Woodford Investment Management intends to raise £200m for the Woodford Patient Capital Trust – a diversified portfolio of mainly UK companies, both quoted and unquoted, that aims for an annual return of 10 per cent over the long term.
Applications to invest in the investment trust are open and expected to close 13 April. Many details of the trust’s launch have caught investors’ eyes, with one of the most notable being its unique fee structure, but the chance to own a portfolio built around Woodford’s long experience of investing in early-stage companies, rather than the defensive blue-chips he is usually associated with, will prove very attractive to some.
When the trust was announced, Woodford (pictured) said: “The UK has an excellent track record in innovation, but has been poor at converting that into commercial success. Politicians talk about the need to rebalance away from banks and property and into productive industries, but have been very poor in implementing that. There's a lot of reasons for that, but the biggest reason is the lack of long-term patient capital. It's my belief that commercial success relies on this.”
“I've wanted to do this for a very long time. I passionately believe in the principles that surround what I'm doing here. I've been investing in early-stage businesses for the best part of 20 years and unquoted for at least 10. It remains an amazing unmined opportunity. It's a good opportunity for investors but also a good chance to do some good for early-stage businesses.”
Until the trust launches, there is no way of knowing exactly which companies it will hold, but Woodford Investment Management recently highlighted three early-stage companies that Woodford already owns and which offer a broad suggestion of the kind of innovative companies the trust will cover.
All three businesses are currently found in the £5bn CF Woodford Equity Income fund, although it must be noted that this does not mean they will necessarily appear in Woodford Patient Capital Trust.
Xeros
Accounting for 0.18 per cent of CF Woodford Equity Income’s portfolio, Xeros has developed commercial washing machines that use 80 per cent less water than standard models through the use of tiny, reusable and recyclable nylon balls known as polymer beads.
The Sheffield-based technology business is based on research carried out by the University of Leeds’ School of Textiles. It was formed in 2006 to commercialise this research and raised £30m on its flotation on the AIM in March 2014.
Performance of stock vs index since floatation
Source: FE Analytics
Woodford first invested in Xeros in March 2013 when he was at Invesco Perpetual, supplying capital needed to accelerate the roll-out of its commercial laundry cleaning system.
Paul Lamacraft, fund manager at Woodford Investment Management, recently said: “Since the launch of the CF Woodford Equity Income fund, we have been rebuilding our exposure to Xeros, which we continue to view as a very exciting and promising long-term investment opportunity.”
“Although it remains a relatively small position within the portfolio, we believe it represents a great example of the sort of ‘early-growth’ businesses in which we are investing patience and capital.”
Oxford Nanopore
Woodford and his team have invested in this unquoted business for several years and it currently has a 0.53 per cent weighting in CF Woodford Equity Income.
The firm works in the molecular diagnostics field, with developing next generation technology for DNA sequencing being its first area of focus. It was founded in 2005 to develop a disruptive, electronic, single molecule sensing system based on nanopore science of professor Hagan Bayley of the University of Oxford.
The MinION, which is the company’s first product, is a USB stick-sized device that is expected to cost around $1,000 but will be able to do the job of a $100,000-plus desktop sequencer. Oxford Nanopore owns an intellectual property portfolio of more than 300 issued patents that have applications in a multitude of fields.
Woodford Investment Management fund manager Saku Saha said: “During the course of our relationship with Oxford Nanopore, we have become increasingly impressed with its management team, confident in the quality of its technology and, perhaps most meaningfully, excited by the breadth of the commercial opportunity that its products can address.”
“Amongst other things, its devices may be used in scientific research, personalised medicine, crop science, security & defence and environmental applications.”
Gigaclear
This is another unquoted business, which builds and operates broadband networks to rural communities that are underserved by the larger scale telecoms businesses. It makes up 0.20 per cent of Woodford’s open-ended fund.
Gigaclear was founded in December 2010 and was approved by Ofcom to provide an electronic communications network in the UK in May 2011. The firm now has 19 live rural networks with 23 more in construction in Oxfordshire, Kent, Cambridgeshire, Rutland and Northamptonshire.
It also says there is a pipeline of “several hundred” rural communities that want ultrafast broadband but have little luck finding an incumbent player in the industry willing to set up a network in their area.
CF Woodford Equity Income first made a £5m investment in the business in July 2014 and recently put money into it in a second round of fund raising in February. This round, which saw £6.5m in new funds raised from both existing and new institutional and private shareholders, will be used to expand the firm’s footprint.
“Gigaclear is growing rapidly and is an excellent example of a great business model being executed by a talented management team that knows its industry intimately and, although it is capital intensive, the long-term returns on that capital should be very attractive,” Woodford Investment Management said.
Woodford launched his CF Woodford Investment in June 2014. Since inception it has returned 15.06 per cent, making it the second best performing in the IA UK Equity Income sector where the average return stands at just 4.82 per cent.
Performance of fund vs sector and index since launch
Source: FE Analytics
The portfolio’s top 10 holdings list is full of the larger names that have helped build the manager’s stellar reputation, such as AstraZeneca, Imperial Tobacco, GlaxoSmithKline, British American Tobacco and BAE Systems. However, a 3.70 per cent position in Allied Minds, which is an intellectual property commercialisation firm, highlights Woodford’s strong interest in early-stage businesses.