Star Manager Woodford Plans to Cut Borrowing -- WSJ

By Paul J. Davies 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 1, 2019).

LONDON -- A fund run by star investor Neil Woodford is aiming to slash its debt and pledged to recruit more independent directors to its board while it attempts to assuage investor concerns over the value of its investments.

The near GBP1 billion Woodford Patient Capital Trust, a U.K. listed closed-end fund, was the subject of an article by The Wall Street Journal article this week that detailed the growth in its borrowing over recent years and its increasing exposure to risky, young companies, most of which don't have publicly traded shares.

The big risks faced by its lender, U.S. bank Northern Trust Corp., and its investors is that the majority of the companies it owns are also owned by Mr. Woodford's GBP3.7 billion ($4.7 billion) mutual fund, which has been forced to suspend withdrawals while it sells down assets to generate cash to repay investors.

Mr. Woodford built a reputation for making winning, contrarian bets on large, unloved stocks over 25 years at U.S. company Invesco Perpetual. But his eponymous investment empire built after he left Invesco in 2013 is now in serious trouble as clients have fled and U.K. regulators have launched an investigation.

Chicago-based Northern Trust has lent up to GBP150 million to the Patient Capital Trust as it progressively lifted the limits on how much of the fund could be invested in private, unlisted companies. The Trust said Friday it had already reduced the loan size to GBP126 million. It also said it would cut that to less than half its former level within six months and eliminate it entirely within a year.

That would bring it in line with the practice of other similar U.K. funds, which don't use long-term leverage, and mark a return to its own original investment policies.

The trust also attempted to reassure investors about the value of the companies in which it owns stakes. It said the holdings were assessed independently by a third party, IHS Markit, which conducted in-depth work twice a year, or whenever a transaction involving an investment occurred.

It also said sales by Woodford's suspended fund might not mean losses on the value of companies held by the trust. Referring to International Private Equity and Venture Capital Valuation Guidelines, the trust said: "In the case of a 'forced transaction,' it is not necessarily expected that the [trust's] assets would be marked to the same value."

Several members of the trust's board are linked to companies that the trust or other Woodford funds have invested in. The board insisted it was independent, but would also seek to bring in more independent nonexecutives.

Shares in the trust fell 2.6% and are trading at a discount of one third to its net asset value.

Northern Trust said: "We do not expect a loss with the loan to Woodford Patient Capital Trust, partly due to the collateral supporting the exposure, which is currently valued in excess of 500 percent of the outstanding loan exposure."

Write to Paul J. Davies at [e-mail]

(END) Dow Jones Newswires

July 01, 2019 02:47 ET (06:47 GMT)

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