Should Failed Fund Managers Get a Second Chance?

Recently we had the news that disgraced fund manager Neil Woodford will be making a return, with the launch of his new investment firm Woodford Capital Management.

His fund Woodford Investment Management was of course suspended in 2019, in one of the biggest British investment scandals since the financial crisis. In fact, some investors are still waiting for their capital and have even had a further write-down on assets this month.

Meanwhile, Mr. Woodford has been having interviews, feeling a bit sorry for himself, shifting blame and launching his new business. Although he did say “I’m very sorry for what I did wrong,” so all is forgiven right? Although it wasn’t very heartfelt, it became clear he was only sorry for his under-performance.

So my question is whether failed fund managers like Woodford should get a second chance to manage money on behalf of investors? His new business is aimed at professional investors rather than private investors, so he’s at least avoiding that minefield. But should it even be allowed?

In my opinion, if the issue is just under-performance then I do think the fund manager deserves a second chance, if their ability is worthy of it. To paraphrase the famous quote, after an employee lost a company half a million dollars, why would you fire them? They just had the most expensive training they could go through.

Look at people like Bill Ackman, he’s had big failures and big winners. If you banished him after the failures, you’d never have moments like last year when he had one of the greatest trades of all time.

Whether you’re trading your own money or on behalf of clients, if your strategy doesn’t perform well or you overlook something or you make a mistake, it’s painful but you can learn from it and redeem yourself. There’s no point throwing the baby out with the bathwater.

But Woodford is a totally different kettle of fish. He belongs in a unique category. In fact, it reminds me of John Meriwether, famed founder of LTCM, Long-Term Capital Management, the most famous and high profile hedge fund blow up in history.

Just a few years after being bailed out, Meriwether was back raising money for his new firm JWM Partners, followed by JM…