Woodford Concerns

Brian65

Thanks for the reply.

bowlhead99 wrote: »

For Schroeders to have been successful, there will have been other potential management groups who were less optimistic.

Rather like the lucrative job of selling a house tends to go to the Estate Agent who dreams up the highest valuation.

Sailtheworld

Brian65 wrote: »

No Answers?
Alan Brierley, an analyst at Investec, cautioned that despite the euphoric reaction, “we see no quick fix here”. He added “we expect to see more gremlins before any unicorns, while a high level of retail investors is likely to contribute to high levels of share price volatility”.

Any Woodford investor visiting this thread or reading the Daily Mail would have been regaled with stories of just what a rotten person Woodford was - all those fees and all those rubbish stock picks. May as well sell now because you'll only get tuppence later.

Maybe now the retail investors have predictably bought high and sold low there's some money to be made.

Still quite a daily movement though - maybe some new news that hasn't found its way into the public domain yet?

MK62

As we don't even know who else applied (or indeed if any other manager did), we can only speculate on the reasons Schroders were selected as the management company......personally, I think it had to be an established name with a long history, for investor confidence reasons. The share jump would seem to indicate that investor confidence, at least for now, has perked up a bit.......I suppose only time will tell whether that confidence is justified or not.

talexuser

Reports say Schroders now get an annual management fee of 1% for Patient Capital, which in itself does not seem too controversial, even though Woodford charged nothing so far based on his poor performance (based on todays value they get 3.5million a year or £10,000 a day).

However they also get 15% of profits once the price is more than 77p a share (with the latest NAV at 63p, if you believe it) which I assume is lower than Woodford's original £1.15 limit? At first I thought what a cheek, but I suppose it is a poisoned chalice, and any success means more for investors.

Depends just how easy the job turns out to be with these types of performance fees. Reward for failure anyone?

masonic

Who would begrudge them those fees if they could turn it around from here and achieve a share price of 77p? I'm sure many are just looking for an opportunity to sell without incurring such a massive loss as they would now.

AnotherJoe

So, where would that management fee come from ? Borrowing? Aren't they already £117M under water?

bowlhead99

talexuser wrote: »

However they also get 15% of profits once the price is more than 77p a share (with the latest NAV at 63p, if you believe it) which I assume is lower than Woodford's original £1.15 limit? At first I thought what a cheek, but I suppose it is a poisoned chalice, and any success means more for investors.

The job they have ahead of them is not an easy one, and if you want them to spend time working with a private assets portfolio of uncertain provenance - and presumably shareholders do want that - long term performance fees are probably par for the course.

Investors have (or should have) regarded the losses to date from the trust's initial 100p as 'sunk cost' and they are not going to get it back from Woodford. Woodford had said the performance fee would only kick in if he exceeded a 10% rate of return, so the running hurdle would be over 145p by the end of this year. He didn't achieve it, so he won't get paid. But if you kept the old clock ticking, that 145p would be over 190p in three years time, meaning a new manager would have to deliver almost 50% annual compounding NAV growth over the next 3 years to get back on track and start to get a penny of fees. Nobody thinks that could happen.

So it may sound 'cheeky' to reset the arrangement but there is no point keeping that old structure as a motivator. It just wouldn't work, and investors will have already mentally reset their expectations as soon as Woodford quit.

To correct you a little, the 3-year target to qualify for performance fees is not 77p of share price but 77p of NAV (the previous structure was also NAV-based). That's close to 7% annualised depending on NAV and date when they actually take over. Importantly, the hurdle rate goes back up to a 10% target rate after the end of 2022, and there is the standard 'high watermark' feature so that if they get NAV up to 80p and take a fee, then the NAV falls, they can't get it again when the NAV grows back up to that level again.

If some confidence is restored and NAV does start to grow to 70p, 80p and beyond, this won't be on a 50% discount and investors will be pleased that didn't just take the 30p that the market would have bid for their shares two days ago. So may not begrudge some fees.

AnotherJoe wrote: »

So, where would that management fee come from ? Borrowing? Aren't they already £117M under water?

On paper they have something like £570m of NAV and that NAV is stated after taking off the 117m you mention. So they are £570m above water rather than £117m below it. To raise £3m to cover half a year's management fee, over the course of the first half of 2020 when that fee will become due, seems relatively trivial, even if most of the assets are illiquid. Yes I know you don't believe it is worth multiple hundreds of millions but no point revisiting that old chestnut

With Schroders on board, the renewal or refinancing of the debt facility next year should be less of an issue with a new manager at the helm, with both short- and long-term facilities feasible. Even if Northern Trust said 'we won't renew the facility at any cost', Schroeders manage huge amounts of capital in other public and private funds (more than Woodford ever did) and a some of those entities could between them take a private debt position to pony up £100-200m in debt finance if they could get comfortable that WPCT does really have £400m+ of the £600-700m of gross assets that Link say it has.

I'm not suggesting that the trust should continue to maintain high gearing after Woodford and the board said it would start to de-gear. Just noting that cashflow for a few million of management fee may not be so much of an issue as you suspect.

lon_don

Published yesterday

https://stifel2.bluematrix.com/sellside/EmailDocViewer?encrypt=b3e6707d-59f8-41f4-906a-f60c81583074&mime=PDF

AnotherJoe

lon_don wrote: »

Published yesterday
https://stifel2.bluematrix.com/sellside/EmailDocViewer?encrypt=b3e6707d-59f8-41f4-906a-f60c81583074&mime=PDF

So, Stifel have made a new recommendation on WPCT every few months. Varying through the spectrum, buy, hold and sell. They've done them all several times. :rotfl:
I especially like their "buy" last November at 86p.

AnotherJoe

bowlhead99 wrote: »

To raise £3m to cover half a year's management fee, over the course of the first half of 2020 when that fee will become due, seems relatively trivial, even if most of the assets are illiquid. Yes I know you don't believe it is worth multiple hundreds of millions but no point revisiting that old chestnut

Presumably they were chosen for their track record of managing small cap ?