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Neil Woodford discusses the Woodford Patient Capital Trust

We recently called Neil Woodford a “headline hitter” and the closest thing to a celebrity in the UK fund management industry. He built this reputation at Invesco Perpetual, where he stayed for 25 years, before leaving to set up Woodford Investment Management and launch the Woodford Equity Income Fund.

Lee Dooley Lee Dooley
04 March 2015

Next for Woodford is the Woodford Patient Capital Trust, an investment trust that he hopes will champion the “best of British.” Unlike the Woodford Equity Income Fund, which focuses on FTSE 100 and FTSE 250 companies, the investment trust’s main focus is on small cap and unquoted companies. We were delighted to host Woodford at our Mayfair office recently, where he gave us some insight into the investment trust and what investors can expect from it.

Why an investment trust and why now?

One of Woodford’s main aims with the Woodford Patient Capital Trust is to continue what he calls Britain’s “enduring lead in science and innovation.” He believes that the UK has world-leading universities, ideas and a pharmaceutical industry with an enviable track record. However, commercial success has been lacking – Woodford says that there is a dearth of long-term patient capital (where the investor forgoes any quick profit in the hope of significant returns over a long time horizon), with a massive demand from companies but low supply. He mentions that, therefore, “the opportunity is massive.”

New ideas

Woodford wants connections with people and companies that complement what the trust is trying to do, connections with “new ideas.” He has long had a fascination with early-stage and early-growth companies that focus on invention and innovation and this has enabled him to build a trusted network of relationships over more than a decade, for example with companies and universities. The Woodford Patient Capital Trust prospectus features a case study on Xeros, which is currently held as an investment in the Woodford Equity Income Fund. Xeros’ washing machine technology uses nylon beads to clean clothes, uses 80% less water and is an example of one of the new ideas that Woodford is looking to seek out.

Woodford believes an investment trust is “high-profile” – they need to work. He says that “everything we invest in we expect to succeed,” but admits some investments will inevitably be more risky than others. Ultimately, though, Woodford and his team wouldn’t invest “if they weren’t confident.” He knows that due diligence is key and he has hired people with curiosity, people who haven’t been through what he calls the industry “sausage-machine.” These include Stephen Lamacraft, a former Metropolitan Police Officer, and Saku Saha, a former officer in the British Army.

As a final note, Woodford is acutely aware that he will run into more difficulty than ever if he can’t prove the investment model with the investment trust, as Woodford Investment Management has taken the unique step of moving to a performance-based fee structure. This is something that he has wanted to do “for a while,” and Woodford Investment Management won’t receive a management fee unless they deliver a cumulative annual return in excess of 10%. This is the conviction that he has in the opportunity.

It was a pleasure to have Woodford visit our headquarters and we enjoyed hearing him discuss the Woodford Patient Capital Trust.

The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. Smaller companies shares can be more volatile and less liquid than larger company shares, so smaller companies funds can carry more risk. Investment trusts are similar to funds in that they provide a means of pooling your money but they are publicly listed companies whose shares are traded on the London Stock Exchange. The price of their shares will fluctuate according to investor demand and changes in the value of their underlying assets. This article does not constitute personal advice to invest.