Will SJP’s ‘knee-jerk’ blow be the end of Woodford?

Troubled equities manager is ‘not someone who gives up lightly’

Woodford

St James’s Place’s (SJP) “knee-jerk” decision to pull its segregated mandate from Woodford Investment Management (WIM) is unlikely to finish the manager who commentators believe still has the confidence and assets under management to continue.

SJP issued a statement to the London Stock Exchange on Wednesday afternoon announcing it was pulling £3.5bn in segregated client mandates from the beleaguered manager. It follows news on Monday that Woodford had suspended trading on the Equity Income fund after the Kent pension fund announced it was withdrawing £250m.

In place of Woodford, SJP has appointed Columbia Threadneedle and RWC Partners as managers of its UK High Income Unit Trust, UK Equity (Life and Pension), Income Distribution (Life) and SJPI UK High Income funds.

Richard Colwell of Columbia Threadneedle and Nick Purves of RWC, will be jointly responsible for this mandate, it said. Purves is SJP’s longest-standing fund manager and co-manages the Equity Income Fund while Colwell has managed money for SJP clients since 2014 as lead manager of the Strategic Managed fund.

SJP did not give much detail about why it pulled the mandate. Its statement said: “While the St. James’s Place funds managed by WIM were separate mandates and not part of the Equity Income fund suspended earlier this week, the St. James’s Place investment committee believes these changes will ensure its clients’ investments continue to be managed effectively.”

WIM declined to comment on the SJP withdrawal.

The end for Woodford?

Despite the size of the mandate, Fundexpert managing director Brian Dennehy says: “It doesn’t feel like he’s finished.”

“If you take out the SJP stuff and Kent County Council, there’s still a fair amount of money in there which still makes it a pretty significant fund, just not the giant that it was,” he adds.

“I don’t think he’s someone who gives up lightly. He’s nothing if not confident. I think he’ll give it his best shot just because of the nature of the guy. If he ends up with just a £1bn fund, then so be it.”

According to Shore Financial Planning director Ben Yearsley’s ‘back of a fag packet’ calculations, if the SJP mandate is worth £3bn at supposedly 30bps, that means Woodford Investment Management stands to lose £10m of income. Add to that, the potential increase in redemptions from Equity Income when it reopens and the fact that the Patient Capital Trust doesn’t have a management fee, and the firm could struggle to keep afloat.

“Is that the final nail in the coffin? I don’t know the answer,” he says. “You don’t want to stick the knife in because there are 30 or 40 people who work for Woodford and it can’t be nice for them at the moment – there a lot of people gloating and a lot of people talking a lot of rubbish.

“But if there are, say, 30 people, it would be hard to sustain a business with £1bn under management.”

AJ Bell head of active portfolios Ryan Hughes notes that losing SJP has taken effectively half of WIM’s AUM away which will be a “big blow” to the firm that could easily shake the confidence of investors in the other funds.

“It could ultimately perhaps persuade more investors that the right thing to do is sell when the fund re-opens. Whether that is the right thing to do only they will know, but it could be a catalyst to persuade a few more that is the right course of action.”

But Hughes says aside from the SJP assets, WIM is still running about £4.5bn which makes it a big firm. The key for Woodford, he adds, will be how he communicates the changes being made.

“He put the video out; that is a good first step and there needs to be more done over the coming weeks to reassure investors – that will be crucial in trying to persuade existing investors to stay with the fund when it does reopen.”

The Financial Times has reported that Woodford’s Income Focus fund has dropped below its launch AUM of £500m.

Hughes believes this drop in AUM is a confidence issue among investors because that fund is run differently to Equity Income; it is a 45-stock portfolio investing in companies higher up the cap spectrum, “but clearly people are worried about contagion and want to act quickly”.

“Also, HL took Income Focus off the Wealth 50 as well, so there will be clearly some investors that will move away from that strategy despite the fact it is open and able to buy and sell,” Hughes adds.

Knee-jerk reaction

Yearsley believes SJP’s decision to pull the mandate is a knee-jerk reaction.

He also points to the fact that the SJP mandate is different to the Equity Income fund in terms of its portfolio – it does not have as much weighting to small caps, for example. He also notes that SJP didn’t seem to have an issue with Woodford’s style or positioning last week, so what’s changed?

“As far as I am aware, SJP gave him a large cap mandate and they have been happy with his portfolio views and positioning all the way through. It feels like a knee-jerk reaction; they aren’t invested in the fund that has the problem.”

Similarly, Yearsley questions why Hargreaves Lansdown has decided to pull Woodford’s other open-ended fund, Income Focus, from the Wealth 50 when it has a larger cap exposure and no unquoted companies.

This begs the question, why did SJP fire Woodford?

Dennehy believes it comes down to a brand issue. “They’ve certainly got a brand issue. And that’s what’s driving SJP’s action. They had a big brand issue because they’re all about brand; it’s everything to them.”

He adds: “You have to ask the question why it has taken them so long anyway. And I think a lot of SJP clients may have been asking that too. The performance of that fund (net of charges) recently was even worse than the retail fund with all the unquoted stuff in there.”

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