Neil Woodford: VCTs Undermine Small Business Sector

As Neil Woodford launches his new Income fund, which will have a proportion invested in unlisted companies, he laments the destructive nature of Venture Capital funds

Emma Wall 16 May, 2014 | 9:22AM
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Venture Capital funds are bad for small businesses, doing more harm than help to the start-up sector, according to veteran UK equity manager Neil Woodford.

“The UK is unsurpassed in terms of innovation,” said Woodford. “We have some of the best universities in the world and a tremendous record in innovation – but we do not covert this into great businesses.

“The venture capital investment structure is too short-termist and too focussed on the end result for the investor rather than the business they are investing in. Venture capital funds should be helping these inventors and developing their ambition.”

The new Woodford fund, due to be launched next month will be a UK equity income fund targeting a 4% yield with aims to grow the yield to a “high single digit”. As well as key players investors will be familiar with such as pharmaceutical stocks and tobacco companies there will be an allocation to unlisted equities, particularly with a technology and innovation theme.

Woodford would not be drawn on whether he would be investing in AstraZeneca (AZN), as he said “a lot can happen in the next couple of weeks”.

Many of the stocks that Woodford held in the Invesco Perpetual Income and High Income funds have benefited from a significant increase in share price since last summer, leading to concerns as to whether they would be too pricey for the value-biased Woodford to justify buying for the new fund.

Woodford defended his investment style, saying that he still believed those defensive sectors to be undervalued.

Speaking with City journalists last night, Woodford said that he had received positive feedback from both the industry and investors regarding the new business.

“The opportunity arose to set up my own offering from scratch – a fund management business fit for the 21st century,” said Woodford. “Large bureaucratic associations are not able to be flexible. They are not able to adapt to the challenges of RDR and work with new technologies to communicate to clients. Woodford Funds as a company will be a very different offering – but expect business as usual when it comes to stock selection and the running of the new income fund.”

During the latter years of his time at Invesco Perpetual Woodford became increasingly media shy, which caused some outlets to accuse him of elitism. Woodford accepted these claims and said that while his first priority would always be the running of money as that is what his investors paid him to do, there would be efforts to ensure there was continued dialogue between Woodford Funds and the outside world – particularly through the use of social media.

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Emma Wall  is former Senior International Editor for Morningstar