Woodford sells £42m property stake to protégé Mark Barnett

Neil Woodford has sold a £42m stake in a listed retail property company to funds managed by his protégé Mark Barnett at Invesco, in a deal underscoring the close-knit relationship between two of the UK’s best known fund managers.

The sale of NewRiver Reit shares is the latest reshuffle of Mr Woodford’s portfolio at a time when investors have pulled cash from his flagship equity income fund every month for nearly two years. Mr Woodford’s investment company disclosed on Wednesday that the fund’s assets had shrunk to £4.4bn, down from £4.7bn at the end of February, and 57 per cent lower than its £10.2bn peak in 2017.

The former star manager has adopted a series of unorthodox manoeuvres as he battles to repay investors who are withdrawing capital while also complying with regulations that mean his fund does not breach a cap of having 10 per cent in unquoted stocks.

Mr Woodford was jolted last week when the Guernsey stock exchange unexpectedly suspended dealings in three of his private companies. The former star manager had shifted his stakes in biotech company Benevolent AI, cold fusion company Industrial Heat, and technology investor Ombu to Guernsey so he could reclassify them from being unquoted stocks to quoted stocks. The trio represent 7 per cent of his equity income fund which already has 7.8 per cent of its investment in unquoted securities.

According to stock market filings, Mr Woodford sold close to 6 per cent of NewRiver, which specialises in convenience stores and pubs and is valued at £750m, to Invesco this month. The shares were bought and sold on the open market.

Mr Woodford’s stake in NewRiver has fallen to 23.4 per cent following the sale, with Invesco’s rising from just over 18 per cent to 25 per cent, making it the company’s top shareholder.

Mr Woodford was Mr Barnett’s mentor, having ceded control of Invesco’s two most popular funds to him when the former left to create Woodford Investment Management, which launched in 2014. But their investment strategies have remained closely linked, with both suffering extended periods of poor performance as a series of investments soured.

“In small companies, blocks often trade single seller to buyer. And, yes, Mark and Neil are close and I’m sure talk often but that isn’t a crime,” said a fund manager who has known Mr Woodford for decades.

The two fund managers invest in dozens of the same companies, but it is not clear if Invesco knew the identity of the seller. Woodford Investment and Invesco declined to comment.

NewRiver was already the seventh-largest holding in Mr Barnett’s UK Strategic Income fund at the end of March. The new shares were purchased across a range of his funds at the equivalent of the price they were trading on the stock market, according to a person close to the sale.

NewRiver trades at a 7 per cent discount to net asset value, according to Peel Hunt estimates. Around the time of the sale to Invesco, the discount was closer to 10 per cent. Much larger Reits, such as Hammerson and Intu, have swung to discounts of between 50-60 per cent in recent months as investors remain concerned about the outlook for UK retail.

Peel Hunt analyst James Carswell said NewRiver’s discount was “much lower than the other Reits”. He said it was not uncommon to see a buyer like Mr Barnett wrestle a steeper discount on such a deal, but he also pointed out that NewRiver was “in a stronger position” than some, due to the strength of its balance sheet and greater exposure to leisure businesses. The stock also has a high dividend yield.

However, it is not immune to sliding property values on the UK high street, which have been hit by the collapse of high-profile retailers and the expansion of online shopping.

Patrick Thomas, investment manager at Canaccord Genuity Wealth Management said: “This is not the type of investment Mark Barnett would have made when his fund performance was good in 2015 but he is now under lights and needs to take more risk to catch up with better performing peers.”


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