New Woodford Fund

A question about : New Woodford Fund

New investment trust, eventually to go for start-ups:

https://www.telegraph.co.uk/finance/p...start-ups.html

Considering he used unlisted and small companies as part of Invesco Perpetual HI over all those years, he should know what he's doing. Interesting charging structure too:
The trust is set to have an unusual charging structure, with no standard management fee applying. Mr Woodford will take a fee only if the fund achieves its performance target, and the fee will be paid in the form of shares, further aligning the portfolio manager's interests with shareholders. Detail will emerge in the full prospectus.

Considering they say the income is now nearly 5bn in size, maybe this will shake up management charges somewhat in the long term?

Best answers:

• Whenever the idea of paying a manager or adviser on a performance-only basis is mooted, it usually ends up being shot down on the grounds that it can encourage excessive risk taking and is impractical due to the manager having no certainty of income coming in with which to retain staff and support overheads etc during the inevitable leaner years.
  A structure involving broadly fixed management fee payments linked to levels of assets (salary), perhaps with performance fees on the side for alignment of interest (bonus) is often the end result.
  Particularly with early stage companies which can have a considerable gestation period, the lack of income certainty could be problematic for fund managers that don't already have a hefty "cash cow" on the side. So, performance-fee only is therefore unusual / groundbreaking. But if paid in shares rather than cash - and maybe if it were subject to clawback, alongside the traditional 'high watermark' concept - might not sound too bad from the investors' perspective. The devil will be in the detail of course.
  I'm generally a fan of investments in smaller or early stage companies as they can be so much more interesting than the big ones, and a closed ended vehicle like an investment trust is a sensible thing to put them in. However there is a performance drag when the cash is sitting idle looking for those great opportunities, and at the start it will take you a while to deploy the capital.
  In the world of institutional private funds, you would just call it from the investors when you needed it, but you can't do that with a retail fund where you are expected to get the money on day one and spend it on day one. So it sounds like they are going to start with larger companies that he likes generally from his other fund, and then gradually redeploy into the target space over the next couple of years. Given the 'famous brand name' it wouldn't be too surprising if the fund initially trades at a premium which might be a bit expensive to get into if it is simply mirroring a portion of his other fund.
  Taking a look at Woodford's justification for the sector:
  Quote:
• I've been monitoring a handful of small company and private equity investment trusts for some time now, so this is an interesting one. At first read (to me) it all smacks of a bit of self-indulgence, but then he does have a pretty good record, so who am I to argue. As bowlhead said, the devil will be in the detail. I shall be watching with interest. More on it here:
  https://www.morningstar.co.uk/uk/news...owth-fund.aspx
• Very self indulgent, but doesn't he have a right to be? We want managers with conviction and he has always had that even when others were insisting that they knew better.
  Woodford avoided dot.com when the world was calling him a fool. He was not in banks for income funds when banks were paying 5 - 6 - 7%. He got our of Tesco when no one thought he should.
  The story behind this new fund sounds just right when capitalism thinks we should be "investing" in housing and ignoring start-ups. His refusing income for non-performance hits all my buttons.
  He can have 4 - 5% of my money without me thinking any further about it.
• I will wait for more information before I make a final decision, but I do like Woodford, and I do hold his other fund. Might be worth a punt for me, a small amount in my pension. At this stage it might be too risky to put too much into it IMO.
• i agree bowlhead, when Anthony Bolton opened his new China Special Sitations fund, I didn't touch it, and I am glad I didn't, because despite the push upwards intially it tanked afterwards. It's doing OK under the new manger now however. I want to see the exatct terms of this performance fee charge, and what benchmarks he will go against. But it seems high risk to me, so "could" play a small part of my pension. But everybody has their own risk profile.
• If only having to take a percentage of the profit to run a company you have to ask yourself how much money they have under management and the percentage of return they need. For example if they got 1 mil they make 10% thats 100k then they charge you 10% of the 100k thats only 10k back to the company- there is clearly a some kind of earner else where in the small print. Otherwise would have to have huge funds under management and make a huge percentage just to turn over 100k a year before tax. Seems floored.
• The income fund is pushing 5 billion, I don't think he has a problem with too few zeros
• Sounds amazing.. good luck
• Apparently Woodford sold his stake in HSBC a few weeks ago, reason... uninvestable because of rising risk of fines for serial misconduct. We'll see if the shocking latest round of revelations about assisting tax evasion comes to anything.
• Don't get me wrong i like Woodford, i have invested in his Equity Inomce and it forms a part of my income generating ISA. But I am looking to replace my smaller companies fund with something different, so this might be it. My Smaller Companies fund has lost 10% last year, and I am increasinly geeting annoyed by the fund managers, and their poor stock selection.
• The thing about performance fees is the frogs tend to get boiled. For instance, there are funds that pay a performance fee of 20% of growth above Bank of England base rate. That was all very well when base was 6% - if the fund delivers 8% growth then a 0.4% hit isn't a problem. But when rates end up at 0.5% then suddenly that fund delivering 8% growth hands 1.5% to the manager. And then we find that the manager is very slow at removing the performance fee arrangement once it's not longer justifiable. Likewise, post RDR, fees are drifting downwards but they take an awful long time to get there.
  Are performance fees included in the OCF? I haven't noticed them appearing.
• Performance fees are not included in ocf, which is the Ongoing Charges Forecast.
  With funds that levy performance fees in the good times, you can't forecast that there will be a charge, because the idea is that they only earn it on out performance. So if there is zero profits, or losses, there won't be a charge. Hence, no ongoing charge is forecast because they can't do that without making implied performance claims.
  Straight management fees and accounting fees and admin/ legal fees get forecasted/ estimated and included in an OCF but performance fee is on top.
  By contrast, a quoted TER for last year will include performance fee because it is a type of expense, in accounting terms, and TER is Total Expense Ratio. But not necessarily useful for planning next year.
  You're right of course that the appropriateness of a performance fee depends on the benchmark - what are they trying to achieve and are you happy to pay them ifthey do?
  Sometimes you can get a free ride on performance fees if you buy in just before the fund value goes up back to a high watermark level where they've already charged a fee. So it's worth reading small print to see what you're paying for, whether the manager's interests are aligned with yours and whether you might pay for mediocrity if the benchmark isn't challenging.
• will invest
• Prospectus published today
  https://woodfordfunds.com/our-funds/wpct/prospectus/
• Forgive my ignorance in such things; if I want in do I have too apply via the prospectus or there some mechanism under which I can purchase via my s+s isa ?
  Is it possible to hold IT's in an s+s isa?