Woodford should waive fee, says James Anderson

Following the suspension of Woodford Equity Income, Anderson also argues access to unlisted companies is vital for investors.

Funds and Investment Trusts June 11, 2019 by Tom Bailey

James Anderson, manager of Scottish Mortgage investment trust, has joined the growing chorus of calls for Neil Woodford to cut management fees for investors stuck in his Woodford Equity Income fund, which suspended trading last week.

In response to questions over Woodford’s fees, Anderson said: “Not waiving fees is absolutely wrong.” While noting that investment outcomes can often be beyond a fund’s control, he said: “Those ethical issues that are under [the manager’s] control, [they] should be responsible for.”

However, Anderson defended the idea of investing in private, unlisted companies, arguing that they are the source of much future wealth creation. It was exposure to unlisted, illiquid assets that led Neil Woodford to suspend trading in his flagship fund.

He said: “The majority of new capital and knowledge investment is in private markets. Just about all ability to build new companies will happen in private markets.”

Anderson's trust has a fifth of its portfolio invested in private companies and almost a third if companies that were originally bought as unquoted and have since floated are included. He argued: "It is really important to give savers access to these companies.”

The problem with Woodford’s attempt to do this, Anderson argued, is twofold.

As has been widely covered, Woodford’s use of an open-ended structure created a mismatch between the illiquidity of unlisted companies and the liquidity available to investors looking for swift access to their assets.

Anderson said: “Structure is a part of it…Trusts are better [for investing in unlisted shares], but let’s not pretend structure is the simple answer.”

At the same time, as a UK-focused investor, the pool avaliable to Woodford to fish in for private stocks is inadequate. “It is dubious whether British capitalism produces enough of such companies,” he said.

Scottish Mortgage, in contrast, is part of the AIC’s global sector, with extensive holdings in both the US and China

Woodford, he says, “was fundamentally trying to do something useful, but on a canvas that was limited. The structure exacerbated this.”

For Anderson the episode highlights the problem of trying to find appropriate ways for retail investors to access private listed companies. “There is a debate about how to produce vehicles that give access to private companies.”

With regulators now taking a closer look at the liquidity issues caused by Woodford’s holding of unlisted companies, Anderson says: “It would be sad if we can’t give people access to unlisted companies.”

Investors, he fears, would be missing out on companies' most dramatic period of corporate growth if they had to wait for them to list on public markets. 

While the closed-ended structure of trusts offers much more protection than that of open-ended funds against the issues Woodford faced, Anderson notes: “There is plenty of unhelpful and stupid legislation out there.”

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