Neil Woodford’s former investment trust could see up to 8% of its net asset value wiped as the Covid crisis creates uncertainty for its largely unquoted portfolio.
The board of directors of Schroder UK Public Private, formerly Woodford Patient Capital, warned the fallout from Covid-19 could result in a 3% to 8% hit to the portfolio’s NAV as at 17 April.
Link Fund Solutions, the trust’s alternative investment fund manager (AIFM), said it had already reduced the valuations of three unnamed holdings at the end of March, a move it said would knock 3.97% off the NAV.
The projected hit to NAV was contained in the trust’s annual report which was released on Friday after being pushed back about a month due to the coronavirus.
The trust is still overwhelmingly invested in unquoted stocks purchased under Woodford’s management like Rutherford Health, Oxford Nanopore and Benevolent AI. At the end of December 2019 76% of the portfolio was held in private companies.
“Clearly, at the time of writing realistic forecasting even of the short-term impact of this global pandemic let alone the longer-term impact is very difficult and such forecasting may well be subject to the train of rapidly unfolding events,” the report said.
Schroder UK Public Private will publish its 31 March 2020 NAV in June after switching from daily to quarterly reporting. This will provide “a more up to date indication of the Covid-19 impact on the portfolio”.
Debt reduction could take longer due to Woodford Equity Income liquidation and Covid
The losses are on top of what chairman Susan Searle described as a “disappointing” year for investors in which NAV plunged 49.3% from 97.61p to 49.46p and the share price fell 53.3% from 82.10p to 38.35p.
The emergence of Covid-19 has made life even more difficult for the trust’s new managers, Tim Creed and Ben Wicks, who had already been dealing with considerable baggage from the investment company’s crossover with holdings in Woodford Equity Income which is in the process of being liquidated.
>See also: Schroders trust makes headway despite Woodford ‘baggage’ and virus crisis
Since the duo took the reins on 13 December, the fund’s share price has fallen 29%, worse than the FTSE All Share’s 21% decline, widening its discount from 38% to 55%.
“The continuing delays in the sale of the assets from the LF Equity Income Fund, whilst an entirely separate entity from the company will, nevertheless, continue to cause disruption to a number of investee companies,” Searle said.
“This, together with the current general market conditions created by the outbreak of the Covid-19 pandemic, may impact the private equity market and may further affect our ability to pay down the gearing within the timeframe that the board would like.”
Creed and Wicks have so far reduced the trust’s level of gearing by £5.9m to £107m. The credit facility with Northern Trust, which was cut from £150m to £ 112.9m last year, has been extended until 15 January 2021.
Board pushes for ‘minor’ investment policy changes
The board also announced intentions to make “minor changes” to the trust’s investment policy, including cutting the minimum number of holdings from 40 to 30.
Additionally, it has suggested doing away with the limit that prevents unquoted holdings from going above 80% of gross assets, replacing it with a long-term intention for listed companies to be not less than 20% of gross assets.
Both restrictions have thrown up challenges this year as Creed and Wick try to rebalance the portfolio amid the coronavirus volatility.
Over time Searle said Schroders intends to increase the trust’s liquidity and level of diversification. Healthcare stocks accounted for 58% of the trust’s net asset value at the end of 2019, followed by financials which made up 19% and industrials and tech making up 11% each. Consumer staples made up just 1% of the portfolio.
