Altogether it made 68 investments in a number of unquoted securities during its lifetime. The value of unquoted securities that is permitted in a fund is 10 per cent of its net asset value.
By the end of June 2014, the total NAV of WEIF reached nearly £1.7bn.
From June 2014 to May 2017, WEIF continued to attract investors and the fund grew to a peak of almost £10.2bn by May 2017.
Between June 2 2014 and May 31 2017, WEIF generally outperformed the FTSE All-Share Index.
In April 2017, WIM began to implement a refocus of WEIF’s investments from global companies to UK-focused companies, which were frequently smaller, less well-capitalised companies.
And from June 2017 onwards, the WEIF generally underperformed against the market benchmark.
Owing to poor investment performance and persistent investor withdrawals, WEIF’s NAV more than halved from £10.08bn at the end of June 2017 to just over £3.5bn by the end of May 2019.
The WEIF was an outlier among comparator funds. From mid-2018 until its suspension, it was less liquid than the least liquid such comparable fund in a number of areas.
During the period that the fund deteriorated, despite several meetings between Link and WIM concerning the fund’s liquidity, Link did not ensure necessary changes were made, nor did it ensure the liquidity monitoring framework was appropriate, the FCA said.
Link presided over changes to the liquidity monitoring framework that were adopted without “proper justification”.
Liquidity frameworks
On one occasion, following a discussion between Link and WIM, Link approved a change in the liquidity monitoring framework, at WIM’s instigation.
The FCA said: “That change was approved despite the fact that metrics which had hitherto been part of the monitoring programme and which were identifying, and were likely to continue (and did in fact continue) to identify, breaches of liquidity thresholds, were abandoned.
“Additionally, the new monitoring framework was less prudent (in the sense that it did not identify the liquidity profile as breaching thresholds, whereas the previous framework did), but the relevant thresholds were not adjusted downwards to take this into account.
“The liquidity thresholds were inappropriate in light of the redemption policy and metrics adopted. They were set in such a way that action would only be required when it was already too late."
According to the regulator, even on Link’s own contemporary calculations, it was or ought to have been clear that the liquidity of WEIF was deteriorating.
From September 2018 onwards, Link did repeatedly tell WIM that there was a need to improve the overall liquidity profile of WEIF.
However, it failed to ensure that the necessary actions were taken.
