Neil Woodford CBE British fund manager and the founding partner of Woodford Investment Management. Photographed at his offices in Oxford. Portraits by Richard Cannon
Neil Woodford's style may have been imperfectly espoused, but cash flow investing is the only real alternative to momentum © Richard Cannon

Schroders has been appointed to replace Neil Woodford as the manager of the Woodford Patient Capital Trust, as new research reveals the poor record of Britain’s largest investment trust launches over the past 15 years.

The decision of the trust board was welcomed by investors, prompting a 25 per cent surge in the share price on Thursday, when the announcement was made.

Schroders will take over the trust by the end of the year, and it will be renamed Schroder UK Public Private Trust.

The new manager plans to maintain the current objectives of the trust by continuing to invest in both unquoted and listed UK companies for long-term growth.

Mr Woodford resigned from the trust this month after his flagship Equity Income fund was closed by its administrator and his investment empire imploded. WPCT’s board had been in discussions with other asset managers about replacing Mr Woodford since his equity fund was suspended in June.

Schroders will not take a management fee for three months after it takes over the trust. After that, investors will be charged an annual fee of 1 per cent on a market capitalisation up to £600m, falling to 0.8 per cent above that amount. It currently stands at £349m.

Schroders will also be eligible for a performance fee of 15 per cent “of any excess returns above a net asset value per share of 77p,” from January 1 2023. Analysts at broker Stifel upgraded their recommendation on the trust to “buy”.

“The clarity on a new manager and the appointment of such an experienced house is a positive,” said Iain Scouller, a Stifel analyst. “This remains a high-risk investment with significant uncertainties surrounding unquoted valuations, portfolio liquidity and bank debt renewal remaining. However, we do view the clarity on management arrangements as positive for the share price and following the significant fall in the price in recent months.”

Others struck a more cautious tone. “The appointment of Schroders removes a significant amount of uncertainty for investors, but leaves a number of questions unanswered,” said Sam Murphy, an analyst at Numis Securities.

“We would welcome more information on the management team and on how they intend to manage the existing holdings and future strategy. The nature of the portfolio means any changes will take time, particularly given the current focus on selling assets to reduce gearing.”

Some market experts questioned the fees investors will face in future. Adrian Lowcock, head of personal investing at Willis Owen, an investment platform, said: “Our only concern is the high fees. Naturally, investing in private equity will come with additional costs, but the fund will eventually have both a performance fee and annual management fee.”

However, he added that the move was “as good an outcome as possible for shareholders” and investors would have more than three years before the performance fee kicks in.

When WPCT was launched in 2015 it was the largest ever IPO by an investment trust, raising £800m from investors. That crown was subsequently taken by the 2018 launch of fund manager Terry Smith’s Smithson Investment Trust, which raised £822m.

However, new research by platform Interactive Investor has found a high wind-up rate for investment trusts that have launched over the past 15 years. And worryingly for investors, of the top five largest trusts at IPO, two have since gone under. These were Mercury European Privatisation, which launched in 1994 at £549m, and Kleinwort European Privatisation, which launched the same year, at £500m.

Investment trust IPOs and survivorship
YearIPOsSurvivorship (%)
20041136%
20052540%
20064129%
20073546%
20081233%
2009838%
20101669%
2011771%
2012956%
20131883%
20141694%
201523100%
20166100%
201718100%
201820100%
Source: AIC

The data revealed the worst year was 2006, when 41 trusts launched but 29 were subsequently wound up, leaving just 29 per cent of the trusts brought to the market in that year still in existence.

Caveat emptor very much applies,” said Rebecca O’Keeffe, head of investment at Interactive Investor. “IPOs can be exciting opportunities but can also be hard to judge and investors need to go in with their eyes wide open. One year’s fashion fad can be next year’s fashion faux pas.”

However, she cautioned that while a trust can be wound up due to poor performance, there are also other circumstances in which a board may regard a closure as in investors’ interests: for example, after a merger with another fund.

David Liddell, chief executive of online investment advice service IpsoFacto Investor, said investors could benefit from trust IPOs but should be cautious about investing in asset classes which have already performed well. There is a “strong likelihood that this may lead to disappointment”, when sentiment changes and performance dips, which will mean the trust’s discount to net asset value will widen.

Investing in early-stage private equity investment areas at IPO — as WPCT sought to do — is another area where he would advise caution due to the lack of clarity about underlying valuation of holdings.

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