Woodford Patient Capital Faces Day of Reckoning

A decision on whether to replace Neil Woodford as the manager of the Patient Capital trust is expected soon

James Gard 15 October, 2019 | 10:03AM
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Neil Woodford

Shares in Neil Woodford’s Patient Capital Trust (WPCT) fell 6% on the shock announcement that the Woodford equity income fund is being wound up just four months after being gated.

Speculation has been mounting that Woodford will be replaced as manager of the trust, and the board said earlier this month that a decision will be made in due course. Industry experts believe today’s decision does not bode well for the Woodford-branded trust. “This feels like the end for Woodford as a stand-alone business,” says Ben Yearsley, director of Shore Financial Planning.

Tilney managing director Jason Hollands says the news will pile pressure on the board of WPCT to push Woodford out, a view shared by Ryan Hughes, A J Bell’s head of active portfolios.

Morningstar analyst Peter Brunt says of Woodford Investment Management (WIM): "The future now looks incredibly bleak for WIM. The main life source of the company, fees charged for the management of assets, has been essentially cut off – it has not received fees on its investment trust for years and is no longer receiving fees on its former flagship fund."

The trust’s performance has borne the brunt of the fallout from the suspension of the open-ended fund. The share price has fallen from 76.5p on the day the Equity Income fund closed to around 35p on October 15, a drop of 54%. It currently sits at a discount to net asset value of more than 42%.

According to Morningstar data, the trust – which was ejected from the FTSE 250 in September – has assets of just under £700 million at October 11. Woodford himself sold 60% of his stake in the trust after the open-ended fund was gated. At the time, JPMorgan analysts 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.”

Morningstar analyst David Holder also said in July: “It may be that to be taken seriously, the Board must sever its link with Woodford.”

Who Would Take on the Trust?

The problem now arises that if the trust’s board replaces Woodford, and his name is removed from the mandate, whether another fund manager would want to take on the running of the investment trust.

The Equity Income saga has helped raise the profile of investment trusts in general, especially their ability to hold illiquid assets. But the number of shared holdings between Patient Capital and the Equity Income fund has been controversial – and the disposal of assets in the open-ended fund is likely to have a knock-on effect.

The open-ended fund also has a 9% stake in the trust, making it the third largest shareholder behind two positions held by Hargreaves Lansdown. The sale of that stake is likely to have an impact on the value of the trust, Morningstar analysts say.

Income Focus Fund

Woodford’s Income Focus fund has remained open while the Equity Income fund has been suspended. It's down by 20% over the past year and has suffered a significant fall in assets as concerned investors take their money elsewhere. Indeed, the fund has seen its assets under management fall to less than £300 million today, from over £500 million at the end of April.

Tilney’s Holland says “the Woodford Income Focus fund has shrunk to a size that would unlikely be commercially viable as a solo product for a stand-alone business”.

The fund launched in 2017 and, unlike the equity income fund and investment trust, does not invest in unquoted assets.

It's not just the future of the fund that is in doubt - with all three products facing such problems, experts have called into question the viability of the entire Woodford Investment Management business. 

Adrian Lowcock, head of personal investing at Willis Owen, said: "This collapse is on a par with the implosion of New Star at the height of the financial crisis, and it will shake the funds industry to its core." 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Schroder UK Public Private Trust Ord23.63 GBX1.83Rating

About Author

James Gard  is content editor for Morningstar.co.uk