The Week: Woodford’s back…and he’s right about one thing

It’s safe to say Neil Woodford’s comeback hasn’t been universally welcomed. However, he’s right that parts of the UK market desperately need more investment.

  • Neil Woodford is planning a new Jersey-based fund focused on biotech assets
  • He is likely to face an uphill climb from regulators and investors
  • However, he’s right that innovative UK businesses need more capital

The news of Neil Woodford’s shock comeback has sent ripples around the investment industry. From the immediate response, it is difficult to see who will be backing his new venture – a Jersey-based fund focused on biotech assets. However, it doesn’t mean he’s wrong about the need for capital in this part of the market.

Woodford’s interview with the Telegraph seemed to gloss over some of the problems that led to the collapse of Woodford Investment Management. He blamed ‘two years of underperformance’ and Link Fund Solutions for prematurely closing the fund as if there was nothing else at work in the failure that saw thousands of people lose money.

The reality, surely, was more complex – a mismatch between liquidity and the redemption terms offered to investors; gathering too many assets in too short a time period and, perhaps most egregiously, Woodford and partner Craig Newman paying themselves vast dividends and then claiming they couldn’t refund the management fee because they needed it to keep the company running. News that he has had to sell his £30m house is unlikely to draw much sympathy from beleaguered investors, many of whom still can’t get their money out.  

The FCA has announced that it will perform character assessments in its decision over whether to grant a licence to Woodford’s new outfit. While Woodford won’t need to attract retail support for his new venture, any professional investor will still need to explain to their investors why they are supporting him. That’s likely to be a tough sell.

That said, Woodford is right about one thing. Great British businesses don’t have the same access to capital and support that is available in the US. When they list, they often don’t attract similar valuations and this is a problem for an ambitious company. Innovative biotech companies need investment.

A number of fast-growing UK businesses have sought listings in the US instead. Immunocore, for example, is a home-grown biotech company chose the Nasdaq for its $100m listing rather than London. Blue Prism, a software group specialising in robotic process automation, first listed in London, but has now said it will explore a Nasdaq listing because, according to the chief executive, US investors place a higher value on subscription software companies than British investors.

This is a problem for British innovation and for the UK stock market, which could lose its edge over time. There has been discussion of launching a UK-equivalent of the Nasdaq. Certainly, the UK needs to do something to draw capital to these exciting businesses. The question is whether Neil Woodford is the right man for the job.