What next for Woodford?

"I wanted to set up an investment management firm that was fit for the 21st century that can do what large bureaucratic businesses can't do," he says. "I wouldn't set up a company that looks like Invesco Perpetual following changes in regulation: this an opportunity to start again and make something fit for purpose.

"At the heart of this will be fund management - not a marketing business - that doesn't lumber fund managers with bureaucratic stuff. My time will be spent on deciding what stocks to buy and not buy: I want to spend the maximum amount of time managing money."

However, Mr Woodford also says "the opportunity that arose was the product of a set of unpredicted circumstances. My line was that I will see out my career at Invesco, but as you know, in life things don't always go according to plan."

Mr Woodford would not comment on what the 'unpredicted circumstances' were that led him to setting up his own asset management firm. However, Invesco Perpetual was recently fined because a number of its funds, including Invesco Perpetual Income and High Income, breached investment limits.

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When asked what the unpredicted circumstances were and if they included this Mr Woodford would only say: "It is fair to say that if I just said the only things that motivated me to leave were unbelievably exciting opportunities you would think there must be something else, and the truth is - yes."

Investment focus

CF Woodford Equity Income will look very much like the income funds Mr Woodford had been managing for years. It will target a 4 per cent yield and he expects to grow the distribution, which will be quarterly. He predicts the fund will deliver a high single-digit return.

He expects the fund to use its ability to invest up to 20 per cent of its assets in international shares from the start, and it will have exposure to areas he believes are still good value such as tobacco and pharmaceuticals, as well as small-caps - both quoted and unquoted. He hopes to invest at least 5 to 7 per cent of assets in early stage companies though points out that as a UCITS regulated fund it cannot have more than 10 per cent in unquoted investments.

But Woodford Investment Management will launch a second fund later this year that is focused on unquoted companies, though Mr Woodford and his colleagues have not yet decided what the structure will be.

Mr Woodford is particularly interested in early stage science businesses.

"The UK has a reputation for innovation which is globally unrivalled," he says. "But we have a lamentable record at converting science into business, and the key problem is capital provision. People don't bother with it because they are constrained by their risk appetite and how much they can invest in non benchmark assets. The misguided perception is that this is highly risky, but that is a distorted view. In the 10 years I have been investing in this area I have had one complete disaster but many, many more successes than failure. Unquoted smaller companies are in fact much less volatile.

The relationship you build with them is deeper and you can change the course of a business and enhance it. You invest tiny amounts of money but the expectation is that you will be with the company through its journey. That said, long-term investing is not just confined to small-caps, but many investment managers have not got an investment horizon beyond the end of their nose."

He says the potential AstraZeneca (AZN) acquisition by Pfizer is a classic example of the conflict between the temptation of securing a short-term profit versus a long-term judgement about whether the company is better off independent in the long-term. Mr Woodford does not believe the Pfizer bid values AstraZeneca correctly and that it is better as an independent entity.

He does not yet know if he will invest his new fund in AstraZeneca, though it is the largest holding in St James's Place UK High Income Fund (GB0007667776) which he also runs, accounting for about 11 per cent of assets.

Concerns

Mr Woodford is not keen on Royal Dutch Shell (RDSA) and BP (BP.) as they have been paying dividends from disposal proceeds - "selling the family silver. I don't own Shell and BP and won't until they appear to be much better value," he says. "I have lost count of the number of times I have been told that big oil will cut capital expenditure. These are two very stressed organisations so the dividends must be vulnerable."

Mr Woodford is also concerned about the prospects for mid-caps. "The bull market is five years old and mature," he says. "Valuations have risen substantially driven by central banks' targeted policy - quantitative easing. We are left with a gap between where share prices are and what fundamentals will support, and the most over valued area is mid-cap."

Mr Woodford says there could be quite a significant correction in over stretched areas, which he believes also include US technology and biotechnology shares. "In my view markets are more vulnerable than they have been for a long time," he says. "It is a challenging economic environment for shares to do what they did in the last five years."

The overall investment environment is important to his investment decisions.

"A macro view has input into every investment decision I make," he says. "I don't understand managers who say they are just bottom up."

Read about the prospects for the Invesco Perpetual funds

Read more about the Invesco investment trusts