Thousands of investors trapped in the troubled fund formerly run by Neil Woodford will get as little as 50p in the pound, the fund's administrators have revealed.
About 300,000 investors will receive between 46.3p and 58.9p per share, depending what version or 'share class' of the fund they held. Each share was worth £1 when launched by the fund, but their value had fallen substantially by the time the fund was frozen at the start of June 2019.
Some £2.1bn is set to be returned to savers, around 74% of the fund's £2.9bn value. At its peak in 2017 the Woodford Equity Income fund managed more than £10bn.
Selling the liquid holdings was the easy bit"
"In some respects, today represents the first day of closure for investors who have suffered from the terrible performance of the Woodford Equity Income fund," said Ryan Hughes, head of active portfolios at AJ Bell, a wealth manager. "However, while this payment of the first tranche of the liquidated assets will be a relief for thousands of investors who have been trapped in the fund since June last year, there is still huge uncertainty around the money still stuck in illiquid assets."
The money comes largely from sales of the "liquid", easier-to-sell, part of the Woodford Equity Income fund, which was mostly shares in stock market quoted companies. A second distribution of cash will follow after the sale of the "unquoted" investments in the fund.
It falls to investment bank Park Hill to find buyers for shares in companies that are not sold on a stock exchange. "Selling the liquid holdings was the easy bit," Ryan Hughes said.
"For Park Hill, it is a hugely challenging task to sell the illiquid holdings in a timely fashion and investors still remain in the dark as to how long they will have to wait for the remainder of their money, and importantly, how much they are actually likely to get back," he added.
Woodford's flagship Equity Income Fund, which was shuttered to redemptions last June, will start emailing cheques to savers on 30 January returning their money after administrators Link liquidated the fund.
Labour's shadow Chancellor John McDonnell repeated his call for a delay in the appointment of Andrew Bailey as governor of the Bank of England, so his role in the debacle while boss of the Financial Conduct Authority can be investigated first.
Adrian Lowcock, head of personal investing at Willis Owen, an investment platform in the UK said: "Today's update finally brings some level of finality to investors. Whilst further distributions will be paid out, this payment will account for the lion's share of the money investors can expect to see returned. Based on the closing price, it is about 75% of the funds value, however once costs are taken into account I would expect this to account for a greater amount of the total.
"There will be subsequent tranches paid out but it is not clear how many and when. The administrators are likely to avoid making too many small payments as there will be a cost to do so. They also need to ensure they have the cash to pay the administration and wind-up fees. The issue remains that the illiquid assets are hard to sell and some discretion is required to get the best price possible, making it hard for Link to communicate in detail.
"Investors are naturally disappointed with the whole sorry affair and it is understandable they might want to take the cash and not reinvest, but for those who don't need the money immediately it could be best to take time to think about their next steps and what they want the money to achieve for them."
It emerged earlier this month that Oxford-based Neil Woodford and his business partner pocketed £13.8m in dividends in the year before the crisis that led to the demise of his fund empire.