Schroders thwarted by Woodford strategy on Patient Capital

Schroders thwarted by Woodford strategy on Patient Capital

Schroders' attempts to improve the diversification and liquidity of Neil Woodford’s former investment trust have been stymied by his investment policy.

In the 84-page annual report for Schroder UK Public Private Trust — which is the new name of the Woodford Patient Capital Trust — chairman Susan Searle said Schroders would seek to increase the liquidity and diversification of the portfolio over time.

But she said these attempts had been hampered by the investment policy agreed by Mr Woodford.

The trust’s policy currently requires the manager to have a minimum of 40 holdings and ensure no more than 80 per cent of the company’s assets were held in unquoted holdings.

Ms Searle said: "Schroders is restricted from raising capital through disposals as a result of the requirement to have a minimum of 40 holdings and from making further investments into existing assets, as a result of the current restriction that no more than 80 per cent of the [trust's] assets may be held in unquoted holdings."

Due to the limiting nature of such conditions, the trust’s board is proposing a number of changes to the investment policy at the forthcoming annual general meeting.

Changes include allowing the minimum number of holdings to reduce from 40 to 30 and introducing a level of flexibility into the 80 per cent rule to allow the actual exposure to unquoted companies to vary from time to time.

Under Mr Woodford, the trust’s investment policy said it would invest in a diversified policy with a focus on “early stage” UK companies, adding that the trust may become more global in nature as holdings evolved.
Schroders has changed this to a focus on “fast growing, high quality” companies, specifying the holdings would be “predominantly” in the UK.

The changes will be put to shareholders at the AGM on June 5.

The report, published today (May 1), also showed the board was considering cutting the trust’s net asset value by 3 to 8 per cent to estimate the impact of the coronavirus crisis on the trust.

Any write down to the trust’s Nav would come after a 49 per cent decline of the Nav per share price over 2019 and a 53 per cent drop in the trust’s overall share price over the same time period.

The coronavirus crisis has hit the trust's performance further, with the portfolio losing 72 per cent in share price terms over the past 12 months.

Ms Searle said: “Challenges remain. The continuing delays in the sale of the assets from the LF Equity Income Fund, whilst an entirely separate entity from the [trust] will, nevertheless, continue to cause disruption to a number of invested companies. 

“This, together with the current general market conditions created by the outbreak of the Covid-19 pandemic, may impact the private equity market and may further affect our ability to pay down the gearing within the timeframe that the board would like."