Since Woodford Investment Management was launched last May, we have made no secret of our desire to launch a fund that has a significant exposure to early-stage and early-growth businesses.
Today, that desire becomes a reality, with the publication of the prospectus for the initial public offering (IPO) of the Woodford Patient Capital Trust.
- An investment trust offering an innovative and expertly-managed mix of our high conviction blue-chip ideas, plus greater exposure to early-stage and early-growth companies
- Buying stakes in businesses with outstanding intellectual property and helping them to fulfil their growth potential through the deployment of long-term patient capital
- Aiming to identify the best, untapped growth opportunities and deliver exceptional long-term returns
- An innovative fee structure, aligning manager and investor and reflecting our conviction in this uniquely attractive investment opportunity
In our opinion the early-stage and early-growth asset class is misunderstood. We passionately believe we can prove it is capable of delivering strong long-term returns for investors. This is indicative of the charging structure we are introducing on the Woodford Patient Capital Trust.
As the Trust’s portfolio manager, we will not charge investors an annual management fee for running the Trust. We believe this helps set our fee structure apart from many in our industry.
Critics of performance fees in the past have pointed to relative benchmarks that could mean a manager is rewarded even when a fund delivers negative returns. They point to the lack of a high watermark, which means a manager could be rewarded for a period of poor performance. They also point to the annual management fee, in effect raising the possibility of a ‘win-win’ situation for fund managers, and to performance fees encouraging short-term strategies.
We won’t take an easy route. We believe we have introduced an innovative fee structure that is fair and will fully align us with investors in the Trust. Here’s why:
- Hurdle rate – we are prepared to only receive a fee when the Trust delivers compound annualised returns above a challenging hurdle rate of 10%. The fee will be equal to 15% of any excess returns over the hurdle rate per annum.
- High watermark – a high watermark prevents a fee being paid following a period of underperformance. It means that the Trust must beat its net asset value (NAV) at the time the performance fee was last paid before we become entitled to earn another a fee.
- No annual management fee – we will not get paid at all if we do not meet the performance target that the fee is set against. The Trust’s ongoing expenses are not expected to exceed 0.35% per annum of IPO gross proceeds (assuming gross proceeds of £200m) and we expect these to be covered by revenue generated by the portfolio.
The nature of the underlying investment means that we may have to be patient to be rewarded – and when we are, we will receive the majority of any performance fee in shares in the Trust 1.
Our holding in the Trust that is earned through the performance fee will be subject to a lock-in agreement of at least one year, but in reality we intend to be long-term shareholders. We believe that this is the most appropriate way of further aligning the investors’ interests with that of the fund manager – and reinforces our strong belief in putting patient capital to work with the aim of delivering significant long-term returns.
NB – this post was updated at 16:28 24 February to reflect the publication of the prospectus for the Woodford Patient Capital Trust plc. The post was first published at 16:33 16 February 2015.
You should note that capital is at risk with this investment and you may get back less than you invested. The value of the trust as well as any income it pays will fluctuate which may partly be the result of exchange rate changes.
The price of investment trust shares is determined by market supply and demand, and this may be different to the net asset value of the trust.
You should read the Prospectus before investing in the IPO.
We do not give investment advice so you need to decide if an investment is suitable for you. If you are unsure whether to invest, you should contact a financial adviser.
Issued by Woodford Investment Management Ltd, authorised and regulated by the Financial Conduct Authority.