Mark Barnett’s UK equity income funds could suffer further writedowns following news that Goldman Sachs Asset Management (GSAM) is close to snapping up the Invesco UK equity co-heads’ unquoted holdings.
Sky News reported last Wednesday that a unit of GSAM was circling in on a deal to buy Barnett’s unquoted companies, which could be finalised in a matter of weeks.
Invesco confirmed in March that it was preparing to rid Barnett’s UK equity income funds of their unlisted holdings after writing down their value by 60%. The dramatic downgrade immediately knocked 5% off the unit price off the Invesco Income and High Income funds which had seen their unquoted weightings rise after falling 33% during the coronavirus sell-off.
At the time the £3.3bn Invesco High Income and £1.5bn Invesco Income funds had between 8% and 9% in unquoted businesses, up from 5% at the end of February, putting them in danger of a passive breach of the Financial Conduct Authority’s 10% unquoted limit.
Both Invesco and GSAM declined to comment on the reported deal.
GSAM deal could result in further hit for Barnett unquoteds
AJ Bell head of active portfolios Ryan Hughes said the news could be even more irksome for investors who have already had to bear big losses if GSAM agrees to purchase the unquoted portfolio at a further discounted price.
“Mark Barnett said a few weeks ago that he was looking to remove the unquoted exposure from the portfolio, and this would certainly be easier to do via a block sale rather than trying to find individual buyers for each holding,” Hughes said.
“The compromise may be that the price of these takes a further hit which will be frustrating for investors.”
But Chelsea Financial Services managing director Darius McDermott thinks Invesco may be able to fetch a more attractive price now that markets have rebounded from their March lows following the coronavirus sell-off.
“If you look at some of the discounts on the private equity investment trusts as a very basic proxy you’ll see that some of them aren’t nearly as bad as they were six weeks ago,” McDermott said.
“Touch wood they may actually be able to achieve a better price than that 60% haircut and long-suffering investors in those funds may actually benefit from it.”
No update from Invesco on 60% haircut for Barnett unquoteds
Sky News said it was unclear whether further discounts to Barnett’s unquoted stakes had been agreed with GSAM beyond the 60% reduction already applied by Invesco.
McDermott said he was “concerned” by the scale of the writedown, which was determined by Invesco’s internal pricing committee.
“To date we’ve had no evidence from them as to why they picked that number, no mathematics behind it,” he said. But he added Invesco will be obligated to get the best price they can on behalf of investors.
Prior to the coronavirus outbreak the valuations of Barnett’s illiquid stocks had already been under pressure following the blow-up of Neil Woodford’s flagship equity income fund. Many of Barnett’s private holdings were purchased under Woodford, his predecessor at Invesco, and Woodford subsequently invested in many of the same companies when he launched his own investment business.
See also: Former Woodford portfolios signal how coronavirus could knock trapped investors
Barnett funds suffer steeper losses than rivals during coronavirus sell-off
Barnett’s UK equity income funds have suffered steeper losses than the IA UK All Companies sector during the coronavirus crisis. Invesco Income and High Income are down 32.2% and 32.5% since the sell-off began on 20 February, while the average fund in the sector has fallen 22.5%. The pair of funds have also sunk further than the Woodford Equity Income fund which is down 24%.
Over three years investors in Invesco Income and High Income have lost 36.7% and 37.1% compared to a 10.4% fall for the IA UK All Companies sector.
Poor performance has led to Barnett being sacked from both his investment trust mandates.
A week after Invesco revealed the 60% writedown the board of Perpetual Income & Growth parted ways with Barnett after 21 years following a 40% slump in the trust’s net asset value.
Barnett was replaced on the Edinburgh Investment Trust by Majedie Asset Management CIO James de Uphaugh in December after extending the trust’s underperformance beyond three years.
