Neil Woodford, Britain’s most celebrated fund manager, has been forced to reduce his stake in a leading challenger bank after a wave of client redemptions dried up cash for new investments.
Sky News has learnt that Woodford Investment Management, which was set up 2014, informed the board of Atom Bank that it could not afford to participate in a £150m share issue announced this week.
The deal would have required Woodford to write a multimillion pound cheque to maintain its stake in Atom at over 20%, but it told the lender several weeks ago that it was “unable” to participate, according to several City sources.
Woodford’s shareholding has now fallen to 18%, according to a spokesman.
The development is the latest setback for Mr Woodford, and raises questions about the extent of the liquidity challenges his firm has been facing.
Woodford is a big investor in a number of troubled public companies, including the AA, online estate agent Purplebricks and doorstep lender Provident Financial, all of which have seen their shares slump and the last of which has said it needs to raise more than £300m from a share sale.
Mr Woodford has pledged to support Provident’s rights issue, while Capita, another of his holdings, is also expected to tap investors to shore up its balance sheet.
The decline in the value of the Woodford Equity Income Fund has in turn pushed up the relative weighting of unquoted stocks in it to near a 10% regulatory ceiling, the Financial Times reported last month.
Woodford’s Atom Bank stake is split between the Equity Income Fund and his quoted Patient Capital Trust, which has seen its own shares fall to a record low.
A Woodford spokesperson said this weekend that it had backed funding rounds and follow-on investments at more than 20 companies in the last six months.
“Our decision not to contribute to this [Atom Bank] funding round is entirely in keeping with our stated strategy.
“It is not a function of an inability to follow on, but a function of our preference to focus our capital on businesses earlier in their lifecycle or which have the potential for more attractive returns.”
Several insiders confirmed that Woodford had emphasised its inability to continue investing in Atom during initial discussions about its rights issue.
“It was very straightforward: Woodford said it couldn’t afford to stand its corner,” one said this weekend.
Durham-based Atom unveiled a £149m fundraising this week which saw the Spanish bank BBVA increase its holding to 39%, with Toscafund’s stake also rising as part of the deal.
BBVA is regarded as a likely buyer of the whole company within a couple of years.
Mr Woodford’s departure from Invesco four years ago and the subsequent launch of his own asset management business was major news in the City.
He quickly drew in billions of pounds from both retail and institutional investors, but has endured a torrid year, with more than £1bn of redemptions.
Woodford has seen a number of the biotech companies he backs have their credentials and governance questioned, but has continued to keep faith in many of them.
This week, Autolus, a UK biotech company, said it would seek to list its shares on the Nasdaq exchange in New York.
A source close to him said decisions about capital allocation were particularly necessary during periods of outflows.
The Atom situation was not the first time Woodford had not participated in a funding round for a company it was already invested in, the source said.
“It has always been Woodford’s clearly defined strategy to nurture young technology-intensive businesses through the early stages of their development,” they added.
“Once those early hurdles have been overcome it is entirely appropriate that these businesses raise capital from other investors.”