New Woodford Fund

talexuser

New investment trust, eventually to go for start-ups:

http://www.telegraph.co.uk/finance/personalfinance/investing/11394456/Woodford-to-launch-200m-investment-trust-backing-start-ups.html

Considering he used unlisted and small companies as part of Invesco Perpetual HI over all those years, he should know what he's doing. Interesting charging structure too:
"The trust is set to have an unusual charging structure, with no standard management fee applying. Mr Woodford will take a fee only if the fund achieves its performance target, and the fee will be paid in the form of shares, "further aligning the portfolio manager's interests with shareholders." Detail will emerge in the full prospectus".

Considering they say the income is now nearly 5bn in size, maybe this will shake up management charges somewhat in the long term?

bowlhead99

Whenever the idea of paying a manager or adviser on a performance-only basis is mooted, it usually ends up being shot down on the grounds that it can encourage excessive risk taking and is impractical due to the manager having no certainty of income coming in with which to retain staff and support overheads etc during the inevitable leaner years.

A structure involving broadly fixed management fee payments linked to levels of assets (salary), perhaps with performance fees on the side for alignment of interest (bonus) is often the end result.

Particularly with early stage companies which can have a considerable gestation period, the lack of income certainty could be problematic for fund managers that don't already have a hefty "cash cow" on the side. So, performance-fee only is therefore unusual / groundbreaking. But if paid in shares rather than cash - and maybe if it were subject to clawback, alongside the traditional 'high watermark' concept - might not sound too bad from the investors' perspective. The devil will be in the detail of course.

I'm generally a fan of investments in smaller or early stage companies as they can be so much more interesting than the big ones, and a closed ended vehicle like an investment trust is a sensible thing to put them in. However there is a performance drag when the cash is sitting idle looking for those great opportunities, and at the start it will take you a while to deploy the capital.

In the world of institutional private funds, you would just call it from the investors when you needed it, but you can't do that with a retail fund where you are expected to get the money on day one and spend it on day one. So it sounds like they are going to start with larger companies that he likes generally from his other fund, and then gradually redeploy into the target space over the next couple of years. Given the 'famous brand name' it wouldn't be too surprising if the fund initially trades at a premium which might be a bit expensive to get into if it is simply mirroring a portion of his other fund.

Taking a look at Woodford's justification for the sector:

The Portfolio Manager believes that the UK has some of the best universities in the world, developing some of the best intellectual property. Unfortunately, as an economy, the UK does not have a good track record of converting these great ideas into long-term commercial success. There are many reasons for this but the principal one, in the Portfolio Manager’s view, is a lack of appropriate capital. Very few investors are willing to embrace the long-term ‘patient capital’ approach required in this area to deliver successful outcomes.

All early-stage companies and early-growth companies, from whichever sector, need nurturing – they need patient, long-term capital in order to fulfil their long-term potential. The capital available to nascent businesses in the UK has been scarce and the capital that has been available has tended to be too short-term in nature.


It is the Portfolio Manager’s view that the lack of patient equity capital has created a compelling investment opportunity. The demand for capital from early-stage companies and early-growth companies is high, but the supply is low. The returns on capital deployed, therefore, are potentially attractive.


The reward for success also has potential wider economic benefits. Doing more to help early-stage entrepreneurs and innovators can help to develop the UK’s ‘knowledge economy’ as part of a much-needed long-term rebalancing of the UK economy.

That all sounds very altruistic, they are helping the UK economy by providing capital it wouldn't have had. But the acknowledgement that the UK venture capital market doesn't have a great record of converting its potential is a little damning to read and should rightly put people off if they don't believe that Woodford is a miracle worker who will succeed where others fail. Stats show that returns from small venture capital investments have not been particularly spectacular in the last couple of decades, the average performance of the 'VC' end of the private equity space lags behind larger buyouts although there are of course some great stories of individual private deals or smaller listed companies doing extremely well.

Will Woodford shake up the sector? What proportion of his investments will be listed versus unlisted? Should you sacrifice the tax advantages of a VCT to seek your fortune in a more liquid entity like an investment trust with a famous brand name? Tune in in a few months / years to find out!

TCA

I've been monitoring a handful of small company and private equity investment trusts for some time now, so this is an interesting one. At first read (to me) it all smacks of a bit of self-indulgence, but then he does have a pretty good record, so who am I to argue. As bowlhead said, the devil will be in the detail. I shall be watching with interest. More on it here:

http://www.morningstar.co.uk/uk/news/134037/woodford-to-launch-closed-end-growth-fund.aspx

le_loup

Very self indulgent, but doesn't he have a right to be? We want managers with conviction and he has always had that even when others were insisting that they knew better.
Woodford avoided dot.com when the world was calling him a fool. He was not in banks for income funds when banks were paying 5 - 6 - 7%. He got our of Tesco when no one thought he should.
The story behind this new fund sounds just right when capitalism thinks we should be "investing" in housing and ignoring start-ups. His refusing income for non-performance hits all my buttons.
He can have 4 - 5% of my money without me thinking any further about it.

sorcerer

I will wait for more information before I make a final decision, but I do like Woodford, and I do hold his other fund. Might be worth a punt for me, a small amount in my pension. At this stage it might be too risky to put too much into it IMO.

bowlhead99

sorcerer wrote: »

I will wait for more information before I make a final decision, but I do like Woodford, and I do hold his other fund. Might be worth a punt for me, a small amount in my pension. At this stage it might be too risky to put too much into it IMO.

This type of fund is very specialist and not the sort of thing to be putting a big proportion of your wealth into. Given the exact terms haven't been announced, I don't really see that anyone's approach, if they have their head screwed on, could be anything other than, "will wait for more information before making a final decision" at this stage.

I guess there will be some people thinking - like Le Loup - hmm, he's delivered for me in the past and I want this type of holding, so I'm not going to wait for the small print or do much new research into what's currently in the market or coming to market... where and when can I sign!?

To do that seems a bit cavalier but can happen with star managers who keep their halo until a long period of underperformance or a major failure with a new venture. If it fits a niche /specialist gap in your portfolio, and is only a few percent, then probably no harm done, because trusting another manager in a similar fund type may have been just as bad or good.

I couldn't commit blindly, but the typical retail investor does so all the time. Not
to suggest that Le Loupe is a typical clueless investor. My concern would be that this is clearly a notch up the risk scale from the typical equity income fund that loads of grannies have in their portfolio as one of several core holdings. The average person doesn't need much exposure to early stage companies or seed /development capital etc, so hopefully the "famous name" doesn't encourage people to dip more than a toe in without actually understanding the workings of investment trusts and whether this niche is suitable.

I will definitely take a look at the terms when they're available though as it's always interesting to see what's out there.

sorcerer

i agree bowlhead, when Anthony Bolton opened his new China Special Sitations fund, I didn't touch it, and I am glad I didn't, because despite the push upwards intially it tanked afterwards. It's doing OK under the new manger now however. I want to see the exatct terms of this performance fee charge, and what benchmarks he will go against. But it seems high risk to me, so "could" play a small part of my pension. But everybody has their own risk profile.

protraderts

If only having to take a percentage of the profit to run a company you have to ask yourself how much money they have under management and the percentage of return they need. For example if they got 1 mil they make 10% thats 100k then they charge you 10% of the 100k thats only 10k back to the company- there is clearly a some kind of earner else where in the small print. Otherwise would have to have huge funds under management and make a huge percentage just to turn over 100k a year before tax. Seems floored.

Mattygroves2

protraderts wrote: »

If only having to take a percentage of the profit to run a company you have to ask yourself how much money they have under management and the percentage of return they need. For example if they got 1 mil they make 10% thats 100k then they charge you 10% of the 100k thats only 10k back to the company- there is clearly a some kind of earner else where in the small print. Otherwise would have to have huge funds under management and make a huge percentage just to turn over 100k a year before tax. Seems floored.

His main income fund is huge so they are earning enough to be able to offer this niche product on an interesting management structure.

I too will watch with interest rather than investing at the start.

talexuser

The income fund is pushing 5 billion, I don't think he has a problem with too few zeros

protraderts

Sounds amazing.. good luck