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Woodford plans 'more concentrated' fund for second launch

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Woodford plans 'more concentrated' fund for second launch

Neil Woodford funds are becoming like a bit like buses. You don’t get a new one for over 10 years (Invesco Perpetual Distribution) and suddenly two are in the offing!

Woodford, the former star fund manager at Invesco Perpetual, today confirmed his plans to launch a fund focused on smaller companies and private equity stakes in companies that have yet to reach the stock market.

He gave no details of when or where a second fund would invest as he is still busy launching his first fund.

The CF Woodford Equity Income fund was formally launched this week and is expected to raise billions of pounds as many of Woodford’s former investors switch from the Invesco Perpetual Income and High Income funds he used to run.

New investors are also expected to sign up, drawn by the prospect of a reinvigorated Woodford determined to prove he has not lost his investment touch.

Notwithstanding the huge excitement this has generated among journalists and brokers, there is an element of ennui about proceedings.

Speaking today on a webcast organised by Fidelity Personal Investing to promote the new fund, Woodford stressed it would ‘look and feel like the fund I ran before’, with big holdings in pharmaceutical and tobacco companies.

However, in answer to a question from an investor, he said: ‘I would like to launch something that has a more concentrated focus – that is something we’re working on.’

Woodford implied that the second fund would have a much higher weighting to the ‘early stage and quoted and unquoted companies’ that previously populated the ‘long tail’ of his big equity income funds.

That would make it a higher risk fund than the current launch but it would be potentially more exciting to investors who feel the strength of Woodford’s best investment ideas may have been diluted by the size of his funds at Invesco.

Woodford has always denied that running £33 billion blunted his investment edge at Invesco. Nevertheless, speculation about his desire to launch a punchier, high growth fund surfaced when he partnered with Oakley Capital, the private equity specialist, to help get his new company off the ground.

Although Woodford Investment Management has since parted amicably from Oakley, the impression that he wanted to up the ante in small and unquoted companies was strengthened by his poaching three former colleagues from Invesco Perpetual, including fund manager Stephen Lamacraft, who has expertise in these areas.

Woodford was quizzed about key man risk and the issue of what would happen if he fell under the proverbial bus. He said he was ‘putting in place an investment support structure’ and that the backup he had from his new team was ‘a significant enhancement’ from what he had at Invesco Perpetual as they would only work on his funds.

Woodford has a long history of spicing up his portfolios with small caps and private equity holdings, which is how he got to know Oakley, whose founder Peter Dubens made his fortune launching and selling a series of businesses, including 365 Media group and Pipex Communications.

This week it was revealed that Woodford and Invesco had both backed Imperial Innovations (IVO), a business incubator that sucessfully floated Circassia Phamaceuticals this year.

However, Woodford said he disliked most flotations or initial public offers (IPOs) of shares.

‘I tend not to be attracted to IPOs because as a very broad generalisation often I find IPOs are dressed up for sale’ with the whole process of IPO-ing ‘tilted towards getting the best return for the vendor’ rather than new investors, he said.

His comments follow signs that investors have tired of paying lofty valuations for market debutants such as Saga (SAGAG) and AO World (AO), the electrical goods retailer.

Elsewhere, Woodford played down the risk of stock market disruption caused by investors dumping his old Invesco funds and switching to his new fund. He indicated a possible deal with Invesco over an off-market transfer of shareholdings could occur once his new fund was launched and it was clear how much he had raised.

He claimed his experience in handling the outflows from his old funds after he announced his departure from Invesco in October ‘with a minimum of disruption’ meant he could handle the ‘flip side’ of inflows into the new fund.

On the risk of a housing bubble Woodford said ‘warning bells are being rung’ as banks had until recently responded to higher prices by relaxing lending standards.

Fortunately, he said the new rules from the regulator’s mortgage market review had started to cool things down whilst the latest ‘mortgage approval data indicates that the level of the housing market is beginning to dissipate, particularly in London,’ he said.

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Neil Woodford
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