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Invesco Perpetual's Woodford in specie dilemma

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Invesco Perpetual's Woodford in specie dilemma

Invesco Perpetual remains tightlipped over whether it will allow its income fund investors the option of an in specie transfer into departing manager Neil Woodford's new income fund, as a number of fund buyers push for it.

The news comes after Wealth Manager revealed on Tuesday that star manager Woodford's new venture is readying an income fund launch for late May.

The fund will replicate the Invesco Perpetual Income fund that Citywire A-rated Woodford currently runs in terms of strategy and holdings, with an offer period running from the beginning of May through to late May. The fund manager's eponymous firm Woodford Investment Management will go live in early May.

News that Woodford will launch a replica fund has caused a number of significant fund buyers to push Invesco to allow an in specie transfer into Woodford's new fund.

They say it will alleviate any pressure on incoming manager Mark Barnett if he is faced with having to sell out of less liquid holdings on account of redemptions.

Dependent on HMRC approval, an in specie transfer could in theory enable investors to avoid a potential capital gains tax (CGT) liability if the holding is outside a tax wrapper. 

One co-head of fund research at a wealth management business, who preferred to remain anonymous, said: 'It could get rid of a headache rather than Mark Barnett being forced to sell illiquid holdings. If half of the remaining unitholders redeems it will run across all holdings. If Barnett had to sell 15% of the fund's holding in Oakley Capital, for example, that would not be easy unless there is a wide margin.'

Another head of fund research said the issue had come to the fore again now that it is clear that Woodford is planning to launch a replica fund. 'Between Mark Barnett, Neil Woodford and Invesco Perpetual they are going to have to talk about this in a grown up way,' he said.

He hopes Invesco will consider offering an in specie transfer, but recognises that this could force some to transfer out when they may not have previously considered it.

'No-one is talking about what the client wants to do. Everyone is saying Mark Barnett is a great fund manager, but if you have followed Neil Woodford for 25 years you will want to transfer as cheaply as possible,' he said.

Jason Hollands, managing director of Bestinvest, does not share the same view. 'It would surprise me why any group would agree to do that, as you are opening up a Pandora’s box.'

Darius McDermott of Chelsea Financial Services, echoes Hollands' sentiments.'I can fully understand why Invesco Perpetual would not offer an in specie transfer. You don’t raise assets to give them away.'

The Invesco Perpetual income fund has been on Chelsea's buy list for over 20 years and McDermott anticipates that a lot of the firm's clients will follow Woodford to his new venture. Nonetheless, he expects a lot of money in the Invesco funds currently sits in ISAs, so tax liabilities may not prove a big concern.

When asked if Invesco would consider offering the in specie transfer, the firm simply said: 'Mark Barnett is an exceptional fund manager and has been a key member of the Invesco Perpetual UK Equities team for 17 years. Client and market reaction to our announcement last October has been highly supportive of Mark. As previously stated he will take over management of the High Income and Income funds from Neil Woodford as at the end of April.'

In December Mark Dampier, head of research at Hargreaves Lansdown, asked Invesco whether they would provide a transfer window to move into Woodford's new proposition.

Questions remain over whether HMRC would allow the transfer, although it should be noted that the Inland Revenue did allow transfers from Rathbone Special Situations to New Star Select Opportunities after Patrick Evershed moved from Rathbones to New Star 11 years ago.

Woodford, who runs more assets under management than any other UK manager, is setting up his new business in May, in conjunction with Oakley Capital, an investment firm founded by entrepreneur Peter Dubens.

Mark Barnett will assume sole control of the £9.4 billion Income fund fund and £13.6 billion High Income fund on Woodford's exit.

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Neil Woodford
Neil Woodford
24/73 in Equity - UK Equity Income (Performance over 3 years) Average Total Return: 46.52%
Mark Barnett
Mark Barnett
6/73 in Equity - UK Equity Income (Performance over 3 years) Average Total Return: 58.82%
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