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What does Woodford’s new venture mean for UK fund management?

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What does Woodford’s new venture mean for UK fund management?

As Neil Woodford’s new venture readies an income fund launch for May, industry insiders anticipate that the star manager could attract billions of pounds within months as rival managers lose out.

Woodford (pictured) announced his departure from Invesco Perpetual last October and it has since been confirmed that he will launch an eponymous fund business, backed by private equity firm Oakley Capital.

Some had suggested he would pursue his interest in small and unquoted companies. However, Woodford Investment Management’s (WIM) decision to launch an income fund that replicates the strategy he ran at Invesco suggests Woodford is aiming at the mainstream.

It is a logical decision, given that he has spent 25 years building up a loyal investor base and ran over £30 billion. With this in mind, WIM looks set to take a bite out of the assets of competitors with strong equity income franchises.

Mark Dampier, head of research at Hargreaves Lansdown, believes Woodfood will attract a lot of assets with the new fund, despite the half-dozen solid names operating in the UK equity income space, such as Artemis’s Adrian Frost and JOHCM’s Clive Beagles, both AA-rated by Citywire.

Dampier anticipates that Woodford has built up a ‘nucleus’ of people around him to drive growth, both internally and through external brokers.

Ben Gutteridge, head of fund research at Brewin Dolphin, stressed his firm rates Mark Barnett, Woodford’s replacement on the Invesco funds, as a strong fund manager.

Brewin will not encourage flows towards Woodford, although Gutteridge expects others in the industry will look to follow Woodford now they have the chance.

He thinks Invesco Perpetual might have retained more investors if there had there been more of a grace period between the end of Woodford’s tenure there and the launch of his new venture.

‘If they had got him out the door, people would have had more time to get used to Mark Barnett as a fund manager,’ he said.

He added the firm will monitor Woodford’s new fund and venture closely.

The problem is, as a senior sales figure in the industry explained, that Woodford is ‘just too good to ignore’.

‘The man is deemed to be an investment god and I imagine there are dealing houses gearing up as we speak,’ he said. ‘I would be quite nervous if I was Invesco Perpetual. Income is still a massive theme and Woodford will take assets from his old place and the winners from his fallout – he is just too good to ignore.’

The salesperson added that the industry could see a similar scenario to Richard Buxton, who left as manager of the flagship £3 billion Schroder UK Alpha Plus fund last year to become head of equities at Old Mutual Global Investors.

Between April and June last year, Old Mutual gathered £854 million in net retail sales from investors, more than five times the £160 million it attracted in the first three months of 2013.

One salesperson said Woodford could have a couple of billion ‘within a couple of quarters’.

But Stephen Peters, analyst at Charles Stanley, pointed out the investment landscape had changed markedly since Woodford first ran a UK equity income fund.

‘There are a huge number of funds, and a widening of ways investors can get income, not just in the UK,’ he said.

But he says Charles Stanley is confident in Barnett’s ability, while the fund house has also taken positive steps to diversify its product range through its Global Targeted Returns fund.

While he thinks Woodford will see a lot of his investors coming back to him, he says other funds in the UK income space ‘are good in their own right and have a loyal following, so shouldn’t be too worried’.

Conversely, Peters noted Woodford will face ‘the Bolton issue’, where he is expected to dramatically outperform the market in a short space of time because of his track record. Legendary Fidelity manager Anthony Bolton faced this with his China Special Situations trust.

The fact Woodford is launching an income fund and has hired a number of people in a short space of time suggests he is ambitious about the amount of assets the new venture could receive.

As one industry insider commented, ‘people buy history’, so no doubt Woodford will have no trouble raising assets in a competitive sector.

If WIM’s incoming management team looks to broaden the fund range, it could mean that large fund houses have even more to fear.

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Neil Woodford
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