Woodford Investment Management

Dear Friend

Included in this edition of our e-newsletter …





So the latest is that the FCA will not investigate its own handling of the matter.

Perhaps that is acceptable as these things can happen even to the most reputable of funds or groups I guess.  However, here are a few points which might warrant consideration.  I repeat, we did not support the funds at launch and nor since but have been buying shares in Woodford Patient Capital Trust at very depressed levels albeit too soon in some respects.  I did not support their launch either (nor the WPCT launch) and indeed tried to ensure people were dissuaded from buying them.  Some of the reasons are the same as to why I do not and should not buy Terry Smith or Nick Train’s holdings either but that’s another story!  Perhaps that is why and what our clients engage us to decide.  However, the change of manager on the Trust now has given us a useful boost!

  1. The engagement of unlisted securities within a maximum percentage holding range is not awry but clearly if then the overall asset value of the fund drops then this can place a disproportionate impact upon the fund as the manager will struggle to sell those holdings to stay within the cap perhaps.  Fair enough and ‘gating’ the fund is possible (meaning that withdrawals are stopped to protect all holders).  However, when Woodford Investment Management listed some of these companies on the Guernsey Stock Exchange to circumvent the ‘unlisted’ criteria, alarm bells should have been ringing.  That did not make them any more saleable than before.  If we knew this because we read the news… why did the FCA not see it too?
  1. When the unitised holdings wrapped-up all the unlisted assets and sold them to the quoted closed-end vehicle (for £73million at the time), Woodford Patient Capital, in reality that too was fine because it dealt with the issue of unlisted securities (though conflicts of interests will have been discussed by the various parties of course and if not, why not).  However, what was not so fine was that the price was at 96.67p – the then quoted asset value of the quoted Trust and comprising just under 10% of that vehicle’s total shares in issue.  This was 81.6million shares and priced at a 16% premium to the Trust’s market value and which has been as low as 29p, so a loss of over two-thirds (£49million) has now ensued despite most of those assets not having lost anything like that in value (but granted there are some write-downs).  Yes, I know that there are ‘rules’ about issuing new shares but the deal could have been orchestrated through the market and at least at the market value perhaps and if the level was so awry (as it was) then that may have suggested it did not proceed at all.  We said this at the time.  Now the enforced sale of this chunk of stock has and will suppress the price at which Woodford Patient Capital Trust shares will trade – inevitably as there is not a surplus of buyers there at present (and should the unitised funds be selling this holding at such a deep discount now anyway but the unitholders have no choice – maybe they should be allotted those shares as part of the liquidation process to make their own decisions later?)
  1. The unitised holdings are going to be wound-up.  This is still a potentially £3billion pot.  Should not the Regulator be involved in that prior consideration to decide if that is indeed the best route for unitholders?  I have stated that in my view I doubt that such action is the best thing at all.  Yes, commercial decisions are involved too but the financial security and losses of the unitholders are paramount and having the forced sale of known assets on a fire-sale basis is unlikely to be the best thing to do and it has also caused the implosion of the management company.  Perhaps there were many holders who would have been happy to have remained with the Woodford rump to see if it recovered and without the forced sales – should they not have been given the option?  These are regulatory questions of intervention and decision and questions could easily have been asked of unitholders, with a tightened regulatory regime imposed upon the regulated entity – Woodford Investment Management Ltd.
  1. When Mr Woodford delayed the disclosure of his £1million sale of Woodford Patient Capital Trust shares (whether required under the rules or not) it would have been prudent and demonstrate integrity had this been disclosed immediately.
  1. Registrars are not required to be authorised by regulators – what does that mean?  It means that sometimes those ‘others’ involved in the process can escape regulatory scrutiny and action and as other subsidiaries are regulated, it can misleadingly give the impression that all parts of an entity have full regulation protection when it is needed.  (We have raised this matter before with the Regulator in general terms previously but to no avail – for example penal and inequitable charges for lost certificates and dividend cheques and indeed, protocols for dealing with unpaid dividends and searches for missing shareholders.  Remember, these entities are responsible for the vast majority of all securities so a vast sum!).  There are also trustees, administrators, auditors, etc and not all of them need to be regulated in that way to perform their activities and sometimes too, related activities can occur in other jurisdictions such as the Channel Islands and are the protections there as robust as we should hope they are on the Mainland?

The latest is good news, at least.  The quoted Investment Trust, Woodford Patient Capital Trust, is now going to be managed by Schroders and renamed.  The shares have rallied by 30% on the news.  We have been buying (and I have personally too) and down to the lower levels so on average we shall have done just fine!  For the technical analysists amongst you, here are some tongue-in-cheek thoughts:-

I have said before that the initial problems facing WIM have been exacerbated by such seriously bad handling by many parties since and I do believe the closure of the unitised holdings and suspension of the mandate are not the best thing which Link, the administrators, should have done. 

So – WPCT… The problems –

  1. The loan/gearing and its terms and size – will the Bank be happy to retain and roll it and if not and alternatives are not possible, forced sales to repay that debt will be not at best prices (as has been seen by many Woodford unitised sales either undertaken by it, St James’s Place (which had £3.5billion under his management albeit with no unquoted stocks) or Openwork which had £350million).  New debt will also cost more.
  1. The values of the assets – always arbitrary – valued at the last new equity issuance levels or what?
  1. The problem whereby new funding requirements from component companies and Woodford generally would previously have supported them but cannot do so now.  An innovative research company could be so close to a breakthrough but if it fails to raise capital for the last mile, the whole investment can go bad and that is the end.  That is not a good reason in itself to subscribe but sometimes, throwing good money after bad is absolutely the right thing to do rather than seeing all the past wiped-out through an emotional reaction which chooses not to pay an extra penny just when it is needed.
  1. Selling by holders will drive prices down.  Link has 9% exposure in the unitised fund so that will overhang the market till it has gone – hopefully Schroder can orchestrate some help there as it is big enough or else the impending sale will overhang progress.
  1. A new manager – will Schroder be content to retain the holdings as they are as a custodian rather than as a ‘manager’?  What is its ‘patience’ like?  The worst thing of all would be selling things in a knee-jerk way for the sake of wanting to put other favourite things into the pot instead.
  1. Who else (institutionally) will want to start buying the shares?  For things to improve, some support is necessary though it would not be unheard-of!


  1. There is a significant discount to the net asset value.  If it was full of quoted assets, that would be compelling.  However, there has to be leeway for the lack of real valuation basis but conversely, the somewhat more negative valuations already applied by Link could mean there is opportunity for surprise on the upside.  (This is not referring to any particular asset as such but just in general terms).  The portfolio has some diversity after all.
  1. From recent lows around 29p to even say a fairer 53p is a gain of over two-thirds.  The risk:reward for an investor today is still compelling even if the Trust went into phased liquidation (to which we’d object and we are now a meaningful shareholder albeit still small generally speaking!).
  1. The downside is limited and probably the last big shareholder (Link) will soon be gone.  (Mr Woodford himself we assume still has some stock).  Being logical, if something is £1 and it drops to 29p it was high risk.  If it is now 29p or even 40p, then it is probably low risk (though everyone would see it as high risk because of what it has just done).  However, most of the worst (if not all) has already happened so it cannot happen again.
  1. Some of the stakes in unquoted companies are strategic and could reward significantly.  Indeed, the shares could be bought by other institutions who may want a back-door into the exposure (and which is not available elsewhere).
  1. Most of the upside potential is in there for nothing.
  1. A real outside – perhaps Mr Woodford can call-upon support from previous otherwise fair-weather friends and may make a comeback – if his confidence in the strategy is appropriately placed.  It could be a great opportunity for a hedge fund somewhere if the underlying values are considered ‘fair’ – take a 29.9% stake by nibbling-away at all these small sales and then launch an audacious bid for the rest.
  1. There hasn’t been any ‘luck’ with the holdings for a while – some is probably overdue – but again – that’s in there for free!
  1. If you invest £1000 here, you could never lose all the £1000 but you could make it see £3000 in a relatively short time.  That’s the risk:reward!  You could pound:cost average your exposure though a low-cost platform if you must!
  1. No management fees for another three months…
  1. Schroders is a good company and with a  good team in the sector so it may well orchestrate buying of the shares to boost the prices and has the capability of managing the underlying assets well, as well as adding new capital if investee companies need it.

I have to say that I think the vulture feast from so many in the industry and indeed the media is somewhat misplaced.  In many instances the same pundits who were promoting and marvelling on the man’s prowess are those who are encouraging a headless chicken approach now and severe retribution against anyone who may have been involved.  They are also doing their worst to worry investors locked into the suspended funds suggesting they could lose ‘most’ of their money when clearly that is not going to happen.  The biggest losses are from the quoted Investment Trust (see above) and the temporarily frozen unitised holdings which most participants have could suffer anything from 20-40% losses on their original investment at very worst (and most of this having happened before the funds were suspended so that may suggest ‘only’ another 20-25% since the actual suspension value depending upon what the liquidator achieves for the stocks to be sold).  Of course, there is also the thought of the alternative return you have not gained somewhere else in the meantime to consider.

I was also not impressed by the Panorama programme which added to people’s fears – many salient points yes but many misleading emotional fears as well.  However, they did show an atypical investor who had started with £33,000 or so and it was worth £24,000 at the last valuation so might that drift to £20,000 (and we assume the figures do not show the income she was probably receiving too).  However, it did remind me that for any investor so dependent upon just one investment house that diversity such as through the Balanced Portfolio we offer would have been be so superior – we spread the eggs so widely across so many different entities and we manage them for the investor and it doesn’t cost any more. So please, if you have very few managers for your assets like she did, it’s time to review what you have and avoid such concentrated exposure which could go horribly wrong.


There are lots of iniquitous anomalies with the Council Tax system at the moment.  For one, second-home owners can register as a ‘business’ (needing to satisfy the rules) and then pay Business Rates but there is no payment under the Small Business Rates’ relief regime!  This was not designed for that at all and as much as £2million is being lost by a Local Authority like North Devon alone.

Then there is the awful penalty which kicks-in after two years of unoccupancy.  So, you could be trying hard to sell your empty property and find that the Council is slapping a 100% penalty on the Council Tax bill!  Yes, that doubles the Council Tax you have to pay for receiving no services.  This was designed to penalise those who could rent-out empty properties but selling somewhere with a tenant is either impossible or much more difficult and of course the property’s décor, etc, would begin to deteriorate just by being inhabited.  This is not right and should be changed back and indeed, the void concessions should be increased beyond the present very limited three months but I doubt that they will.

Unbeknown to most however, if you or your joint-occupant suffers from a severe mental health impairment, they are ignored for Council Tax purposes?  What this means is that say if your partner has Dementia, you would be rated as a single person for Council tax and qualify for a 25% discount on your Council Tax.  If you live alone and suffer, you could receive a 100% reduction!  https://www.moneysavingexpert.com/news/2017/09/due-a-council-tax-discount-for-severe-mental-impairment-heres-how-to-claim/  We guided one of our client couples and they successfully claimed and have received a rebate all the way back to 2013!


Stock market investments can offer income through the payment of dividends and interest and good opportunities for capital appreciation over the longer term. By this, generally we mean periods in excess of five years, preferably much longer. However, we can never promise you particular returns, especially in the short-term. At any point in time but especially in the short term, your capital could be worth less than the original amount invested as some of the selected holdings may fall in value, regardless of expectations at the time of acquisition. We may also invest in funds that hold overseas securities. The value of these investments may increase or decrease as a result of changes in currency exchange rates. Returns achieved in the past cannot be relied upon to be repeated.

To remind you, why do I send out occasional emails? Because everyone can save money. We have no connection with any companies mentioned and you have to make your own contacts and satisfy your own enquiries. What is in it for us? If we can prove that we are knowledgeable and that our service and advice have good value, then you might contact us for professional financial planning and investment help. You don’t have to do that though and there’s no charge for emails. If simply they save you money, then accept them with our compliments! However, you’ll know where we are!

If you have any queries of any form or indeed any subjects you think I could include, please contact me. I also refer you to our website www.miltonpj.net. We celebrated our thirtieth anniversary in 2015 and have been publishing a well-respected independent column in the local Paper for most of that time and free client newsletters as well.

Do not forget however the usual caveats – this is not ‘advice’ and you are encouraged to seek that before embarking upon any financial route involving investments, etc.

My best wishes

Philip J Milton DipFS CFPCM Chartered MCSI FPFS FCIB

Chartered Wealth Manager

Fellow Of The Personal Finance Society, Fellow Of The Chartered Institute Of Bankers