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Schroders to Take Over Woodford Patient Capital Trust

The Board of Woodford Patient Capital Trust has confirmed that Schroders will take over managing the trust from Neil Woodford by the end of the year

(Morningstar)Neil Woodford’s Patient Capital Investment Trust (WPCT) will be taken over by Schroders, it has been confirmed. Shares in the beleaguered trust leapt more than 14% as the market opened to the announcement this morning and are now up 30%.

It comes just days after embattled manager Neil Woodford resigned from the running of the trust and revealed he would close his business Woodford Investment Management.

The Board of Woodford Patient Capital Trust had said earlier this summer it was in talks with other fund managers with a view to potentially replacing Woodford at the helm of the trust.

While Woodford had been set to work a three-month notice period as part of the transition, Schroders is poised to take over the running of the trust by the end of the year.

Woodford Patient Capital Trust will be renamed Schroder UK Public Private Trust.

Investors may be disappointed to discover that the fee structure of the trust will change under its new management. Woodford had famously not taken a fee since launching the trust in 2015. This is because the charging structure was performance fee based and required the manager to deliver net asset value growth of at least 10% in a year before taking any fee – Woodford never achieved this.

Schroders will not take a management fee for three months, but will charge 1% a year after that on the first £600 million of assets, falling to 0.8% on assets above this level.

There will be no performance fee payable until December 31, 2022. At this point, Schroders will be eligible to take a fee of 15% of any excess returns above a Net Asset Value (NAV) per share of 77p. The reported NAV was 63.2p as at October 22, 2019.

Following this, there will be a performance fee of 15% of any performance above a hurdle of 10% of net assets a year, subject to a high watermark.

Kevin Doran, chief investment officer at AJ Bell, said the move "may irk anyone who was initially attracted to the trust by the original charging structure, but for the rest, the opportunity to draw a line under the Woodford situation and move on will be, no doubt welcome."

No Quick Fix

Analysts at Investec have retained the “sell” rating on the trust, warning that despite the “morning’s euphoria, we see no quick fix here”.

Investec said the appointment of Schroders was a welcome development which would materially increase the depth of resource at the trust but that there were serious challenges. “In reality, Schroders will inherit a highly geared, highly illiquid and concentrated portfolio, predominantly consisting of venture capital investments,” an Investec analyst note said.

Schroders said it will manage the portfolio in line with its existing objective and policy. The firm has “relevant sector expertise, including across healthcare and technology and will operate a team-based approach to manage the portfolio”, it said.

Doran 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."

Investec analysts added that the sales process of the current portfolio may at least provide some further insight into the underlying valuations of the companies currently help in the portfolio.

A Good Fit?

Schroders is perhaps better known for its range of open-ended funds and its multi-manager suite of funds, but the group has managed investment trusts since 1924 and has a 100-strong team specialising in private equity.

Susan Searle, chairman of WPCT, said choosing a new manager for the trust had been a “competitive process” but Schroders' “long-term approach” and “substantial research resources” made it a natural choice.

She added: “I would like to thank our shareholders for their support throughout this process as we have worked to put in place the right portfolio manager against the background of challenging circumstances.”

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