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The Times - Woodford battles to sell his unlisted holdings
Investors trapped in Woodford’s troubled Equity Income Fund have lost 11% of their money since it was suspended in early June. Now experts are warning that they stand to lose an additional 30% on the value of the fund’s unlisted holdings.
Last week the fund’s unlisted holdings rose to 16.5% of the portfolio, breaching the 10% limit, after several companies, including Benevolent AI, the fund’s largest holding, delisted from the International Stock Exchange (TISE) in Guernsey.
“I think it would be impossible to sell [the unlisted holdings] without a significant discount by December,” said one expert in unlisted holdings familiar with the Woodford portfolio.
The sale is likely to take place through an auction process, aimed at specialist private equity funds likely to buy a large portion or all of the unlisted holdings. “For a portfolio of this type, they would typically do this at a 20 to 30% discount,” he said.
Another venture capital investor said: “They will be focusing on a few key holdings and the rest of the basket will go at a huge discount. Some of the holdings will be flying and some of them will be looking vulnerable. For those it will be a fire sale.”
Woodford has consistently denied talk of a fire sale or that he is a forced seller. At the end of July he said: “The suspension itself did appear to have a further immediate impact on performance in the short term, but we are of the view that the worst is now past.”
Since then the fund has fallen 7.5%, helped by a sharp fall in Burford Capital, a litigation financing specialist. Burford, which lost 65% of its value in 24 hours this week, has been accused of misleading investors with its accounting practices. It was the Woodford Equity Income Fund’s second largest holding at the end of May, accounting for 5.8% of the fund.
It is the latest of a series of Woodford-owned companies to face huge share-price falls in the face of governance problems (see panel). James McManus, an investment manager at Nutmeg, an investment platform, says: “It is surprising that so many Woodford-owned companies have had governance issues.”
Experts say that investors in the fund will face more problems thanks to Woodford’s obligations to buy additional unlisted holdings. Woodford Investment Management has made pledges to buy further shares in unlisted companies that it already owns as part of subsequent funding rounds. A Woodford spokesman said the commitments may not be binding and that they would be met by Woodford Patient Capital, the investment trust that specialises in unlisted companies. However, falls in the trust’s share price have reduced the amount it can borrow to make purchases. And it is looking likely that Neil Woodford will be sacked as its manager. Last week the trust’s board revealed that it was in discussions with other companies over replacing Woodford. A spokesman for the trust said that the board had increased its control of the management process of the trust since the suspension of Woodford Equity Income, adding that replacing Woodford would take several months.
Woodford has been criticised for failing to report the sale of his stake in Woodford Patient Capital to the trust’s board for three weeks. Because his stake was below 5% of the company, Woodford was under no obligation to report the sale.
“However, if your name is over the door, you are intrinsically linked to the trust — so if you sell, you should tell. That’s especially true when your other fund has suspended trading and investors are fast losing faith in you as a manager,” says Holly Black, a senior editor at Morningstar.It is “not beyond the realms of probability” that the equity income fund will close entirely, says Keith Speck of Morningstar.
