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Neil Woodford avoids axe from Patient Capital trust

Last updated: 20:19 30 Sep 2019 AEST, First published: 16:07 30 Sep 2019 AEST

Woodford Investment Management - Woodford Patient Capital Trust board holds back from axing Neil Woodford as manager

Woodford Patient Capital Trust PLC's (LON:WPCT) independent board has held back from giving the boot to the Neil Woodford as manager of the investment trust, but said it "continues to evaluate" his role.

Publishing half-year results on Monday showing net asset value of £654mln as at 30 June 2019, down 19% from £807mln at the end of December, the board of the trust said it "remains in dialogue with other potential managers". 

READ: Woodford Patient Capital board in talks about dumping Neil Woodford as manager

The board has been speaking to other potential managers since at least July, as current manager Woodford Investment Management has been embroiled in a furore over the gating of the open-ended Woodford Equity Income fund (WEIF) in the wake of a huge wave of redemptions and months of poor performance, some of which has spilt over to the investment trust. 

Susan Searle, chair of the trust, said it was "undoubtedly been the most challenging period for the company since it floated in 2015" and insisting the board has taken a "number of decisive and proactive measures", including reducing gearing, reducing the proportion of investments that can be made in unquoted companies and other illiquid assets, and agreeing more flexibility within loan arrangements while some of those unquoted assets are sold.

In justifying the decision to keep Woodford as manager of the trust, she said: "In the near term the company faces a number of difficult issues, but it is important to remember that the company was established to provide 'patient capital' to support the development of high-potential UK growth companies."

"Its investment objective is to provide long-term returns to shareholders as the underlying technologies of the investee companies become proven and commercialised. The board's focus is to navigate through the current challenges without unduly impacting these longer term potential returns to shareholders."

Painful journey

Woodford himself apologised for the disappointing six-month performance but said, "I continue to believe that the majority of the businesses we have invested in are making good progress".

He added: "The journey to positive outcomes has been longer and more painful than investors would have liked, or anticipated, but the returns to be gained by delivering on the progress, I believe, will ultimately reward the patient investor."

Debt was trimmed to £111.1mln as of 26 September, albeit as a percentage of NAV gearing has increased due to the fall in NAV.

Pressure on the open-ended Equity Income fund, which invests in many of the same companies as the trust, has proved damaging to both funds, reducing Woodford's ability to support companies with further investment, which has put them under pressure and hit their valuations, creating further pressure on the funds.

Last week, the trust’s net asset value was cut 3.1p or 4% to 43.5p after a writedown in three of its holdings, including the collapse of Sphere Medical due to a lack of funding.

Shares in WPCT fell 1.5% to 43.35p on Monday morning.

FCA unveils new open-ended rules

Also on Monday morning, the UK financial watchdog unveiled new rules covering open-ended funds that invest in "inherently illiquid assets", such as property. 

The Financial Conduct Authority (FCA) said the new rules require investors to be provided with "clear and prominent information on liquidity risks" and warnings about how and why their funds may be restricted. 

Gating the WEIF fund showed that liquidity considerations are not only confined to open-ended funds with exposure to property or other immovables, and "can extend to other open-ended funds, including UCITS, where they have holdings of less liquid assets, even including investments in listed equities if there is not a liquid market in those equities".

Commenting specifically on WEIF, the regulator said the significantly greater negative reaction compared to the Brexit-related suspensions of commercial real estate funds in 2016, was likely to reflect a lower level of awareness and understanding of the "liquidity mismatch" in Woodford's type of fund, which "raises important questions about the way funds investing in illiquid or less liquid assets manage liquidity mismatch, and whether they should be offering daily redemption".

The new rules, which will be introduced from September 2020, including introducing a new category of "funds investing in inherently illiquid assets" (FIIA), which will be required to increase disclosure of how liquidity is managed and produce liquidity risk contingency plans.

-- Adds details on new FCA rules --

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