Start-ups are losing out on funding due to herd mentality funders, says industry insider » SMEInsider

Start-ups are losing out on funding due to herd mentality funders, says industry insider

Neil Woodford, one of the UK’s most successful fund managers, has spoken out against his own industry by criticising managers for simply “following the herd” while charging clients extortionate fees.

Woodford claims that many fund managers conform to major indexes such as the FTSE 100 rather than actively selecting stocks for investment based on their own convictions.

This means that investment behaviour becomes increasingly homogenised, increasing the risk of bubbles forming. In turn, this can cause twofold problems for even the most promising start-ups, which suffer from a lack of interest when booming FTSE activity suggests easy returns for fund managers and then struggle even more once bubbles burst and markets slump, as investors tighten their belts to weather the lows.

Meanwhile, according to Woodford, the financial decision-makers continue to pay themselves huge salaries for work that lacks real rigour or insight.

The industry has overcharged in many aspects. It’s quite clear, in the banking industry and my own industry, that too often, the industry has been charging active fees for index performance or worse,” Woodford told the BBC’s Today programme.

Woodford is highly respected in his field for taking long-term views on investments whilst remaining suspicious of short term spikes. He famously refused to invest in the dotcom boom that saw many internet technology companies and investment firms make brief fortunes from hugely overpriced stocks before being devastated by the crash of 1999-2001.