Wavestone Capital has exited its position in fund administrator Link Administration after the company was caught up in a scandal involving the suspension of funds run by UK fund manager Neil Woodford.
Woodford was known as one of the UK’s ‘star managers’ but suffered a brutal downfall when his £3.4 billion ($6.4 billion) Woodford Equity Income fund was suspended from trading in June. The manager was forced to gate the fund after poor performance led to a surge in redemptions from clients.
WaveStone’s Wholesale Australian Share fund previously held Link but exited the position in September as it felt it was ‘prudent’ to seek investment opportunities elsewhere. Link was the fund supervisor of the Woodford funds and was now under investigation by the UK’s Financial Conduct Authority (FCA) for its role in the downfall.
“We have elevated governance concerns relating to the Woodford Equity Income fund collapse. We note the FCA (UK regulator) is now investigating the matter and we are concerned that Link could be exposed to a material fine and potential class action. Link suspended the fund for redemptions in June, 2019 at £3.4 billion and subsequently, the value of the fund has fallen more than 20%.
“Further, from an operational perspective, Link’s earnings trend despite costs saving programme continue to be weaker than we originally expected, and the capital intensity of technology spend was again a negative surprise with the FY19 result.”
The WaveStone Wholesale Australian Share fund returned 11% over one year to 30 September, 2019, according to FE Analytics, versus returns of 8.8% by the ACS Equity – Australia sector.
Meanwhile, the company had also initiated a short position on Link in its long/short Dynamic Australian Equity fund.
“Considering the anaemic growth outlook, the industry headwinds and now the potential tailrisk over the Woodford fund, the decision to exit was straightforward and in fact we subsequently established a short position,” it said.
“The company has announced a buyback which has provided a short boost to what was a sagging share price, however this could prove to be a ‘band aid’ compared to the potential negative regulatory risks over the Woodford fund.”
WaveStone Dynamic Australian Equity fund returned 8.6% over one year to 30 September, 2019, according to FE Analytics, versus returns of 2.2% by the ACS Alternative sector.
Share price performance of Link Administration over one year to 30 September, 2019 versus S&P ASX 200
