Woodford Concerns

talexuser

fun4everyone wrote: »

Taking the entire lifetime of the fund is not picking points to suit an argument. The entire lifetime of the fund is completely tragic, over the whole 5 years, and that has been due to performance over 4 of those years.

I actually said that if you held on it's tragic, no disagreement. Nevertheless some people made a very reasonable return by getting out earlier. This is the punt you make with an active fund, there are winners and losers and you have to keep an eye on what's happening.

The focus should be why many less sophisticated investors held on for so long when it became obvious he would end up at the bottom of the 5 year tables, and recovery from that position would have to be absolutely spectacular compared to switching to a more successful fund. I think it's here that HL has a measure of responsibility for this situation in addition to Woodford himself.

redux

Brian65 wrote: »

Why is that surprising?
If an Investment Trust management is perceived as expensive/incompetent etc, the IT will trade at a discount. Because the management is perceived as a liability. That does not mean the shares within the trust are worth less than market value when you are buying them without that liability attached.

I recognise what you're saying about a discount vs underlying net asset value, but it isn't actually an answer to what I was saying.

The surprise isn't that such a situation can obtain, but that the fund seems to have chosen to buy at full asser value, instead of at a discount on the open market.

If you had a duty of care to buy something on behalf of stakeholders at best available terms, they might be surprised if you paid full price instead of spotting a lower price in a very obvious place.

As per my rhetorical question in the rest of my post, where do the profits on this arbitrage end up?

If as per the one reported assertion the WPCT shares have been moved from one Woodford fund to another, that might be deemed to have created a 2 or 3 way conflict of interest between these, one fund gaining and one losing on paying a different than open market price.

It gets more complicated when there seem to be other cross holdings and transactions.

Investment trusts have a board of directors that are supposed to act in the interests of shareholders. Just occasionally that leads to serving notice and a change of investment manager.

A Citywire article an hour ago asks some pertinent questions, like what are the board of WPCT doing?

March the board drew some criticism for approving a controversial share swap that saw the trust issue a 9% share stake to the Woodford Equity Income fund in return for its holdings in five unquoted companies it already held. Given the fund was clearly struggling to reduce its unquoted holdings, there were concerns around corporate governance and whether the move was really in Patient Capital shareholders’ interests or Woodford’s.

JP Morgan Cazenove’s respected analyst Christopher Brown has this week frowned on the possibility of such a transaction being repeated. Patient Capital investors don’t want the trust to become a dustbin for stocks Woodford can’t sell from his fund after all. As I say, investors urgently need to hear from the board over what it is doing and what the options are.

https://citywire.co.uk/funds-insider/news/what-is-board-of-flagship-woodford-patient-capital-doing/a1237314

AnotherJoe

This gets messier and dirtier by the hour. Those interconnected share deals looked dodgy to me when i saw them originally but being bought at full price makes it much worse. Is that not illegal?



And I'm staggered no one has called him out publicly on Industrial Heat. They have no product and cannot have one because, to quote Scotty "ye canna break the laws of physics" and that's what this product would have to do. That he bought into this, beggars belief. Its Theranos all over again.

redux

To supplement my above post, rather than edit and make it even longer, I know less about the governance of investment funds, but I just found this from about a year ago.

In a way, the FCA's changes highlight just how different UK fund structures are from those in Dublin, Luxemburg or most jurisdictions.

For instance, UK funds structured as OEICs do not have a board of directors in the same way their peers in Luxembourg and Ireland do.

There are no 'fund' boards in the UK. Instead, each OEIC is required to have a single corporate director known as an authorised corporate director (ACD) who assumes responsibility for the management of all aspects of the fund.

All else being equal, an ACD can oversee multiple funds and fund structures in the UK. For most funds in the UK, the ACD is typically composed of staff members from within the investment manager.

One benefit is that these members already have a thorough understanding of their business.

Conversely, there is a perception they can sometimes be guilty of focusing on the success of the business rather than investor outcomes. By requiring a board to have INEDs, the FCA hopes to address this potential bias.

Given the structure of an ACD and the expertise required, the responsibilities of an INED in the UK are significantly more comprehensive than an equivalent role in other jurisdictions.

https://www.investmentweek.co.uk/investment-week/opinion/3034929/the-journey-towards-better-fund-governance

I can't find out if stuff like this has already changed a bit since then, but I won't be surprised if the current saga leads to some new initiatives.

Beenie

green man, that's why I said in my first post that we had a very good presentation from HL, and as you say, they mention the philosophy of investment and picking different fund manager 'styles' (and contrarian styles come into that).

We felt it was a worthwhile event (and we have no funds with Woodford) but all I was reporting was the feeling from the floor (many of whom are Woodford investors) and what the HL people said to pacify/enlighten the audience.

Nocto

Well it would appear that Mr Woodford is already dumping shares pretty fast - if this article is anything to go by...

https://quoteddata.com/2019/06/biotech-firms-brace-wave-woodford-fund-liquidations/

bowlhead99

IanManc wrote: »

If the reporting in This Is Money is correct, I would be fascinated to learn how in paying 15.6% more than the market price for an asset which he also manages Woodford was complying with his fiduciary duty to investors in the Equity Income fund.

How was he continuing to manage "in pursuit of the most positive outcome for investors" when paying 15.6% above market price for assets he bought into a fund? And which were purchased from a fund he also controlled?

redux wrote: »

Besides that, the most surprising aspect I've seen on this thread is the fund allegedly having acquired shares in Patient Capital at full asset value, instead of at an open market (i.e. discounted to NAV) price.

If this is true, how exactly would it have happened? Were new WPCT shares issued, or was there some intermediary process, and if so where did the profits of this arbitrage end up?

He didn't buy the shares in WPCT on the 'open market' in which you or I might acquire shares in it by buying off a previous investor. The price (bid-offer spread) quoted on the stock exchange is for trades of normal market size (a function of daily trading volumes, and currently set to 20,000 shares). Whereas the amount of stock he needed to buy was several thousand times that amount, and not available in the market. And he didn't want to pay cash anyway, because he didn't have a lot of cash, what he had was investment assets.

So the arrangement was that the directors of the WPCT - who were already authorised to issue further shares of the trust via authority previously obtained from the trust's investors -agreed to issue new shares of WPCT, and grow the total size of WPCT.

The directors of the trust would not want to issue shares at a price representing a discount to the fair value of the trust's assets, as this would harm the investors in the trust who would see their average NAV per share reduce as a consequence. Therefore the deal is: the trust issues new shares at a price equal to its NAV, and instead of receiving full cash consideration it receives just a bit of cash and a load of investment assets which are worth the fair value of the consideration that Woodford Fund was required to pay.

As a result, the Woodford Fund exchanges a bunch of investment assets and a few million of cash for (say) 80 million newly issued shares of the investment trust, so instead of having ~830 million shares in issue, there are now ~910 million shares in issue. The total WPCT NAV rises by the value of the cash and investment assets it acquired (which were independently valued at the time), but the WPCT NAV per share doesn't change.

The WPCT NAV represented by the newly issued shares is the same as the investment assets were worth, and the Woodford Fund goes from having 0% ownership to about 9% ownership of the WPCT. It has not gained or lost anything because instead of having shares in (say) Atom Bank and Ratesetter and a few other companies and a few million of cash, worth a collective £x million, it now has shares in an investment trust representing £x million of WPCT NAV. Same asset value, broader exposure to a greater number of companies. WPCT was previously invested in those few companies acquired anyway, but now has a bigger holding of them, and has a bit of extra cash to help it go forward with its own investment strategy.

Effectively as the Fund was given shares representing the same value of WPCT NAV as the unquoted investments and cash that it gave up, the Fund investors haven't lost, and the WPCT investors haven't lost - WPCT NAV per share is maintained. The Woodford Fund didn't obtain a huge advantage for itself by buying millions of pounds of WPCT NAV at a discount to NAV through a new share issue, because that would have involved screwing someone over.

What you can say is that having done the deal in March at NAV, Woodford's Fund will be onto a loser if it now sells its stake in WPCT on the open market at a steep discount to NAV. So, to avoid creating a loss for the Fund's investors, it will probably hold on to that holding as a long term strategic stake until fair value can be realised in due course.

Such a plan may be scuppered if the fund winds up completely and needs to dispose of all its assets at for sale prices. But if management of the fund were transferred to another manager to keep running as a going concern, it's quite possible that they would keep that core strategic stake and not sell at a steep discount at all.

Reaper

bowlhead99 wrote: »

What you can say is that having done the deal in March at NAV, Woodford's Fund will be onto a loser if it now sells its stake in WPCT on the open market at a steep discount to NAV. So, to avoid creating a loss for the Fund's investors, it will probably hold on to that holding as a long term strategic stake until fair value can be realised in due course.

But isn't that most likely? He has to sell enough now to get below 10% limit and the market knows it. Potential buyers of unquoted stocks know he is a forced seller so it will be very hard to find a buyer willing to pay a fair price for them. However selling his stake in WPCT is much easier as it is a listed share.

I would expect him to sell a bunch now and hold some more ready to sell ready for when he re-opens the fund and the inevitable further wave of withdrawals takes place. I don't expect him to end up with much.

cogito

Nocto wrote: »

Well it would appear that Mr Woodford is already dumping shares pretty fast - if this article is anything to go by...

https://quoteddata.com/2019/06/biotech-firms-brace-wave-woodford-fund-liquidations/

You can follow the action here.

https://www.investegate.co.uk/Index.aspx?searchtype=1&words=woodford

Repositioning or fire sale? The latter, I think.

dividendhero

AnotherJoe wrote: »

And I'm staggered no one has called him out publicly on Industrial Heat. They have no product and cannot have one because, to quote Scotty "ye canna break the laws of physics" and that's what this product would have to do. .

Theoretically the Sun's not hot enough to induce fusion, but something quantum tunnelling enables the coulomb barrier to be overcome and the sun to shine

There's no doubt that Industrial Heat have not achieved such a miracle, but they did manage to sucker Woodford