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Woodford Patient Capital Trust rebounds as Schroders appointed manager

Neil Woodford resigned as manager last week and said that he was closing his investment firm

Woodford Investment Management -

Shares in Woodford Patient Capital Trust PLC (LON:WPCT) surged after it hired Schroders Plc’s (LON:SDR) investment arm as its new portfolio manager after Neil Woodford’s ignominious departure.

The investment trust will be renamed Schroder UK Public Private Trust PLC when the appointment is completed, which is expected by the end of the year.

READ: Battle of the investment trusts: Smithson versus Woodford Patient Capital

The trust’s independent board has been in talks about replacing Woodford Investment Management as manager since the summer, with its shares falling more than 50% since early June after another of Woodford’s funds, the open-ended Woodford Equity Income fund, was gated in the wake of a huge wave of redemptions following months of poor performance.

Woodford resigned as manager last week and said that he was closing his investment firm after being sacked from the Equity Income fund.

Susan Searle, chair of the board, said Schroder Investment Management had been appointed following a competitive process: “Its careful and considered long-term approach to investment, backed by its substantial research resources in both public and private assets, makes it the natural choice to manage the company's portfolio.”

She said the board believed Schroders was “best placed” to protect and enhance long-term shareholder value.

“A well-managed handover is underway to protect shareholder value and deliver long-term performance for all shareholders.”

A Patient rollercoaster ride

WPCT shares rockets up 27% to 38.55p on Thursday morning, still a discount to the latest reported net asset value per share of 63.23p from 22 October. 

The NAV per share had fallen 35% from 97.61p at the end of 2018.

When Patient Capital was floated in 2015 by Woodford, at the time Britain’s most celebrated fund manager after 25 highly successful years at the giant Invesco Perpetual, it raised £800mln in what was Britain's largest ever investment trust launch by some margin.

WPCT’s investment focus has been almost entirely on the UK and with a very strong focus on early-stage companies, with around two thirds of the portfolio made up of unquoted or illiquid stocks.The trust’s stated investment objective is “to achieve long-term capital growth through investing in a portfolio consisting predominantly of the UK companies, both quoted and unquoted”.

Schroders said it intends to manage the portfolio in line with the existing policy.

'Hedge fund-like' fee structure

It will not receive a management fee for the first three months but will thereafter be paid a fee of 1% per annum on market capitalisation up to £600mln and 0.8% thereafter, with performance fees payable from the start of 2023.

Performance fees will be eligible at 15% of any excess returns above a NAV per share of 77p from that point. Thereafter, a performance fee of 15% of any performance above a hurdle of 10% of net assets each year will be payable, subject to a high watermark.

The management and performance fee are “more akin to a hedge fund,” said Kevin Doran, chief investment officer at AJ Bell, which he said may irk anyone initially attracted to the trust by the original charging structure.

But he said the appointment of a new investment manager will be a relief for investors in the trust after a period of uncertainty, though he said Schroders has a challenge on their hands to sort out the holdings in the trust.

“There is likely to be a long period of realignment where the manager looks to determine which assets to keep and which to sell and even then, a buyer will have to be found for the assets they wish to dispose of. This is likely to be a long process and will incur transaction costs for investors.”

While he said the fee structure may not please everyone, for the rest, the opportunity to draw a line under the Woodford farrago will be welcome.

“Another positive may be that the market responds well to this change and the significant discount closes a little.”

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