City sources revealed to Sky News that Woodford Investment Management told the board of Atom Bank it was “unable” to participate in a £150m share issue.
The British challenger bank admitted last week it had raised extra capital from investors, including Spanish lender Banco Bilbao Vizcaya Argentaria, to help alleviate its cash troubles.
As a 20% owner of the business, Woodford would have needed to stump up several million pounds to maintain its stake in Atom.
A spokesperson for his investment company confirmed that his stake has fallen to 18%.
The news comes at a time when the heavyweight manager’s biggest listed investments have seen their share prices slump and his Equity Income fund continues to be plagued by outflows.
As the value of his listed investments fall, the weighting of his illiquid investments has risen, putting him at risk of a “passive breach” of the Financial Conduct Authority’s 10% hard limit on unlisted securities in retail Ucits vehicles.
Recently, Woodford decided to offload his entire 8% stake in AJ Bell, worth roughly £40m, to the firm’s two largest shareholders, founder Andy Bell and Invesco Perpetual.
Invesco Perpetual, Woodford’s former employer, is now the largest owner of the business with a 44% stake, followed by Bell, who owns 28% of the business.
Already this year, Woodford’s flagship equity income fund has suffered £1.3bn worth of outflows. The fund currently stands at £6.9bn, a substantial drop from its £10.1bn position at the beginning of 2017.
The star manager’s fund has been fourth quartile every year since launching in 2014. On a one-year view, it returned -10.4% versus the Investment Association UK Equity Income sector’s 3.4%.
However, a spokesperson for Woodford said the manager’s decision to not participate in Atom Bank’s rights issue was not related to liquidity issues.
“When we sell, or don’t participate in a funding around, it is not a function of an inability to follow on, but typically a function of our preference to focus our capital on businesses earlier in their lifecycle or which have the potential for more attractive returns.
“Neil has to make decisions about the allocation of capital all the time. It has always been our clearly defined strategy to nurture young technology-intensive businesses through the early stages of their development. In some cases, such as Atom Bank, once those early hurdles have been overcome it is entirely appropriate these businesses raise capital from other investors rather than Woodford.”
The spokesperson added that Woodford has supported follow-on and new founding rounds for more than 20 companies within the last six months, including the recently announced rights issue for Provident Financial.
