13th January 2016
Neil Woodford is considering raising new capital for his £774.5m Patient Capital Trust in order to take advantage of new investment opportunities.
A stock market announcement today says: “Woodford Patient Capital Trust has successfully deployed the proceeds of its initial public offering and has a substantial ongoing pipeline of investment opportunities.
“With the current market conditions in mind, the Board of the Company is currently looking at ways it can raise additional capital in the year ahead and will consult with, and gauge interest from, investors.”
Mark Dampier, head of investment research at Hargreaves Lansdown looks in detail at what the announcement means for investors…
Neil Woodford believes there remain plenty of unexploited opportunities in early growth businesses. Investing in these include early-stage companies (quoted and unquoted) within areas such as life science, healthcare, energy, utility, technology, industrial and consumer sectors, especially in companies with new disruptive technologies. By contrast, he feels many other more mainstream financial assets have already been bid up too far in price.
He has deployed the money raised by the Woodford Patient Capital Trust at launch more quickly than he originally anticipated – the fund is now almost fully invested with the remaining cash all committed. The performance of the underlying companies has generally surpassed expectations. There have been early wins. The sister Woodford UK Equity Income fund has about 25% in early-stage companies and these have generated 6.6 percentage points of the fund’s 14.6% annualised return since its launch in June 2014 (that is, almost half of the return has come from this quarter of the portfolio).
Woodford now wants to consider raising further money specifically to take advantage of these untapped opportunities. In his view there are some outstanding investment cases but they will not be around forever.
The investment trust currently has 60 holdings and we would expect him to look to add 20 to 30 with any new money. New cash would also likely be used for further investment into the existing holdings when they wish to raise new cash to help with research and development.
It must be said, that if and when there is a capital raise, a new large tranche might cause the trust’s share price to fall to a discount (to its net asset value) in the short term. However, the fact Woodford believes the investment case remains so strong is good for the long-term investor, although there are no guarantees of future performance. In my view, any new money raised should not fundamentally change the reasons for holding the trust for the long term – Woodford’s only reason to consider this would be the opportunities he believes are out there. Long-term investors, who take the trust’s name literally and are patient, should be rewarded.