How SUPP managers invest Woodford’s former patient capital

In December 2019, Tim Creed and Roger Doig of Schroders were given responsibility for what was then known as Woodford Patient Capital, after the trust’s namesake, Neil Woodford, was sacked by his board of directors. ‘administration.

Getting into a trust marred by one of the biggest financial scandals of the past decade, and the plethora of wallet issues that came with it, may seem like willingness to drink from a poisoned chalice.

But Creed, Doig, and Schroders saw an opportunity; one that quickly becomes realized as the revamped and renamed Schroder UK Public Private Trust (SUPP) begins to profit from some of Britain’s most exciting private companies.

The pair’s first goal was to tackle the large debt the trust had accumulated under its previous management, which exacerbated the former Woodford Patient Capital Trust’s unloved status among investors and drove its haircut by over 40% net asset value.

“The fact that the vehicle was in debt was not the issue, as many vehicles have a little debt on them,” Creed told This is Money.

“The problem with the debt was that it had to expire a month later and the market knew that.

“We renegotiated all of the debt and ended up paying off all of the debt.”

Then, Creed and Doig had to decide which of Woodford’s old investments they wanted to keep or abandon.

For some of those they decided to keep in SUPP, more work was needed.

“The biggest challenge we’ve faced has been getting businesses on the right track,” Creed said.

“There were some companies that we weren’t happy with that we thought were going in the wrong direction, so we had to put them in the right direction.

“If they hadn’t changed direction, there could have been some pretty negative consequences.”

Confidence is still struggling with a stubborn 16.61% discount to net asset value, but in addition to tackling the debt problem, Schroders has taken steps to reduce the number and the management team. expects to continue to shrink.

However, confidence still lags behind the wider market, so investors should always be patient capitalists. SUPP shares were up 19.8% from a year ago, compared to a 31% return for the FTSE All Share index. Its total return on net asset value is down 7.3 percent over the same period.

The trust invests in a portfolio of listed and unlisted companies, the balance of which may drop from a 50/50 to 70/30 split in either case.

The advantage of this structure is that it provides investors with liquidity, via listed equities, as well as the opportunity to invest in the unlimited potential of fast growing private companies in the UK.

For the average investor considering an investment in SUPP, the most well-known names among their unlisted holdings are quite possibly the life sciences company Oxford Nanopore and fintech Revolut.

Creed said: “The UK has a number of great tech companies and a number of great healthcare companies. The challenge has always been “how to size them?” “.

“We are now seeing companies like Revolut, which are now worth $ 33 billion, and there are a few other private companies valued at over $ 10 billion.

“If you go back 10 years, there was no company valued at over £ 1billion as a private company backed by companies in the UK. Now we have one that is worth £ 33 billion and is in the top five or 10 in the world.

“This is something the UK should be very proud of and it has been an incredible achievement for this company.

“I hope it will be followed by many more companies like this as there is a great opportunity for healthcare and technology companies in the UK.”

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Revolut was one of SUPP’s first new investments since Creed and Doig took the helm, with the banking app long the favorite of Schroders’ private enterprise team.

It has grown rapidly in recent years, reaching over 16 million customers worldwide and a valuation of $ 33 billion (£ 24 billion), more than the mainstay of NatWest Street.

With its valuation six times that of the previous year, when founder Nikolay Storonsky, 36, became one of Britain’s youngest billionaires, it was suggested in July that the company was looking to be listed in London.

Creed said, “Schroders has been an investor in Revolut almost from the start through our venture capital funds, and more recently we entered directly through SUPP.

“So we are very lucky to have seen the development of Revolut from the point where it was really small to the world leader today.

“Now valued at some $ 33 billion. The big question is, could it become a $ 100 billion or more business? And a lot of people believe so.

He added that Revolut’s revenues are “quite unique”, citing its “large number of products and offerings” compared to the “one or two things” offered by many other fintech companies.

“The fact that they can come up with new products very quickly and efficiently and almost immediately become market leaders for those products is amazing.

Revolut also has what most others don’t, is that it is already on its way to becoming a global company. ‘

Oxford Nanopore

A much smaller company than Revolut, but representing 26.5% of SUPP’s portfolio, is pharmaceutical and life sciences company Oxford Nanopore.

The company – which made a name for itself providing Covid test kits to the government – had become a point of contention under the leadership of the trust’s Neil Woodford, as he was unable to offload the company valued in a sluggish market in order to meet debt payment deadlines. .

But the fact that Woodford could not sell the then unlisted Oxford Nanopore would ultimately be to the advantage of those who invested with his successors and SUPP.

Oxford Nanopore Stocks jumped more than 40% from 425p to 612p, giving the company a valuation of almost £ 5bn after its IPO in September.

SUPP sold 10% of its exposure to Oxford Nanopore which, with the remaining shares valued at the offering price of 425 pence, was a 21.4% increase over the last disclosed fair value of the stake at 30 June 2021.

Creed said: “We intend to hold a position in the company for a long time and the reason we sold 10 percent on the IPO was not a reflection of the company – c ‘was only because Nanopore had become a disproportionate proportion of trust.

“We’re happy because it’s a very strong company, but it makes sense to rebalance the portfolio over the long term to allow us to make other investments as well.”

Oxford Nanopore was established from the University of Oxford in 2005 and specializes in DNA sequencing.

The company’s DNA tracking technology can be used to detect disease and tumors, and its handheld devices have been used in 85 countries to track the progress of the coronavirus.

Creed said, “Nanopore is an amazing company and what they are doing with DNA sequencing is a global opportunity.

“What makes Nanopore so interesting is that its product is quite different from the main competitor – a very successful company called Illumina, which has grown to be over 10 times the size of Nanopore and has been a very successful company since. many years. .

“The difference between Illumina and Oxford Nanopore is that the products of the former are very large, very expensive and of very high quality.

“Nanopore’s products are very small, much cheaper, but also very high quality – this means they are much more affordable for universities and other institutions, but they can also be deployed in more remote locations.

“The Oxford Nanopore ceiling is very, very high. “