UK watchdog's Woodford fund redress may derail Link-Dye & Durham $1.7 billion buyout

© Reuters.

By Huw Jones

LONDON (Reuters) -Link Fund Solutions, which managed the collapsed LF Woodford Equity Income Fund, could be forced to pay up to 306 million pounds ($358 million) in redress, Britain's Financial Conduct Authority said on Monday.

The FCA was responding to news that Dye and Durham is proposing to take over LFS and six other companies in the Australian share registry firm Link Group, all authorised by the UK financial watchdog.

Dye & Durham and Link last week received approval from the Australian competition regulator for the buyout, putting an end to a nine-month long acquisition saga that saw multiple offers and rival bidders vying for Link's stake in online property settlement firm PEXA Group.

The planned takeover forced the FCA to update the market on its lengthy probe into the collapse of WEIF in June 2019 which left more than 300,000 investors nursing losses.

LFS was the authorised corporate director for the 3.7 billion WEIF, which was finally closed in October 2019, and whose assets had been picked by veteran star manager Neil Woodford.

"The FCA has investigated the circumstances leading to the suspension of the WEIF and is likely to seek to require LFS to pay a financial penalty and/or consumer redress," the FCA said.

Woodford was criticised by lawmakers and investors for holding a large number of illiquid assets, making it hard to meet redemption calls after months of underperformance.

"This redress proposal reflects the FCA's current view of LFS's failings in managing the liquidity of the WEIF," the regulator added.

Link Group in a statement to the Australian stock exchange said LFS "does not agree with the FCA's view", and that it will explore all options, including challenging any warning notice that may be issued by the regulatory decisions committee.

"Link Group has not made any commitment to fund or financially support LFS," the Sydney-based firm said. "Link Group considers that any liabilities relating to the Woodford matters will be confined to LFS."

Dye & Durham late on Monday said it was assessing the impact of the proposed condition on the proposed buyout of Link Group, and that it was in active discussion with Link to resolve the issue. (https://

The Canadian software firm has received change-of-control approval from the FCA for six of the seven UK-regulated entities owned by Link Group, it added.

The FCA has approved D&D's acquisition of LFS, subject to a condition to commit to making up any shortfall within LFS in the amount available to cover any redress payments.

No other conditions have been imposed on LFS or the six other firms being taken over by D&D, the FCA said.

The watchdog said it could not give any further information because its investigation into the circumstances surrounding WEIF's suspension continued, but it will provide an update as soon as it can.

The FCA told lawmakers in January it was close to a decision on whether to take enforcement action regarding the suspension of WEIF in June 2019.

($1 = 0.8546 pounds)