If Neil Woodford’s woes teach us one thing, it’s that ‘quoted’ doesn’t mean ‘open’
Last week Neil Woodford, Britain’s most prominent fund manager, recorded a video in which he apologised to investors for the recent poor performance of his Woodford Equity Income fund.
This was a welcome development and one that others who manage our retirement savings would do well to emulate when investors have cause to be disappointed. But for me, the most interesting part of the video was not the apology but a remark Mr Woodford made about how well fund managers can get to know the businesses in which they invest.
It was in connection with Provident Financial, whose drastic share price fall prompted a flurry of criticism for the fund manager. In the video he was asked whether Provident’s management had given, at one of their meetings with Mr Woodford, any indication that things were as bad as they turned out to be.
He replied: “Lots of people are saying either the management lied to you, or you are naive, or you weren’t listening. But as an investor in the public markets, you have to accept that there will always be some fog between you and what’s going on in a publicly quoted business. The regulations that surround what I do ensure that there is a distance. There isn’t a complete and open flow of information from a listed equity to an investor.”
He described this as a “frustration” and added: “It may be a surprise to our investors. But it is the fact of life that the regulatory environment that sits around public markets ensures that I can’t know all the things that I would want to know, certainly in a case like Provident Financial at a really important time like this.”
He’s right about it being a surprise, to me at least. I’d always believed that being a quoted company meant that people outside the company knew a lot about you, thanks to the detailed accounts that have to be published and the need to come clean in a timely manner with any information that might affect the share price. Privately owned businesses, I thought, could get away with saying very little.
In fact, Mr Woodford said, it is the other way around, at least for those who own significant stakes in the firms involved. “In unquoted businesses, we have a much closer relationship,” he said. “There is no regulation of the flow of information from unquoted business to a shareholder. So we attend board meetings. We see management accounts. We know everything that’s going on in the unquoted businesses that we invest in. It doesn’t mean we won’t make mistakes, but it absolutely does mean that we have a much more intimate knowledge of everything that’s going on in that business.”
What’s the lesson for those of us who invest our Isas and pensions in funds? Clearly we can’t all make a wholesale shift into unquoted investments. But for me, Mr Woodford adds a compelling voice to the argument that we should at least have some exposure. We have already reported studies that have found that, over the long term, “private equity”
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went to press, we were chasing the company for this information. A week later we are still none the wiser. Utterly shameful.
Scottish Mortgage has a holding in Spotify, the music streaming service to which Taylor Swift recently returned