It was expected that the collapse last year of the Woodford Equity Income Fund (the Woodford Fun) would cause the FCA to shine a spotlight on Authorised Corporate Directors (ACDs). It was no surprise that in January 2020 the FCA formally began its investigation into the ACD market.
ACDs are corporate bodies that operate OEICs, open–ended investment companies (like the Woodford Fund). The ACD’s job includes dealing with the day to day running of the fund, managing the fund’s investments and ensuring that the valuation of the fund is correct and accurate. ACDs must be authorised by the FCA.
The FCA’s concern is that there is a potential conflict of interest between the ACD and the fund manager, which pays the ACD. This may make the ACD less likely to step in when a compliance issues arise, as they don’t want their clients to take their business elsewhere. The focus of the investigation currently is only on external ACDs, although it is arguable that there is a greater conflict of interest if the ACD role is carried out in house (the model used by most funds). Whilst the aims of the FCA’s investigation are still unclear, it is expected that the FCA will want ACDs to improve their governance standards by introducing new rules.
The FCA has been criticised for its supervision of Link Fund Solutions (Link), the ACD of the Woodford Fund. Link’s lack of oversight of the Woodford Fund allowed the fund to amass illiquid investments, using holdings in unquoted companies listed by the fund manager in Guernsey to stay beneath the limits set by the FCA rules. When a major investor withdrew, the Woodford Fund did not have the liquidity to meet redemptions, and the fund was suspended.
Investors received initial distributions in late January of between 48 to 58 pence in the pound from the sale of the liquid assets in the fund. The more illiquid assets are proving more difficult to sell, and investors are likely to face significant loses on their investments.