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Barnett's AJ Bell payday underlines Woodford's struggles

Barnett's AJ Bell payday underlines Woodford's struggles

Mark Barnett's Invesco income funds are set for a payday from the flotation of online stockbroker AJ Bell, thanks to his holdings in the unquoted shares, a position he inherited from his predecessor Neil Woodford.

Invesco is the single largest shareholder in AJ Bell, owning 44.2% of the company's shares, with the bulk held in Barnett's £8 billion Invesco High Income and £3.6 billion Income funds.

That stake will be worth £298 million should the flotation get away at the highest price in the 154p to 166p range AJ Bell announced yesterday, representing a jump of just over 31% on the current valuation. A price of 154p per share would represent an uplift of just over 21%.

In Barnett's Income fund, the holding would jump to around £120 million at the higher price.

Were it not for the requirement for Invesco to sell a large chunk of its holding to free up shares for new investors as part of the flotation, that would have catapulted the stock into the third largest position in the fund. 

The High Income fund's holding would meanwhile jump to £123 million.

As part of the flotation, Invesco will sell 42.4% of its shares, raising £127 million in cash should the initial public offering get away at the highest price.

The performance of the stock is all the more impressive given the surprisingly frequent revaluations of the company, according to Invesco's fund accounts, in the months leading up to the flotation.

Even before the upcoming flotation, the value of the unquoted shares had risen nearly 18% between the end of March and the end of August.

Invesco's stake in AJ Bell is a legacy of Neil Woodford, Barnett's predecessor on the Invesco Income and High Income funds, who left the group in 2013 to set up his own fund group.

Woodford first invested in the business in 2007, buying a 15% stake when the company was valued at just £78 million, less than one eighth of its upper £675 million flotation valuation.

He invested again after setting up Woodford Investment Management, spending £21 million on an 8% stake in the business, split between his Woodford Equity Income fund and Woodford Patient Capital (WPCT) investment trust.

But he sold that stake in February to Invesco, just before AJ Bell announced its flotation plans.

At the time Woodford Investment Management stressed the sale was an 'investment decision'.

But it came as the manager was dealing with heavy redemptions from his flagship equity income fund, which has halved in size since peaking at £10.2 billion in May last year, while his fund's unquoted holdings were approaching their 10% limit.

And that wasn't how it was seen by Invesco. Jonathan Brown, manager of the Invesco Perpetual UK Smaller Companies (IPU) investment trust, which bought some of Woodford's stake, said in half-year results it had bought the shares 'from a forced seller at a very attractive price'.

None of the parties involved have disclosed the price Woodford secured for his stake. The Financial Times reported a £40 million figure, although were the price in line with the valuation by the Invesco funds at the time, the figure would have been more like £32 million.

But while Woodford is likely to have achieved a decent return on a three-year investment, it looks like the sale will serve to amplify the gains made by his former employer. 

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