Woodford Could Be Replaced on Patient Capital as he Sells 60% of His Stake

The Board of Patient Capital Trust reveals it could replace Neil Woodford as manager of the trust, as it emerges the manager has sold 1.75 million shares 

Holly Black 29 July, 2019 | 9:51AM
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Neil Woodford could be sacked from running his investment trust after the board revealed it had held discussions with other fund groups about managing Woodford Patient Capital Trust (WPCT).

The Board says it is closely monitoring the situation at Woodford Investment Management after it suspended trading in its flagship Woodford Equity Income fund eight weeks ago.

While investors in the closed-end Patient Capital Trust are able to buy and sell, its shares have plunged 37% from 83p in June to 52p today amid concerns about manager Neil Woodford’s investments in early-stage and start-up businesses.

The Board said it “remains focused on preserving the value of WPCT’s portfolio and protecting the interests of shareholders”. It has been working with Woodford to reduce the trust’s borrowing but admits it has also held discussions with other management groups that have approached the company about managing the trust.

While the Board said it was confident in Woodford’s commitment to the trust, it also “continues to monitor at assess all options available”. It said: “The Board intends to engage with a broader range of third-party managers in order to undertake a full assessment of all potential management options, which may or may not lead to a change in the company’s management arrangements.”

Woodford Sells 60% of WPCT Stake

JPMorgan analysts point out, however, that Woodford may not be as committed as it seems after it emerged he sold 1.75 million shares in Patient Capital between July 3 and 8 – equivalent to around 60% of his stake – and only informed the board of this on July 27. Woodford is technically under no obligation to report the selling of his shares.

JPMorgan said: “Neil Woodford’s sale of a majority of his own WPCT shares, whatever the reason, is clearly not a positive signal to other shareholders.” It added that it is not inconceivable that Woodford Investment Management could experience such severe outflows on its open-ended funds that it is no longer a viable business and has to wind down.

Morningstar analyst David Holder said: “It may be that to be taken seriously, the Board must sever its link with Woodford. If it is seriously considering a new management appointment then a formal beauty parade should be conducted, which would require external consultant expertise and advice.”

He said that process would likely take several months so, unless it has already been started, there is unlikely to be any statement until the autumn as to the outcome. “There is some mixed messaging, however, as the board says its remains confident in the management’s commitment to WPCT,” he added.

JPMorgan said: “It is not surprising, in our view, that the Board is at least considering other management options, given the current situation and performance under the current strategy since inception.”

Indeed, the trust, which trades at a 34% discount to its net asset value, is down 32.6% over the past year. In recent weeks, the trust has been making efforts to reduce its borrowing and buy back shares in order to reduce its discount. The board hopes to reduce the trust's level of gearing (debt) to 10% of its assets within six months and to zero within a year. 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Schroders Capital Global Innov Trust Ord11.50 GBX-1.29Rating

About Author

Holly Black  is Senior Editor, Morningstar.co.uk


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