How the Oracle of Oxford Won a Cult Following
Only a Silver Ferrari 488 parked in the lot hints that this is anything but a run-of-the-mill business complex on the outskirts of Oxford, England. It’s not until you get inside a suite of offices on the second floor that you begin to sense real money is being made here. On one wall, there’s a long, neatly handwritten list of U.K.-listed companies. On another, flatscreens display a big, constantly changing number. On this particular day, it ticks over to a nice, round £15 billion ($19.5 billion).
These are the offices of one of Britain’s most celebrated fund managers, Neil Woodford, and the number on the screens is the amount Woodford Investment Management has amassed in assets since he left Invesco Perpetual in April 2014. To have raised that much money so quickly is the stuff of legend in an industry where it normally takes at least three years to get truly established. The venerated Bill Gross, for instance, has raised around $1.9 billion (£1.5 billion) since he left Pimco in September 2014 to join Janus.
When Woodford was at Invesco, where he attracted a cult following as he built up about £33 billion in assets in around 26 years, he was among the biggest individual investors in U.K. stocks. On Oct. 15, 2013, the day he announced he would be moving on, Invesco shares slumped more than 7 percent. Money followed him. St. James’s Place, a FTSE 100 wealth manager, took £3.7 billion of its clients’ assets out of Invesco and turned it over to Woodford before he’d even turned on the lights at his new firm. St. James’s Place puts its trust in individuals, not firms, Chief Executive Officer David Bellamy said in a telephone interview. “We weren’t backing Woodford Investment Management, and we weren’t making a statement about Invesco,” he says. “We were with Neil.”
Woodford, 56, is dressed casually—jeans, navy T-shirt—when he sits down for a rare interview in the company boardroom; he looks more like a rugby player than a financier. When it comes to discussing his firm’s early success, he shrugs and manages to affect modesty and exude confidence at the same time. “I’ve been around for a long time and have done a reasonably good job for investors,” he says, leaning back in a white leather chair. “It’s hard to stand out in this industry, but when you do, you attract attention.”
For “attention,” read “assets.”
Woodford has been running money since at least 1987. Except for when he started out in insurance in 1981, he’s spent most of his career working outside of London’s financial district. Invesco is based in Henley-on-Thames, about an hour’s drive from his current Oxford setup. Like his investing hero, Omaha-based Warren Buffett, he’s a bit of an outsider. Having already bucked trends in asset management by not charging clients for investment research and disclosing all equity holdings, Woodford’s firm stated in August that it would no longer dole out discretionary bonuses; it switched to a salary and employee-benefit plan that includes a pension.
Woodford Investment Management may have the star money manager’s name on the door, but the role Craig Newman had in building the firm can hardly be overstated. Newman, 45, former head of retail sales at Invesco, left the company in 2013, not that long before Woodford did. Newman, co-founder and CEO of the new firm, ordered the furniture, assembled the chairs, painted the walls—and chose the name. “He didn’t get a choice of whether it was called Woodford,” Newman says. “I chose that.”
Newman and Woodford say they set out to disrupt an industry that was unnecessarily opaque. Before Woodford walked through the door of the new office, Newman had written a “stewardship code” for the company website promising openness and transparency in dealing with investors. On Woodford’s first day, Newman says, “I gave him a laptop, and I said, ‘Read that.’ He was quite emotional. He said, ‘It’s absolutely what I would have wanted to say.’ ” Woodford claims the whole experience has rebooted his career. “Professionally this is the best thing I’ve ever done,” he says.
A value investor (like Buffett), Woodford keeps his biggest holdings in companies that are resilient in a downturn and provide an income for his investors. Although he doesn’t like being pigeonholed as a defensive investor, he does come across as something of a permabear. About half of his flagship £9.4 billion equity income fund is invested in health-care and tobacco companies. “Virtually all his outperformance has come from taking big sector bets,” says John Spiers, CEO of EQ Investors, a U.K.-based wealth manager. “Either totally staying out of some of them or overweighting others.”
Woodford is unapologetic about his tobacco investments, which some investors shy away from because they’re deemed socially unacceptable. In fact, he says, his biggest mistake as a fund manager has been not buying more of the stocks. In the U.K., tobacco has been the best-performing sector on the FTSE All-Share Index, up 1,900 percent since 1990. “The thing that has done the best job for my investors is tobacco,” he says. “I am not paid to exercise my personal moral judgment.”
In 2015, Woodford’s first full year out on his own, the flagship fund returned 16 percent, beating all 50 of its peers tracked by Bloomberg. Investments in riskier small-cap stocks and unlisted startups have helped drive that growth, prompting him to launch an investment trust, Patient Capital Trust. It raised £800 million before going public in April 2015, a record for the U.K. investment industry. He’s bullish about disruptive technologies. He continues to be particularly keen on health care (“better therapeutics that turn crippling and terminal disease into manageable disease”) and alternative energy (though not wind: “I think we are pretty much done with wind farms; it’s very expensive energy”).
Woodford may invest in startups, but don’t call him a venture capitalist. The VC industry, to him, represents what’s wrong with asset management: It’s too short-term. When he puts money into a company, he keeps it there, on average, for 10 years—sometimes longer. He’s equally critical of active money managers that too closely track an index and the like. His flagship fund has an active share of 82.5, an industry measurement of the percentage of holdings that differs from the FTSE All-Share Index.
This year has been a bit of a wobble. Markets are turbulent. Investors are fidgety because of Brexit-inspired uncertainty. Some of the firm’s bets in biotech—a sector Woodford has long supported— have started to underperform. His decision to not own commodity stocks, the best-performing asset class in Europe this year, is another reason his main fund’s performance is lagging behind its peers, slipping to 28th place, according to Bloomberg data. Patient Capital also lost money, down 11 percent in net asset value after two quarters of 2016. (It has since recovered.) “He’s an anomaly,” says Spiers. “It’s very much his views that are driving the firm, and he is prepared to back his judgment in a big way. Even when things are going against him, that doesn’t faze him.”
Despite the wobble, his firm continues to rank among the top 10 managers in the U.K. by net retail sales. In 2015, Woodford ranked No. 1, according to the Pridham Report, which tracks fund sales and investment trends in the U.K., beating BlackRock and Fidelity. In the second quarter, which saw investors yank more money from U.K. funds than during any equivalent period in the global financial crisis, Woodford still made the top 10, although it dropped to ninth place.
Like any star fund manager, Woodford finds himself in a bit of a reputation bind. His track record attracts investors, but it also draws unwanted attention from detractors on the prowl for stumbles or excesses. (This may explain why the company declined to identify the owner of the Ferrari parked outside.) So how does he handle it? “I’m very aware that inevitably I have limited room for mistakes,” Woodford says, “but I don’t really worry or think about that too much. I don’t let my reputation affect how I invest. That would be a disaster. I don’t have a direct line in to the Almighty.” His hero, the Oracle of Omaha, couldn’t have said it better.
Jones covers U.K. finance and investing for Bloomberg News in London.
This story appears in the November/December issue of Bloomberg Markets.