Shareholders in Woodford Patient Capital trust (WPCT) should be prepared for their investment to suffer the same fate as those unitholders of the Woodford Equity Income fund (WEIF), according to analysts.
Link Fund Solutions announced on Tuesday (15 October) WEIF would be wound up, with the management of the fund passing from Woodford Investment Management (WIM) to BlackRock, for the listed assets, and Park Hill Partners, for the unlisted assets.
The two management firms have been appointed to oversee an orderly realisation of the assets in their respective portfolios, with the proceeds being returned to investors.
And investment company analysts have stated their belief that the same will become of WPCT. Stifel's analysts recently produced a note for clients outlining their preference for the portfolio to be run-off.
They now believe that the WEIF development makes it more likely this will happen. The analysts said WPCT's board "does now need to appoint a new manager as a matter of necessity".
Christopher Brown and Adam Kelly, analysts at JPMorgan Cazenove, pulled no punches, noting that Woodford "appears in no position to credibly remain as manager of WPCT, or, indeed, any other mandates".
Brown and Kelly said they think the board will have "no choice but to fire Woodford, something we believe they should already have done weeks ago".
Numis Securities said it believed a number of management groups would be interested in the £580m mandate, noting that, "given the nature of assets, it would need a specialist manager with the ability to carry out due diligence on the portfolio".
Brown and Kelly added: "We believe the most likely outcome will be to place WPCT into orderly run-off alongside WEIF, perhaps also using [Park Hill] to liquidate the unlisteds."
Stifel expects any run-off of the trust to happen over a number of years, with cash returned to investors once its bank debt of more than £100m has been repaid.
Numis noted, though, that any new manager's "ability to influence the portfolio will be limited by WPCT typically being a minority shareholder".
Additionally, the analysts speculated that any new manager would demand a conventional annual management fee to be paid by the trust. Currently, WIM does not get paid an annual fee for managing the trust, while it is well behind the high watermark needed to be paid a performance fee.
Share price could see bounce
The board of WPCT, for its part, said it was still undertaking a review of its management arrangements, with an announcement to be made in due course.
Numis said the fact that the board has been refreshed, with a number of directors with significant investment company experience coming on board, is a positive for shareholders.
It said: "We believe this leaves the fund in a much better place to assess the future options for the fund with board members less encumbered by the history.
"However, it may mean that the board review may take some time to complete, given that a number of board members were recently appointed."
Shares in WPCT fell as much as 10% on Tuesday, before settling 8.5% lower at 34.4p. That represents a discount to net asset value (NAV) of around 43%, according to Morningstar.
The NAV, which stood at 64p per share on the latest published date, is likely to take a few more hits in the immediate term. That is due to the fact that WEIF is now a known seller of its 10% stake in the trust.
Further, said Brown and Kelly: "The published NAV already includes some unlisted writedowns, but in our view there is a very high risk that there are further substantial markdowns to come, particularly now that WEIF is moving into run-off as there are many common unlisted holdings with WPCT. The headline discount at least provides some protection against this."
James Carthew, head of investment company research at QuotedData, said he expected BlackRock to want to offload WEIF's stake in WPCT before the wind-up process begins on 17 January. "This could provide a springboard for an activist investor to profit from a wind up of the trust," he said.
That said, Stifel expects shares to "see some bounce" should a new manager be appointed to run-off the portfolio.
"However, we would expect the price to continue to be volatile, given the question marks around the realisable value of the portfolio, especially the unquoteds and issues around WPCT's need to reduce leverage," the analysts said.
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