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An insider’s perspective – the launch of Woodford Patient Capital Trust

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22 September 2015

Paul Lamacraft discusses the thinking behind the launch of Woodford Patient Capital Trust.

Paul Lamacraft, Fund Manager, Woodford Investment Management.

View the Woodford Patient Capital company profile page 

When I joined Woodford Investment Management just over a year ago talk of the firm launching a fund investing primarily in early-stage and early-growth companies was in the air. We had made no secret that we believed it was an area of the market that had huge untapped potential.

There are many reasons for this but the principal one is a lack of appropriate capital. The capital available to nascent businesses in the UK has been scarce and the capital that has been available has tended to be too short-term in nature. It would seem that very few investors are willing to embrace the long-term ‘patient capital’ approach required in this area to deliver successful outcomes.

And it is this lack of patient equity capital that in our view, has created a compelling investment opportunity. The demand for capital from early-stage companies and early-growth companies is high, but the supply is low. The returns on capital deployed, therefore, are potentially attractive.

We worked for several months on the development of an appropriate structure for an investment fund embracing a patient investment strategy. An investment trust structure always looked like a very suitable solution for such a long-term investment strategy due to the permanence of the capital, but we didn’t reveal that it would be an investment trust until we publicly announced our intention to float Woodford Patient Capital Trust (WPCT) in February.

Many investors wanting exposure to early-stage companies typically have to opt for the venture capital or private equity route. These mechanisms perform a key function in funding businesses but each route has a specific remit on investor qualification, capital available and time horizon. However, we feel that WPCT is able to help bridge the gaps, with greater flexibility meaning we don’t need to continuously look for an exit. This flexibility also means we can provide management teams with more time to fulfil their ambitions which we believe enhances the probability of success in the long term.

Investor appetite surpassed our expectations at IPO and trading has remained healthy since, as illustrated by the Trust trading at a premium to net asset value. Indeed, this was one of the reasons why the Trust’s Board decided to implement a tap issuance programme in August – although it also satisfied the desire to raise further capital to deploy in the exciting investment opportunities that we continue to identify.

Six months on since the trust’s listing approximately 90% of WPCT’s portfolio is invested. Around a quarter of the portfolio is in mid and large cap stocks, including the likes of L&G and Rolls-Royce. Perhaps – and not surprisingly – much of the attention has centred on some of the lesser-known stocks in the portfolio such as the five mentioned below:

Idex
This Norwegian technology business has just announced an agreement with a major global mobile phone company for its in-glass fingerprint sensor technology.

Oxford Nanapore
We have known this business for a long time, which is developing next generation technology for molecular diagnostics, through its DNA sequencing products.

Purplebricks
WPCT participated in its latest funding round, which will allow the company to roll out a national marketing campaign as it aims to maintain its leading position in the online / hybrid estate agency market.

Xeros
The Company has developed commercial washing machines that use 80% less water. It’s all down to thousands of tiny, reusable and recyclable nylon balls – known as polymer beads.

Immunocore
A clinical-stage biotechnology company, which operates in the fast evolving field of immuno-oncology and is developing drugs that target cancer cells and redirect the immune system to kill them. 

Disclaimer
You should note that capital is at risk with this investment and you may get back less than you invested. The value of the trust as well as any income it pays will fluctuate which may partly be the result of exchange rate changes.  The price of investment trust shares is determined by market supply and demand, and this may be different to the net asset value of the trust. Woodford Investment Management LLP is authorised and regulated by the Financial Conduct Authority.

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