Patient capital becomes a reality

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Craig Newman 24 February 2015 Est. reading: 3 min read

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.

Important information

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.

What are the risks?

  • The value of investments and any income from them may go down as well as up, so you may get back less than you invested
  • Past performance cannot be relied upon as a guide to future performance
  • The ongoing charges figure is charged to capital, so the income of the funds may be higher but capital growth may be restricted or capital may be eroded
  • The funds may invest in other transferable securities, money market instruments, warrants, collective investment schemes and deposits – some of these security types could increase the funds’ volatility and increase the level of indirect charges to which the funds are exposed
  • The funds and trust may invest in overseas securities and be exposed to currencies other than pound sterling – as a result, exchange rate movements may cause the sterling value of these investments and the income from them, to fluctuate
  • The LF Woodford Income Focus Fund will be invested in a concentrated portfolio of securities – the fund is not restricted by reference to any geographical region, sector or market capitalisation
  • The LF Woodford Equity Income Fund and the Woodford Patient Capital Trust may invest in unquoted securities, which may be less liquid and more difficult to value, because they are generally not publicly traded – the lack of an open market may also make it more difficult to establish fair value
  • The price of shares in the Woodford Patient Capital Trust is determined by market supply and demand, and this may be different to the net asset value of the trust. This means the price may be volatile in response to changes in demand
  • Long-term outcomes are more binary – extremely attractive rewards for success but some businesses will inevitably fail to fulfil their potential and this may expose investors to the risk of capital losses
  • Young businesses have a different risk profile to mature blue-chip companies – risks are much more stock-specific, which implies a lower correlation with equity markets and the wider economy – it can take years for young businesses to fulfil their potential, this investment requires patience

Important information

Before investing, you should read the Key Investor Information Document (KIID) for the fund – or Key Information Document (KID) for the trust – and the Prospectus which, along with our terms and conditions, can be obtained from the downloads page or from our registered office. If you have a financial adviser, you should seek their advice before investing. Woodford Investment Management Ltd is not authorised to provide investment advice.

The Woodford Patient Capital Trust currently intends to conduct its affairs so that its securities can be recommended by IFAs to ordinary retail investors in accordance with the FCA’s rules in relation to non-mainstream investment products and intends to continue to do so for the foreseeable future. The securities are excluded from the FCA’s restrictions which apply to non-mainstream investment products because they are shares in an investment trust.

The Woodford Funds (Ireland) ICAV (the “Fund”) has appointed as Swiss Representative Oligo Swiss Fund Services SA, Av. Villamont 17, 1005 Lausanne, Switzerland. The Fund’s Swiss paying agent is Neue Helvetische Bank AG. All fund documentation including, Prospectus, Key Investor Information Documents, Instrument of Incorporation and financial reports may be obtained free of charge from the Swiss Representative in Lausanne. The place of performance and jurisdiction for all shares distributed in or from Switzerland is at the registered office of the Swiss Representative. Fund prices can be found at


Woodford Investment Management Ltd is authorised and regulated by the Financial Conduct Authority (firm reference number 745433). Incorporated in England and Wales, company number 10118169. Registered address: 27 Old Gloucester Street, London, WC1N 3AX.

© 2019 Woodford Investment Management Ltd.
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