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How SUPP’s managers are investing the former Woodford Patient Capital

In December 2019, Schroders’ Tim Creed and Roger Doig were handed responsibility for what was then known as Woodford Patient Capital, after the trust’s namesake Neil Woodford was sacked by its board.

Taking on a trust marred by one of the biggest financial scandals of the last decade, and the plethora of portfolio issues that came with it, may seem like volunteering to drink from a poison chalice.

But Creed, Doig and Schroders saw an opportunity; one that is quickly becoming realised as the revamped and renamed Schroder UK Public Private Trust (SUPP) begins to profit from some of Britain’s most exciting private companies.

Roger Doig of the Schroder UK Public Private Trust

Tim Creed (left) and Roger Doig, managers of the Schroder UK Public Private Trust, which they took over from its previous incarnation as Woodford Patient Capital

First on the pair’s agenda was tackling the large debt pile the trust had built up under its previous management, which had exacerbated the former Woodford Patient Capital Trust’s unloved status among investors and drove its discount to net asset value to more than 40 per cent.

‘The fact that the vehicle had debts was not the issue, because many vehicles have a bit of debt on them,’ Creed told This is Money. 

‘The problem with the debt was that it was due to expire one month later and the market knew that.

‘We renegotiated the whole debt package and ended up paying off the whole debt.’

Oxford Nanopore was one of former manager Neil Woodford's best known holdings

Oxford Nanopore was one of former manager Neil Woodford’s best known holdings 

Next Creed and Doig had to decide which of Woodford’s former investments it wished to keep or ditch. 

For some of those they decided to keep within SUPP, more work was required.

‘The biggest challenge we faced was moving companies into the right path,’ Creed said. 

‘There were some companies that we weren’t happy with and felt were going in the wrong direction, so we had to pull them into the right path.

‘If they didn’t change direction, there could have been some quite negative consequences.’

The trust still struggles with a stubborn 16.61 per cent discount to NAV but, in addition to tackling the debt issue, Schroders has been taking action to chip away at the figure and the management team expect to continue to narrow.

The trust is still lagging the broader market though, so investors still need to be patient capitalists. SUPP shares are up 19.8 per cent over the last year, compared to a 31 per cent return for the FTSE All Share index. Its NAV total return is down 7.3 per cent over the same period.

The trust invests in a portfolio of listed and unlisted companies, the balance of which can shift from a 50/50 split to as much as 70/30 either way.

The benefit of this structure is it provides investors with liquidity, via the listed stocks as well as the chance to invest in the unlimited potential of rapidly growing private companies in the UK.

SUPP shares remain well off their peak as Woodford Patient Capital when the shares launched at 100p neared 120p before a very dramatic decline

SUPP shares remain well off their peak as Woodford Patient Capital when the shares launched at 100p neared 120p before a very dramatic decline

For the average investor considering an investment in SUPP, the best known names among its unlisted holdings are most likely life sciences firm Oxford Nanopore and fintech business Revolut.

SUPP's 10 largest holdings as of 30 June

SUPP’s 10 largest holdings as of 30 June 

Creed said: ‘The UK has got a number of great technology businesses and it’s got a number of great healthcare businesses. The challenge has always been “how do you scale them?”.

‘We’re now seeing companies like Revolut, which is now worth $33billion, and there’s a couple of other private companies valued above $10billion.

‘If you go back 10 years, there were no companies valued more than £1billion as private venture backed companies in the UK. Now we’ve got one that is £33billion and that is one of the top five or 10 globally.

‘That’s something that the UK should be super proud of and it’s been an amazing achievement by that company.

‘I hope that it is followed up with many other companies like it because there’s a great opportunity set for both healthcare and technology companies in the UK.’

Backing Revolut 

Revolut was one of SUPP’s first new investments since Creed and Doig took charge, with the banking app a long-time favourite of Schroders’ private companies team.

It has grown rapidly in recent years, having ballooned to more than 16 million customers worldwide and a valuation of $33billion (£24billion) – bigger than high street stalwart NatWest.

The big question is, ‘could it become a $100billion company or more?’ And many people believe it can 

With its valuation six times bigger than it was in the previous year, when founder Nikolay Storonsky, 36, became one of Britain’s youngest billionaires, it was suggested in July that the firm was seeking a London listing.

Creed said: ‘Schroders has been an investor in Revolut since almost the beginning through our venture capital funds, and more recently we came in directly via SUPP. 

‘So we’re quite fortunate in the fact that we’ve seen the development of Revolut from the point when it was really small to the global leader is today.

‘Now valued at some $33billion. The big question is, “could it become a $100billion company or more?” And many people believe it can.’

Revolut has grown rapidly in recent years and now has a valuation of $33bn and more than 16 million customers globally

Revolut has grown rapidly in recent years and now has a valuation of $33bn and more than 16 million customers globally

He added that Revolut’s revenue is ‘pretty unique’, citing its ‘large number of products and offerings’ in comparison to the ‘one or two things’ a lot of other fintech companies offer.

‘The fact that they can bring out new products in a very rapid, efficient way and almost immediately become market leaders for those products is amazing. 

Revolut also has what most others don’t have in that it is already fast on its way to becoming a global company.’

Oxford Nanopore

A far smaller firm than Revolut, but representing a substantial 26.5 per cent of SUPP’s portfolio, is pharmaceutical and life sciences company Oxford Nanopore.

The company – which made its name by supplying Covid testing kits to the Government – had become a point of contention under Neil Woodford’s management of the trust, as he was unable to offload the prized company amid a sluggish market in order to meet debt payment deadlines.

But the fact Woodford was unable to sell then-unlisted Oxford Nanopore would ultimately be to the advantage of those invested with his successors and SUPP.

Oxford Nanopore shares surged more than 40 per cent, from 425p to 612p, giving the firm a valuation of almost £5billion after its September IPO.

We intend to hold a position in the company for a long period of time 

SUPP sold 10 per cent of its Oxford Nanopore exposure, which together with the remaining shares valued at the offer price of 425p, amounted to a 21.4 per cent uplift to the last disclosed fair value of the holding as of 30 June 2021.

Creed said: ‘We intend to hold a position in the company for a long period of time and the reason we sold 10 per cent at the IPO was not a reflection of the company – it was purely because Nanopore had become a disproportionately large proportion of the trust.

‘We’re happy because it’s a super strong company, but it does make sense to rebalance the portfolio over the long run to allow us to also make other investments.’

Oxford Nanopore was spun out of Oxford University in 2005 and specialises in DNA sequencing.

The company’s DNA tracking technology can be used to detect diseases and tumours, and its pocket-sized devices have been used in 85 countries to track the evolution of coronavirus.

Creed said: ‘Nanopore is an amazing company and what it does with DNA sequencing is a global opportunity.

‘What makes Nanopore so interesting is its product is quite different to the main competitor – a really successful company called Illumina, which has grown to be more than 10 times the size of Nanopore and it has been a very successful company for many, many years.

‘The difference between Illumina and Oxford Nanopore is the former’s products are very large, very expensive and very high quality.

‘Nanopore’s products are very small, quite a lot cheaper, but also really high quality – that means they’re much more affordable for universities and other establishments, but they can also be rolled out into more remote locations.

‘The ceiling for Oxford Nanopore is very, very high.’

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