrogance and humility. You need to be arrogant enough to back your own judgment, but humble in a way that makes you question everything.”

The Equity Income Fund got off to a decent start, generating a 16-per-cent return in its first year. But soon returns began to lag, and Mr. Woodford made a series of bad calls. He thought the gloom surrounding Brexit had been overblown, and he invested heavily in cyclical industries such as construction, which turned out to be busts. In one case, he accumulated a 20-per-cent stake in a construction company called Kier Group PLC only to see its share price fall 80 per cent in the past year amid a flurry of profit warnings and accounting issues. Another big holding, online realtor Purplebricks, has seen its share price fall 72 per cent in the past 12 months because of a slowdown in the housing market.

As his hunt for returns intensified, Mr. Woodford moved into the less liquid part of the market, looking for home runs among startups and small-cap companies on London’s Alternative Investment Market, or AIM. That led to more losses and concerns that too much of the Equity Income Fund had been tied up in risky ventures that couldn’t easily be unloaded. “I think he made the assumption that because of his reputation, that if he had a hard time people wouldn’t leave, they’d trust him and stay with him,” said Graham Bentley, managing director of gbi2, an investment consulting business.

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By May, the Equity Income Fund was down nearly 9 per cent on the year and investors were heading for the exit. Mr. Woodford blamed "misinformation and lazy commentary” but the damage had been done. Now, the city is waiting to see whether the superstar can rise again. “Sorting the fund out can happen, but it will take some time,” said Jason Hollands, managing director of Tilney Investment Management. “The question is, can you actually rebuild trust and confidence and your reputation after such a gruelling experience?”

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