The five directors of Woodford Patient Capital Trust would like to remind the world that they exist. It’s been hard to tell the past week.
The board of the investment trust employs Neil Woodford to manage £800m of assets but, as crisis engulfed their top man at his separate Equity Income fund, nothing was heard from Patient Capital, a FTSE 250 company in its own right. But then we get a four-paragraph update for shareholders.
What an anticlimax. The first two paragraphs noted that Patient Capital’s share price has fallen with the Woodford drama. The third said the “operational performance” of the underlying companies is unaffected, which is a statement of the obvious. The fourth merely stated that the board is “engaging with its shareholders and advisers” – in other words, talking to people you’d expect it to talk to.
It is, to be fair, a little early for Patient Capital’s board to consider ditching Woodford and hiring a replacement fund manager. Woodford constructed this sprawling portfolio of 90-odd stocks, about 60% of which are unquoted, and finding an alternative manager would not be easy. Sooner or later, though, the question of sacking Woodford will have to be addressed.
But here’s the problem: the board looks too cosy with him. Susan Searle, the chair, also chairs Mercia Technologies, a company in the trust’s portfolio. Another director, Scott Brown, is chief executive of Nexeon, another investment. And Steven Harris is chief executive of Circassia Pharmaceuticals, a company that used to be the trust’s fourth largest holding but now seems confined to his gated Equity Income fund.
Small-company investment is a small world so perhaps a single crossover between “independent director” and “director of a company backed by Woodford” would be excusable. But three on a five-strong board? That is not a formula for hard-hitting debate. They’re overseeing Woodford, and he’s investing in their companies.
Nor is it clear who is supposed to be the senior independent director at Patient Capital, a critical role in current circumstances. Alan Hodson, a former UBS executive, had the title but stepped down last month after less than two years on the board in order to “spend more time on charitable endeavours”.
The board’s brief statement on Monday also sidestepped one reason why Patient Capital’s share price, down another 6% at 59p, now trades at a mighty 30% discount to the stated value of the assets. It’s the fact that the trust bought £73m of illiquid assets from the Equity Income fund in March and issued shares in return. On day one, the terms looked better for the trust than the fund but it would be harder to make that case now. Equity Income is seen as a semi-forced seller of its quoted holdings and the 9% stake in Patient Capital could be thrown into the mix.
In normal circumstances, the board of an investment trust might sanction a share buy-back to close the wide discount to asset value. But even that textbook strategy looks out of reach for Patient Capital. Financial gearing was 16% at the end of April, close to the 20% limit. The board seems to have walked into this storm without a raincoat.
It’s hard to know what Searle and co hope to learn by “engaging” with shareholders. But the investors themselves ought to deliver a blunt message to the directors: move aside and get some demonstrably independent faces in the boardroom – and quickly.
Scottish Power provides energy for the solar cause
What happens when the wind doesn’t blow and the sun doesn’t shine? This sceptical question has been thrown at the renewable energy sector many times to justify massive subsidies for nuclear. Even if the UK makes greater use of wind and solar, runs the argument, we’ll need more nuclear for the so-called “baseload” generation.
Here – finally – comes the start of a credible response from the renewable end. Scottish Power will connect an industrial-scale battery, the size of half a football pitch, to its Whitelee onshore windfarm near Glasgow. “A significant step forward in the road to baseload for renewable energy,” says chief executive Keith Anderson.
That’s a big boast, especially as the size of the Whitelee battery, at 50MW, is not huge – that’s only enough energy to fire up 800 electric cars. But, yes, it could still be a significant moment.
First, because Scottish Power plans another half a dozen batteries in the next 18 months. Second, because the costs will probably fall after the initial £20m-ish spend at Whitelee. Third, because batteries, unlike nuclear, still have the potential to make major technological advances. This is an important investment for the UK.