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Can Schroders clean up Woodford's Patient Capital mess?

Can Schroders clean up Woodford's Patient Capital mess?

A private equity veteran and a group of data scientists have been handed the task of reviving the Patient Capital investment trust following the resignation of Neil Woodford.

During Mr Woodford's tenure, the £686m trust's NAV fell 35 per cent, while its share price plunged 65 per cent. Mr Woodford resigned earlier this month as he closed his investment business. The trust’s board had already confirmed it was negotiating with alternative fund managers. 

In an announcement to the stock exchange this morning (October 24) the board of the Patient Capital trust announced that Schroders would take over management of the company's portfolio. 

At the head of the trust's new management team will be Tim Creed, the firm’s head of European private equity, and Ben Wicks, head of data insights and research innovation.

Mr Creed has spent 15 years at Adveq, the private equity firm acquired by Schroders in 2017, having previously worked at Aon and Accenture. He remains both a managing director and head of European investments at Adveq.

Mr Wicks joined Schroders as a graduate in 1999, leaving in 2005 to work as a geopolitical risk analyst for the UK government before rejoining the firm.

In a statement from Schroders confirming the appointments, the company said it would operate a “team based” approach. That process will also see Schroders' sustainable investment team work on the trust.

Analysts broadly welcomed the appointment of the fund house, but expressed concern at what they believe to be a high performance fee. 

The performance fee is 15 per cent of any excess returns generated above a share price of 77p, effective from December 31 2022, on top of an annual management fee of one per cent.

Woodford Investment Management did not levy an annual management charge, but did have a performance fee. The trust never paid the performance fee during the period Mr Woodford was at the helm, as returns were below target.  

Adrian Lowcock, head of personal investing at Willis Owen said:  “Our only concern is the high fees. Naturally investing in private equity will come with additional costs but the fund will eventually have both a performance fee and annual management fee. That said investors will have over three years, until the end of 2022, before they have to worry about the two charges.”

By mid-afternoon today the trust's shares had risen to 39p, up 28 per cent since the announcement of Schroders' appointment.

The suspended Woodford Equity Income fund owns about 9 per cent of the shares in Patient Capital, and the unwinding of that fund will lead to a significant number of shares in the trust coming onto the market, which is likely to act as a drag on the performance of the Patient Capital share price. 

Kevin Doran, chief investment officer at AJ Bell, said: “Schroders has clearly got a challenge on its hands to sort out the holdings in the trust. There is likely to be a long period of realignment where the manager looks to determine which assets to keep and which to sell and even then, a buyer will have to be found for the assets they wish to dispose of. This is likely to be a long process and will incur transaction costs for investors.