The US investment bank with a reputation of assisting firms on the brink of collapse could face a nice pay day as it handles the disposal of the most illiquid assets in Woodford Equity Income.
The private equity arm of PJT Partners is to act as the broker in the wind up of Neil Woodford’s fund and will be responsible for offloading “certain highly illiquid assets”, authorised corporate director Link informed shareholders on Tuesday.
PJT Partners has made a name for itself helping out on some of the most high profile restructuring cases in the last 20 years, including global financial crisis casualties Lehman Brothers and Bear Sterns as well as former US energy firm Enron which was at the heart of an accounting scandal. More recently it was financial adviser to floundering holiday company Thomas Cook which collapsed last month.
Blackrock Advisers will be in charge of selling down the listed assets in the fund.
Link said it would not take a fee for acting as ACD, which it has not done since Woodford Equity Income was suspended on 3 June, but warned the costs borne by the fund would be higher to cover the additional brokerage and legal fees.
A percentage fee on nearly £1bn
One source told Portfolio Adviser they wouldn’t be surprised if PJT took a 1.5% to 2% cut of the realised assets in the illiquid portfolio.
The value of the unlisted holdings in Woodford Equity Income was around £925m at the end of December 2018, though the fund was larger then and looked to different than it currently does post-suspension.
PJT declined to comment.
Link said there would be no change to the amount of the periodic charge paid by the fund to the ACD until the wind up commences on 17 January 2020. The fees will pay Blackrock for its services as well as the fund’s depositary, administrator, custodian and auditor.
A potential run-off strategy in the Woodford Patient Capital Trust could also end up in PJT hands, according to JP Morgan Cazenove. It said in an analyst note: “We believe the most likely outcome will be to place WPCT into orderly run-off alongside WEIF, perhaps also using PJT to liquidate the unlisteds.”
Disappointment in PJT and Blackrock
Morningstar associate director of equity strategies Peter Brunt was disappointed in the fees arrangement.
“Given the criticism that WIM came under for continuing to charge the full management fee during the suspension period, we find it surprising and disappointing that Blackrock and Park Hill have not made any concessions under the new management set up,” said Brunt.
“While we acknowledge that there will be costs involved, it is hard to argue the need for the full management fee when the objective is to sell assets.”
Market impact costs still the biggest hit
PJT’s fees aren’t cheap but not that bad when compared to the likely writedowns of the unlisted holdings, said Seven Investment Management senior portfolio manager Peter Sleep.
Sleep said the highest associated costs of the wind up would continue to be the market impact costs.
“Woodford took large stakes in relatively small companies, which take many weeks, months and years to sell, which has the effect of distorting the price down,” he said.
“This can be seen in the price action of companies like Allied Minds and IP Group. It will be interesting to see what will prices will be realised on companies like Rutherford Health or Provident Financial where Woodford has very large stakes and not really started to exit.”
