Woodford Concerns

fun4everyone

AnotherJoe wrote: »

My position is that IH is a clear pointer to the quality of the research into the others, hence my scepticism of them.

This is imo the way to arrive at the correct answer for the investments NW runs.

Back in 2016 he invested loads into Northwest Bio who were basically a scam. Not only that it was clear with even basic research they were a bit of a scam. Of course he lost investors money. It was clear a lack of any real research going on and they were just lobbing money at anything and everything. A clear message for anyone paying attention. I found it funny that he called the trust "Patient Capital" when he showed absolutely 0 patience in using the money he raised.

talexuser

fun4everyone wrote: »

in using the money he raised.

This could have been the problem. So much money flowed in from the launch hype it was too much for a conventional income fund to handle and not end up an only slightly above average closet tracker.

Problem is I remember the articles from Perpetual days when his funds grew to a billion, can he keep up the performance?, 2 billion, surely he can't now keep up performance, 5 billion, surely now etc , 10 billion it's now virtually impossible etc etc. Yet he never imploded there so some oversight must have been missing on his own.

Reaper

Thrugelmir wrote: »

Broking houses will know that WPCT needs to liquidate holdings and will mark down prices accordingly. Buyers market. There's no sentiment.

No WPCT doesn't need to liquidate anything. That's the beauty of a closed end fund.

However Woodford Equity Income is an open ended fund so does need to, and since there is overlap in their investments it is driving the price of WPCT down too.

Personally I plan to wait until Equity Income allows selling, wait for the bulk of that to occur, then see if I think WPCT is worth buying or whether I have missed the boat (quite likely as the market prices ahead based on expectations).

fun4everyone

No WPCT doesn't need to liquidate anything. That's the beauty of a closed end fund.

WPCT has a large bank loan which IIRC has to be repaid in Jan 2020 (I think its £150m? Can't remember the specifics). Woodford is also on the hook for more funding to the likes of Proton Partners, which he signed up to and which they have now called in.

Everything does have a fair price though, and there must be some value in the portfolio and a chance of good success with some of the companies. At the moment though the NAV is imo a scam, the bank loan has to be repaid and god knows what else will happen.

talexuser

Telegraph today making a meal of dilution as if it's never been heard of before, or the fact a fund can charge an exit fee if it feels it need it. Woodford may charge 1% to leave when it reopens, a charge that apparently is "punishing".

However what caught my eye is the exit charges that HL charge to people who may want to leave now having lost faith in their recommendations. The article twice states that "of the 44 top platforms that offer ISAs only around a third have exit fees and "the majority of fund shops absorb the cost of transfers themselves. But Emma Wall of HL (the new Dampier?) claims "in common with the majority of platforms we charge exit fees". Can both be true?

bowlhead99

fun4everyone wrote: »

At the moment though the NAV is imo a scam, the bank loan has to be repaid and god knows what else will happen.

Generally the way such a finance facility on an investment trust is 'repaid' is by signing up to a new facility for nea new term, either from the same provider or a new one after shopping around for rates. The next deal might ultimately be with one provider or a syndicate.

Having a finance facility in place is part of the long term strategy of the IT and has been designed-in to the structure. It would only be 'repaid' without replacement if they run out of investment opportunities or just generally see no future need to have it for liquidity within the portfolio.

The question will be, is someone willing to offer £150m of lending if the gross asset value is say £500m instead of £1000m (if for example the current valuation is a 'scam' like you think it is). At £800m, £600m, £400m, they would still find people offering funding, just at higher cost. Whereas at £200m of largely unquoted assets you may be right to suggest that there may not be any lenders without outrageous rates or needing convertible loan interests etc so they would have to try to repay. I have put my money where my mouth is in saying that won't happen. But we shall see.

talexuser

Another Woodford story today, Council pension schemes invested in Patient Capital.

The £14.3bn West Yorkshire Pension Fund has £3.5mil in PC, Derbyshire’s pension £5bn scheme has 5m shares of PC and the £2.4bn Dyfed Pension Fund has £2.4mil in PC.

I know these are just ~0.1% of the fund and know nothing about being a pension trustee, but am still surprised a pension spreads risk so widely.

msallen

talexuser wrote: »

I know these are just ~0.1% of the fund and know nothing about being a pension trustee, but am still surprised a pension spreads risk so widely.

Neither do I, but I would be surprised if they were not guilty of failing in their duty if they didn't spread risk so widely!

bowlhead99

talexuser wrote: »

Another Woodford story today, Council pension schemes invested in Patient Capital.

The £14.3bn West Yorkshire Pension Fund has £3.5mil in PC, Derbyshire’s pension £5bn scheme has 5m shares of PC and the £2.4bn Dyfed Pension Fund has £2.4mil in PC.

I know these are just ~0.1% of the fund and know nothing about being a pension trustee, but am still surprised a pension spreads risk so widely.

Public sector pension schemes do have a broad remit to invest in a number of asset classes in a well diversified way; they're not just investing in nice safe bonds to make sure there is liquidity to pay pensioners, and mainstream equities for growth so that the assets are enough to pay pensioners... but in private equity and other alternative funds (real estate, credit funds, real assets, infrastructure, specialist finance etc).

The Myners report back in 2001 really got public sector pension funds increasing their exposure to very broadly diversified long term opportunities; the report had been commissioned off the back of, among other things, greater investment in UK private business being something that the government had said back in 1999 that it would like to see. http://www.wmpfonline.com/QIH gives certain quarterly information about West Midlands's recent investment holdings.

What you can see is that the majority of their £1bn+ of private equity investments are held through commitments which they make to privately managed institutional investment partnerships, and they have been making c.10% of net IRR from it.

However in such arrangements, the investor makes a commitment to invest in the PE limited partnership fund over the long term and over a period of five years or so, the fund manager will draw down on the capital commitments from the investors as opportunities arise to invest in an identified business, and later makes distributions over the years following that as underlying investments are disposed. This is quite efficient from the investor's perspective because there is no point having money stuck in a fund's bank account earning nothing while the fund manager looks for opportunities.

However it also means that the commitments made each year are not actually funded that year. To get their exposure to where they want (e.g. x% of portfolio to venture capital and private equity), while keeping some liquidity, institutional investors may make top-ups to the sector by holding listed vehicles from time to time. Or of course they might buy a share in a listed company which in turn holds other companies (e.g. WPCT) just as one opportunity within their internally managed equities direct investment team, without it necessarily being part of a broader private equity investment strategy.

As you note, £3-4 million holding in a fund worth over £10 bn is not a very big piece of the pie. However it would be 0.3% of a £1.2bn private equity programme, or perhaps sitting as 0.5% of a £700m directly held equities portfolio sitting outside the stuff delegated to external managers via funds or partnerships. Something that is only half a percent of the sub portfolio whose performance is being judged, but gets a better return than other opportunities over the decades, will still contribute to a reduction in what the LGPS staff and government have to put into the pension to deliver the ultimate benefits required for pensioners. So can be worth buying.

Also, as an institutional pension trustee you don't necessarily want to buy massive slices of investment trusts or other similar vehicles because they can be illiquid and hard to buy - other than at IPO. So it isn't massively surprising that they are writing tickets for a listed private equity / smallcap trust at just a few million at a time, even if the average commitment they make to 5-year investment period for a private equity partnership is more like £20 million.

To those who will inevitably suggest that there is no point putting a few million quid into an investment trust here and there when you have £14bn to deploy, you might as well just stick it all in trackers rather than have tiny holdings of things here and there; WMPeF do have £5bn of trackers too, but are casting the net wider to achieve diversification. The principle seems fine to me and they have invested in some good stuff.

Whether WPCT will eventually become 'good stuff' or whether they have sold out already, or added more recently as it became cheaper... who knows. Or cares, frankly. If you are a retired Bradford binman you don't need to worry about whether the council made a good call or bad call on Woodford as as your pension will still be the same; and if you are still of working age, even a total loss of £3.5m on £14bn will be imperceptible on your contribution rates, as there will be other things going up and down all the time anyway, and the employer funds most of it.

masonic

talexuser wrote: »

Another Woodford story today, Council pension schemes invested in Patient Capital.

The £14.3bn West Yorkshire Pension Fund has £3.5mil in PC, Derbyshire’s pension £5bn scheme has 5m shares of PC and the £2.4bn Dyfed Pension Fund has £2.4mil in PC.

I know these are just ~0.1% of the fund and know nothing about being a pension trustee, but am still surprised a pension spreads risk so widely.

I suppose a large pension fund is a more appropriate holder of such an investment than many private investors given that their holding period might be measured in centuries. Provided it is a small slice of the fund of course.