Invesco’s Mark Barnett has suffered a significant mark down in the value of his unlisted investments, forcing the fund manager to pledge the problem assets will be ditched to avoid a Neil Woodford-style liquidity crunch.
The US group has applied a 60 per cent writedown to the value of the unquoted companies held in the £3.4bn High Income and £1.5bn Income funds, triggering falls of around 5 per cent in the net asset values of the funds.
Invesco sought to distance itself from the prospect of a liquidity crisis similar to the one that felled Mr Woodford, the former star UK stockpicker who had been Mr Barnett’s mentor, by vowing to sell the unlisted component of both funds and reinvest the proceeds in publicly traded large and mid-cap companies.
The coronavirus-induced market swings of the last month have pummelled Mr Barnett’s funds, depressing the value of its public holdings and increasing the weighting of unlisted investments relative to the rest of the portfolio.
Morningstar, the data provider, last week said High Income, which is the fourth-largest equity fund domiciled in the UK and is popular with British savers and pension funds, had lost a third of its value in 2020.
At the end of March, the unlisted component for High Income stood at 8.4 per cent and 9.1 per cent for the Income fund, placing them dangerously close to a 10 per cent regulatory cap on unquoted investments.
Mr Woodford’s flagship income fund, which breached the 10 per cent limit on several occasions, was forced to close last year after his large exposure to unquoted and illiquid assets made him unable to meet a surge in investor redemptions.
Jason Hollands, managing director of online investment service Tilney, said Invesco had wanted to cut the funds’ exposure to unquoted holdings for some time. “This move should put an end to the liquidity concerns that have risen to the fore since the Woodford Equity Income fund was suspended while also creating the potential for a material uplift at some point, for example in the event of future disposals or IPOs of stocks like Oxford Nanopore,” Mr Hollands said.
Invesco said its decision to offload its unlisted holdings was in response to “a significant shift in risk tolerance towards illiquid or unquoted assets in the last year”, as well as the “recent market dislocation and opportunities arising”.
The fund manager said large and mid-cap quoted companies had been “heavily discounted, well below our assessment of their true value”.
But the move marks a U-turn for Invesco, which had previously emphasised the differences between Mr Barnett’s strategy and that of Mr Woodford.
In an apology to investors over his poor performance last year, Mr Barnett said he had “materially changed” the way his funds invested in unquoted companies since taking over the management of the funds from Mr Woodford in 2014.
It said the pivot away from unlisted investments was “entirely consistent with our valuation driven, risk-adjusted investment management strategy”, pointing out that more than 70 per cent of Mr Barnett’s funds is already invested in publicly listed companies with a market value of more than £1bn.
“These are extraordinary times which call for decisive and positive action to look after the best interests of clients in the short and longer term,” it said.
FT Adviser, a Financial Times publication, first reported news of the asset value writedown.
