Woodford Patient Capital Trust’s (WPCT) board has been in talks with asset management companies that have approached it regarding the investment trust’s management contract. The trust’s board has not said that it will definitely replace Woodford Investment Management as its manager but “continues to monitor and assess all options available to it The trust can terminate the management contract with Woodford Investment Management on three months’ notice.
The trust’s board added: “Whilst [we remain] confident in [Woodford Investment Management's] commitment to Woodford Patient Capital Trust and the current day-to-day management of the portfolio, [we intend] to engage with a broader range of third party managers to undertake a full assessment of all potential management options, which may or may not lead to a change in the [trust's] management arrangements.”
Analysts at broker Numis Securities commented: “We are not surprised that a number of management groups have shown interest in Woodford Patient Capital Trust, which has net assets of about £738m, but given the nature of [its investments] it would need a specialist manager with the ability to carry out due diligence on them. A change of manager would be likely to involve a change in fee structure, which may need to align management to any revised objectives, for instance to incentivise timely portfolio realisations. Woodford Investment Management is effectively managing Woodford Patient Capital Trust for free because it has no base management fee and the performance incentive is heavily under water versus its 10 per cent a year cumulative hurdle.”
A new manager might also make a precautionary writedown to the valuation of Woodford Patient Capital Trust’s unquoted investments, which account for about 75 per cent of its net asset value (NAV), according to Iain Scouller, managing director of investment funds research at broker Stifel. There are a number of concerns about the valuations of these. Reasons for this include the fact that many of its unquoted holdings are also held by LF Woodford Equity Income, and if it is forced to sell them quickly the valuations could be depressed.
Woodford share sale
The trust’s board has also disclosed that the trust’s lead manager, Neil Woodford, has sold 1.75m shares in it. However, Woodford Investment Management has suggested that this does not relate to the possibility that it may lose its contract as manager of the trust.
"Following the suspension of LF Woodford Equity Income Fund (GB00BLRZQB71), Mr Woodford has elected not to take any income or dividends from Woodford Investment Management while that fund remains suspended,” said Woodford Investment Management. “In the circumstances, while a reluctant seller, between 3 and 8 July Mr Woodford sold 1.75m of his Woodford Patient Capital Trust shares – around 60 per cent of his holding in it. The sole reason that he did so was to meet personal financial obligations, including a tax liability."
Mr Woodford still holds 1,251,532 shares in Woodford Patient Capital Trust, which account for about 0.14 per cent of its issued share capital.
Mr Woodford was not legally obliged to disclose the sale under Market Abuse Regulation (EU) No. 596/2014. But Woodford Patient Capital Trust’s board and its advisers felt that this information, about which it was notified on 27 July, should be made public at the soonest opportunity.
At close of play on 26 July, the last trading day before Mr Woodford’s share sale was announced, the trust’s share price was 53.3p and it was on a discount to NAV of 34.4 per cent, according to Winterflood Securities. But by close of play on 30 July, after the announcement had come out, it had fallen to 49.2p and a discount to NAV of 39.9 per cent.
This is also slightly lower than the levels at which it was between 3 and 8 of July – the period during which Mr Woodford sold shares in the trust.
Over the past month a key focus for the trust’s board and Mr Woodford has been reducing the trust’s level of debt. This has fallen from £126m (or gearing of 16.8 per cent of net assets) on 26 June to £117.4m (or gearing of 15.95 per cent) as of 25 July. The trust’s board aims to reduce the level of gearing to below 10 per cent within six months of the announcement of its plans to do this on 28 June and have no gearing within 12 months of this.
