Two new books on the Woodford affair – by David Ricketts of Financial News and Owen Walker of the Financial Times – tell a fascinating story of Neil Woodford’s rise and fall, and are essential background for anyone who wants to understand UK retail equity investment in the age of the fund supermarkets.  The consequences of Woodford will have a long half life, because something like 400,000 British investors lost money in the funds that closed.

It’s no criticism of either book to remark that they are eerily similar.  To me that shows that most of the story has been uncovered and both authors have done well.  While there are complexities to the story (I didn’t know about the Authorised Corporate Director, or in specie transfer for example), this is not, at its heart, that complicated a tale.  The similarity in the two tellings suggests that many of the important sources have spoken, largely anonymously, to both writers.

Ricketts’ book was published two months before Walker’s, and he persuaded Woodford’s first wife to speak to him. Walker’s book is a bit longer, has more detail in places, and also reflects something of the FT’s scale and access. 

The cast of those who don’t come out well is now firmly established: Link, Hargreaves Lansdown, the FCA, Andrew Bailey, Kent County Council, the International Stock Exchange in Guernsey, St James’s Place.  Legal cases and various reviews will be with us for years.  One mystery that Ricketts admits is curious is why sales head Craig Newman had such leverage on Woodford that he got a third of the equity in the new company.

Woodford himself didn’t speak to either author.  It’s hard to get a strong flavour of Woodward the man. I watched some videos of him, and beyond stubborn convictions on his investments, he came across as rather bland.  Is it snobbish to suggest, using Denis Healey’s phrase, that he didn’t have much of a “hinterland”?  He likes sports, he originally wanted to be in the RAF.  Second marriage to his secretary.

It is striking, in an age of Amazon and Huawai, how British a tale this is. The companies he worked for and with: Eagle Star, Perpetual, Hargreaves Landsdown, St James’s Place.  The stocks he favoured: Provident Financial, BAE Systems, BAT, BT, IAG, Imperial Tobacco, Rolls Royce. 

Woodford was a hugely talented fund manager, until he wasn’t.  He grasped “disruption”, developing a keen, and ultimately fatal, interest in start ups and life sciences.  But he had never lived abroad, and doesn’t seem to have travelled much. We don’t hear, in any event, about his views on big issues like China, regulating big tech, credit markets or quantitative easing. All of these, ultimately, if indirectly, affect the valuations of FTSE 100 companies.

I would have liked the two authors to tell us more about this, and whether the fact he managed money from Henley for 25 years, and then from Oxford, rather than from London, mattered at all.

In a sense Woodford was the final incarnation of the star City manager of the 1980s and 1990s.  Both books give a wonderful flavour of the 1980s City, and show how his early roles in old fashioned companies helped give him some breaks. Whether he would have recovered and thrived in rapidly changing conditions if his Equity Income fund had not been fatally holed, seems to me an open question.

Walker calls Woodford’s reaction to the implosion “peak hubris”.  It was a classic liquidity trap, working slowly at first, like the frog in boiling water.  Instead of leaning against the liquidity pressures, Woodford made them worse with his extraordinary pursuit of unquoted and illiquid investments. Obstinacy had, after all, helped him make his name over two previous crises.  Critically, others, including his distributors, appeared afraid to speak up for fear of offending him.

The sheer scale of initial inflows into the new business was a huge temptation to him, and the fund simply had too much money for what it said on the tin.  Walker quotes someone saying that said he was good at making big sector calls, but actually less good at stock picking.  Another source talked of Woodford having a degree of naivity alongside outstanding judgement.

Woodford Investment Management’s fan club of fund platforms was crucial to its extraordinary asset gathering.  The industry has surely now learned lessons from the lack of proportion in adverts such as “Buy Woodford”, or the promotional launch video for Hargreaves Lansdown website. Both books show how Hargreaves Lansdown became dependent on Woodford and therefore stuck with him for so long, unable to change the narrative because so much was at stake commercially.

Much of Woodford’s own marketing was well intentioned, initially putting pride on unique transparency.  The firm’s blogs and videos were about direct communication to retail investors, and a candour in accepting mistakes marks much of the down spiral.  He called on his considerable reserves of credibility, for example commenting [on Provident] in his blog: “I’m not trying to dress this up as anything other than bad news…I do however believe it is critically important to maintain a disciplined, fundamentally-based perspective in my investment analysis”.

There was some self pity, though, in his criticism of “misinformation and lazy commentary”.  Before things went wrong, he had been used to only good press. In a two hour interview (!) with the FT’s Peter Smith, he said: “I have a moral compass in everything I do, for the way I invest, the discipline that I embrace, the fact that I am prepared to go through the most miserable two and a half years of my life professionally by enduring this sort of shit because I stick to the discipline that I stick to.” Lesson: don’t do self pity, and let others talk about your moral compass.

Woodford’s biggest PR mistake appears self-evident to me and I suspect many.  It was a huge error to keep taking fees once the fund was suspended, particularly given he was still talking on his videos about diversification and fixing the fund.  And it was gratiuitous to sell shares in the investment trust without telling anyone, even if technically allowable.

If Woodford had stopped charging fees after the fund’s suspension, he would still be a rich man. But he would also be a man with a substantially better public reputation.   There was, it seems, no one in a position to convey that simple advice, though no doubt some tried.  Certainly, he couldn’t have remotely compensated investors for underperformance, and most would have understood that.  But meaningful pain-sharing would have substantially preserved his reputation.

A couple of other PR lessons worth noting:

• In a crisis, apparently identical interests quickly diverge - his investment trust board hired separate PR advisers.
• Some of the media lost perspective, talking of firms being a “Woodford-backed company”.  This wasn’t just the personal finance press, the BBC called him “the man who can’t stop making money”.
• Mark Dampier, who features prominently in the story, deleted numerous tweets at the 11th hour.  It doesn’t work, and it’s not a good look.

Andrew Marshall is the deputy chairman of Cognito