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Revealed: Woodford lists unquoted stakes offshore to stay below limit

Neil Woodford has resorted to offshore listings for some of his largest unquoted company stakes to keep his Equity Income fund within the City regulator's rules

Revealed: Woodford lists unquoted stakes offshore to stay below limit

Neil Woodford has resorted to offshore listings for some of his largest unquoted company stakes to keep his Equity Income fund within the City regulator's rules.

The under-fire fund manager has been under pressure to cut the level of unlisted companies in his flagship fund, which has more than halved in size to £4.7 billion due to investor withdrawals and poor performance.

Woodford had been expected to push for some of his favourite start-ups to float on the London Stock Exchange or in the US. But in an extraordinary move, the manager has listed his holdings in four unquoted companies on the much smaller International Stock Exchange in Guernsey.

The listings, amounting to a combined £425 million, or 9% of his portfolio, have enabled Woodford to keep below the Financial Conduct Authority’s 10% limit on the amount of unquoted company stocks a fund can hold. Without them, his equity income fund’s unquoted exposure would stand at over 16%.

Unusually, only Woodford’s stakes in the companies have been listed, with the bulk of the rest of the shares held by other investors remaining unquoted. They have been structured as preference shares, meaning they are not subject to the requirement that listing companies float at least 25% of their capital, as would apply on London’s main market.

Last week Woodford listed the Equity Income fund’s shares in Benevolent AI, by far his largest unquoted holding at 4.1% of the portfolio, and the stock that has posed the biggest threat to the 10% limit.

Just that fund’s stake, representing around 13% of the artificial intelligence developer’s share capital, was listed. Smaller stakes held by the Woodford Patient Capital (WPCT) investment trust and the Omnis Income and Growth fund Woodford runs were not, and remain unquoted. Nor were the remainder of the shares held by other investors.

Woodford’s controversial stake in cold fusion specialist Industrial Heat, held across the Equity Income fund and Patient Capital investment trust, was listed in Guernsey last October, two weeks after the shares were revalued 357% higher. Stakes held by other investors were not listed.

The manager listed his stake in Ombu, itself an early-stage company investor, in June last year. His holding in Sabina Estates, the Ibiza property developer which first suggested a Guernsey listing to the fund group, was admitted to the exchange at the end of 2017.

‘We want to maintain our exposure to these businesses and they want us to remain an investor,’ said a Woodford spokesman.

‘Where there is an investment that we have strong conviction, we will want to hold on to it for longer and continue working with the company to generate value. It is what we do as patient capital investors and there are options that enable us to hold onto stocks and remain within the regulatory limits.’

The listings are a far cry from the flotations Woodford has talked up for his unquoted holdings, like the soaring initial public offering of biotech company Autolus (AUTL.O) on the US Nasdaq index last summer.

But they allow the manager to cling on to some of his best-performing stocks ahead of potential further developments, such as a major market flotation or a bid.

Benevolent AI is up by more than 600% since Woodford first invested while Industrial Heat was the second biggest contributor to the Equity Income fund’s returns last year.

‘Many of these businesses are maturing companies and at some stage we would expect a crystallisation event,’ said a Woodford spokesman.

‘Selling these holdings before they have the opportunity to realise their potential and value would not be delivering on investors’ expectations in our view.’

Read more: The inside story of Woodford’s battle to cling onto start-ups

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