Woodford Concerns
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So, where would that management fee come from ? Borrowing? Aren't they already £117M under water?0
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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.
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.
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.
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 chestnutAnotherJoe wrote: »So, where would that management fee come from ? Borrowing? Aren't they already £117M under water?
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.0 -
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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.0 -
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 ?
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If you wanted a small cap fund, why wouldnt you start with one which you know isn't full of dross?
Starting with the current 36p, whats so special about the combination of the previous managers track record, and the less than stellar record of the new manager, that woudl make you keep this, rather than another small cap, micro cap or private equity type investment?0 -
AnotherJoe wrote: »If you wanted a small cap fund, why wouldnt you start with one which you know isn't full of dross?
Starting with the current 36p, whats so special about the combination of the previous managers track record, and the less than stellar record of the new manager, that woudl make you keep this, rather than another small cap, micro cap or private equity type investment?
Hubris I guess. You pride yourself at having the gumption to be in while others are out, and delight in your skill at identifying a fabulously discounted investment opportunity. No doubt it will be at a premium to NAV soon as others realise their mistake and try to grasp a slice of the pie.0 -
Schroder Small Cap Discovery is a high risk Asian/Emerging markets small cap fund, and makes no secret of that - comparing it to VLS100 is comparing apples to oranges.AnotherJoe wrote: »Presumably they were chosen for their track record of managing small cap ?
Nobody who wanted broad global equity exposure would select Schroder Small Cap Discovery......and likewise anyone seeking some exposure to high risk smaller cap companies in emerging markets would hardly be likely to select VLS100.0 -
Schroder Small Cap Discovery is a high risk Asian/Emerging markets small cap fund, and makes no secret of that - comparing it to VLS100 is comparing apples to oranges.
Nobody who wanted broad global equity exposure would select Schroder Small Cap Discovery......and likewise anyone seeking some exposure to high risk smaller cap companies in emerging markets would hardly be likely to select VLS100.
My point was to contrast Schroders small cap fund with the general stock market. Small Cap because it's the nearest equivalent to WPCT that I could find within Shroder funds. So, wherever it is and fair play I didn't know it was Asia , it's been a bit rubbish. Maybe it's been stellar compared to other small caps in the same area ?
Maybe there's some other factor at play, perhaps they were the only ones wishing to take over this poisoned chalice.0 -
Well, thanks for the snarky comment but their track record in UK smallcap seems absolutely fine. Over 10 years to yesterday the Schroder UK Small Companies fund delivered a 247% return versus 147% for the FTSE UK Small Cap index. Since 1987, the Schroder UK Small Companies fund delivered over 2000% return versus about 800% for the FTSE UK Small Cap index.AnotherJoe wrote:Presumably they were chosen for their track record of managing small cap ?
If you like your vanguard trackers you could look at a graph starting Jan 2010 and see that the global smallcap tracker started to seriously pull away from the UK smallcap index in June 2016 after the currency boost post-referendum, but other than that one-off currency event when the Schroder UK smallcap fell back and the global fund advanced, they have generally given the same return over the last three years, so Schroder's 250% from UK smallcap still beats Vanguard's 200% from global smallcap over the time that the Vanguard one has been running.
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