Woodford: ‘I’ve only had one disaster in unquoted space’

Neil Woodford has called the market’s view of how risky unquoted stocks are as “misguided” and claimed he has only had one “disaster” when investing in the space.

The manager, who has launched his own fund management business in recent days, said such stocks were less volatile than their listed counterparts because they were not at the whim of stockmarkets.

“Why don’t fund managers [invest in the space]? I think they are constrained by the risk appetite or risk budget which controls what they are doing,” Mr Woodford said.

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“They are also constrained by the things that constrain investors’ behaviour.”

Speaking at a briefing hosted by Chelsea Financial Services, the manager said the views of other fund managers of unquoted stocks were “completely distorted”.

“In 10 years, I have had one complete disaster that zeroed and was worth nothing,” he said.

“I have had three or four companies which had to be recapitalised and be rebuilt but they have much lower volatility than the market. There is a misguided perception of risk in my mind.”

The manager said his new fund - CF Woodford Equity Income - would use some of the 20 per cent allowance in overseas stocks as well as “significant” exposure to small cap stocks - quoted or unquoted.

Mr Woodford told Investment Adviser earlier this month he was eyeing a deal to buy the venture capital investments he made in his years at Invesco Perpetual from his old employer.

The manager made roughly 30 of the unconventional investments on his former funds, often offering funding to university research spin-outs in areas such as life sciences. The bets included medical firm Lamellar Biomedical, materials sciences venture Xyleco and even platform group A J Bell.

“You can’t buy them when you want to and have to wait until the opportunity comes to find these types of businesses,” he told Investment Adviser at the time.

“It may well be a possibility to come to an agreement with my previous employer to buy stocks they might want to sell.”

Many of the manager’s unquoted stocks are in healthcare related areas, especially those which involve new technology and early stage medical developments.

“The UK has a reputation for innovation and no other country globally has the track record of scientific discovery that this economy has had,” he said.

“We do science and innovation in this country very well. If the economy will ever create a sustainable growth environment and move away from consumer related debt it will have to rely on the intellectual economy to drive jobs.”

Elsewhere, Mr Woodford said the chance to start his own business without the “legacy” constraints of existing businesses was a “no brainer”.

“The opportunity arose to set up a fund business from scratch which was able to utilise lots of things that incumbent and large bureaucratic organisations are not able to use,” he said.