Schroder gets Woodford Patient Capital – The board of Woodford Patient Capital Trust plc has agreed heads of terms to appoint Schroder Investment Management Limited as the company’s portfolio manager. Shortly following the appointment, which is expected by the end of 2019, the company will be renamed Schroder UK Public Private Trust plc.
Schroder intends to manage the portfolio in line with the company’s existing investment objective and policy, for the long-term and “in support of positive outcomes for shareholders and British enterprise“.
The announcement draws attention to Schroder’s relevant expertise, including in healthcare and technology
Susan Searle, chairman, commented: “Following a competitive process, we are delighted to be appointing Schroders as the company’s portfolio manager. Its careful and considered long-term approach to investment, backed by its substantial research resources in both public and private assets, makes it the natural choice to manage the company’s portfolio.
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. Throughout the process, the board has had a clear focus on achieving an outcome that protects and enhances long-term shareholder value and we believe Schroders is best placed to deliver this. A well-managed handover is underway to protect shareholder value and deliver long-term performance for all shareholders.”
On appointment, Schroder will not take a management fee for three months; thereafter Schroder will be paid a management fee at the rate of 1.0% a year on market capitalisation up to GBP600 million and 0.8% a year thereafter.
There is a performance fee. Nothing will be payable until 31 December 2022, at which point Schroders will be eligible to a fee of 15% of any excess returns above a NAV per share of 77p (the latest reported NAV per share is 63.23p as at 22 October 2019). Thereafter, a performance fee of 15% of any performance above a hurdle of 10% of net assets each year will be payable, subject to a high watermark.
[QD comment: Schroder is not a bad choice for a new manager and the fee structure looks pretty good to us, especially given it is based on market cap – giving the manager an incentive to help narrow the discount. We have said before that we don’t think a fire sale of assets would be in the best interests of shareholders but we appreciate that some shareholders will be looking for an exit. This plan doesn’t address that, however.
If nothing derails the board’s plan, we’d expect Schroder to take another look at valuations in the portfolio. Schroder will also have to eliminate the gearing. Our reading of the various documents that Woodford has published suggests to us that Patient Capital’s commitment to fund Rutherford (formerly Proton Partners) does not survive Woodford Investment Management’s dismissal – that would help Patient Capital’s cash flow (it would be great if this could be clarified).
Schroder will have its work cut out managing the existing portfolio and maybe returning cash to shareholders who want out, but, in an ideal world it would have some funds of its own to make some new investments. The concept of Patient Capital was a great one; British entrepreneurs need financial support, it is just a shame that Woodford executed this so poorly.]
WPCT : Schroder gets Woodford Patient Capital