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Invesco Perpetual fined £18.6m for risk failings linked to Woodford funds

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Invesco Perpetual fined £18.6m for risk failings linked to Woodford funds

The Financial Conduct Authority (FCA) fined Invesco Perpetual £18.6 million for exposing investors to greater levels of risk than they had been led to expert.

According the financial watchdog, Invesco Asset Management Limited and Invesco Fund Managers Limited broke the rules designed to limit the risks to investors on 33 occasions across 15 funds, representing more than 70% of assets under management.

The breaches were said to have taken place between May 2008 and November 2012 and the losses from this risk taking amounted to £5 million, which Invesco compensated to the funds.

Invesco Perpetual confirmed the compensation was made to three funds, two of which were managed by the firm's former star manager Neil Woodford - the Invesco Perpetual High Income and Income funds, which he relinquished earlier this year to set up a boutique. The funds are now managed by Mark Barnett.   

The third fund is Invesco Perpetual Managed Income, which is now managed by chief investment officer Nick Mustoe. Between January 2008 and December 2010 the fund was managed by Bob Yerbury and Invesco Perpetual said vehicle was impacted as a result of its investment in the Income and High Income funds.      

According to Lipper, both the Income and High Income funds beat the benchmark between May 2008 and November 2012, returning 24% and 25.25% respectively, versus a 14.9% rise in the FTSE 100 and a 17.25% rise in the FTSE All Share.  

The FCA said Invesco Perpetual did not comply with investment limits during this period, which are designed to protect consumers by limiting their exposure to risk.  

While it noted the £5 million compensation was paid promptly, it highlighted the losses could have been greater.

In addition, the watchdog said Invesco Perpetual did not clearly inform investors or explain the associated risks of its use of derivatives which introduced leverage into the funds, although the firm was allowed to use derivatives in this way.

It also said the firm failed to record trades on time, meaning the funds had been wrongly priced, and failed to monitor whether trades were allocated fairly between funds, creating a risk some funds may have been disadvantaged.

Tracey McDermott (pictured), FCA director of enforcement and financial crime, said in a statement: 'As a forward looking regulator the FCA takes action where we see risks to consumers, not just after they suffer losses. In this case, investors of all sizes trusted Invesco Perpetual to manage their money. 

'They signed up for a certain level of risk but we found Invesco Perpetual’s actions were at odds with investors’ reasonable expectations.'

In a separate statement Invesco Perpetual said it was now confident its systems meet regulatory standards.

The firm's chief executive Mark Armour said: 'This (the fine) refers to a period between May 2008 and November 2012, and the FCA has noted that Invesco Perpetual acted promptly to enhance its systems and controls.'

He added: 'We are confident that our systems and controls are now strong, effective and compliant with all applicable regulations. The small number of impacted funds were fully reimbursed.

'In this instance, we clearly fell short of the high standards we consistently strive to deliver. However, we are pleased that this matter has been fully resolved with the FCA and is now closed.'

Invesco Perpetual pointed out the penalty is equal to 0.67% of Invesco's 2013 US generally accepted accounting principles (GAAP) revenues and will not materially impact the company's financial position.

It also highlighted that the regulator deemed the seriousness of the breaches at level 2, the lowest at which a financial penalty applies.    

The fact Invesco Perpetual agreed to settle early meant the level of fine was reduced by 30% from £26.6 million.

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Neil Woodford
Neil Woodford
29/72 in Equity - UK Equity Income (Performance over 3 years) Average Total Return: 58.64%
Mark Barnett
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23/44 in Equity - Global Equity Income (Performance over 1 year) Average Total Return: 8.93%
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Bob Yerbury
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