171: From Triumph to Trauma: The Dramatic Investment Arc of Neil Woodford, Founder of Woodford Investment Management
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There isn't a day that goes by that I don't think about the poor investment returns that investors who back me endured. It weighs on me, I would say, every single day. And it's a burden that I'm going to have to take with me.

Welcome to the Money Maze podcast. If this is your first time joining us, I'm the host, Simon Brewer. And in this show, we talk to proven leaders and thinkers from the worlds of business, investing and beyond. Money talks and money moves. Which direction would you choose? It's the money.

Stay up to date with every episode. Please do sign up to our newsletter via moneymayspodcast.com. Episodes are also published on our YouTube channel and we're active on all major social media platforms. Thank you for listening. Some of our conversations are deliberately different. The man in front of me today cost me a lot of money. I also consider him a friend.

Somebody whose perspective I have valued. Somebody who has been through a traumatic time. It could be said that Neil Woodford CBE has had a career of two halves, the first of which encompassed extraordinary investment success. And I hope today in using an investment lens, we can examine and understand with more clarity than may exist what went right, what went wrong, and now what may lie ahead.

Neil, you've come up to London today and thank you for coming, knowing that it might have been easier to have stayed at home. Welcome. Thank you for having me. Good to see you. And as I've researched this conversation over many hours, I spoke to people who know you, who know the industry, who have invested with you, in whose companies you invested, who are on your board. And I've looked at the fund data and more.

And I thought we should break this conversation into three parts. I'm going to use some mountaineering terminology, scaling the peak, descent into the crevasse and return to base camp. So let's go back to the foothills of this trail.

Those early days that shaped you, how would people have described you as a child? That's a really good question. I look back and don't really see a different personality really at all. I think I was reasonably successful academically, a late developer, but reasonably successful academically in a state school system. I loved the school I went to, had a lot of respect for my headmaster, but

I think he was somebody I really admired and I think he changed my life, really my young life, because I was a little bit disruptive as a younger sort of student, but he got me on the straight and narrow and sport really was a very important part of my life and rugby in particular. I played a lot of rugby through school and then I played on through my later years in club rugby. But nevertheless, not a top performer academically by any means, a good sportsman,

But I think I was somebody who people, I think they liked me. I think I was a bit of a character in my school as a thousand boys. I enjoyed my school, made lots of friendships, some of which endure today. So I think that's how people would remember me, if you like, looking back. So you go to Exeter University. How would you describe your level of ambition then as a student? Not high.

I didn't know what I wanted to do. I certainly didn't have any vision of a future career in really any industry. I'd studied economics at A-level and thought it's an interesting subject. And I chose economics to study at university. And it was bitterly disappointing, as you may know. Economics at university is a terribly boring subject. I think it's way too academic.

way too mathematical and theoretical. And I sort of came out of university not really knowing what I wanted to do. And it didn't help that the year I graduated was a deep recession in the UK economy. There weren't very many jobs for graduates. And I just was at a bit of a loss. I applied to a number of graduate recruitment programs, but none came to pass. And so I ended up sleeping on my brother's floor. He had a job in the city. He had a flat.

in East London. I ended up skipping on his floor just for somewhere to go really. And then I got a series of pretty awful jobs, clerical jobs, and then found my way into,

into the industry, the fund management industry via a job which was basically advertised in a recruitment agency as an assistant to a fund manager. So as I plotted your path, Reed Pension Fund, TSP, Eagle Star, all precede Perpetual. And I was talking to some students at LBS last night and saying that there's no linear path, is that you'll get unexpected sort of detours and some of that is going to be to your benefit. But which of those firms taught you

valuable lessons? I think I was lucky in that all of them helped shape my apprenticeship really in this industry, in the fund management industry. Once I was in, I found something that I liked and was reasonably good at, and it really interested me. And that helps, of course, doesn't it? So my analytical skills, which are what I knew I had to perfect and improve, I

as a trainee, were really helped by the people that I was lucky enough to work for. Right from the start, really, at Dominion Insurance, which was my first real job in fund management, through to Eagle Star before I went to Perpetual. All of those jobs that I did were really helpful. One in particular, I think, was TSB, where although I wasn't in a market-facing role, I

I was actually in a team that was put together within the bank to develop a strategy for the entire business. It was an arcane sort of situation, really. TSB's ownership was sort of, it was one of those mutuals whose ownership was sort of indeterminate, if you like, put it that way. Anyway...

When legislation was passed, they were able to raise capital at IPO. They were expecting to raise a billion pounds, which was a lot of money in those days, and they were going to use that to diversify and build the business.

And a team was set up to craft a strategy for the business, for the bank. And I was a part of that team. And that taught me a huge amount because the businesses I was looking at and the analysis I was doing was with a view to buying the entire business, very much the Warren Buffett sort of approach to investment, rather than just buying shares that you could just change your mind on the next day. So it was a very detailed analytical process. I worked with some very clever people. That was a really important process.

part of the journey onto fund management. So you joined Perpetual in 1988. To this day, Perpetual was absorbed by Invescom and Vescap. We'll talk about that a little bit later on. And was it Perpetual's size, its location in Henley, or the magnetism of its founder, Martin Arby, that attracted you? A bit of all of those. But I think the thing that really attracted me was that by 1988, I knew that I wanted to be a fund manager. I'd done...

six, seven years as an analyst doing various jobs. I think I'd learned a lot. I did a finance course at the LBS, which really helped as well in sort of creating foundational understanding, if you like, of the theory of valuation and market theory and things like that. Anyway, by 1988, I knew I wanted to be a fund manager, but I knew that I also wanted to be a fund manager who could express their fund management views in a portfolio. I didn't want to be a small cog in a very big machine.

contributing, you know, say a sector view to a much larger fund. So I took a risk really because

In those days, smaller fund management groups were less well-known. I was working at Eagle Star, a very big institutional fund manager with lots of infrastructure. And I remember when I chose to leave, I think my colleagues thought I'd gone mad when I told them where I was going. And I took a cut in salary and remuneration to go to Perpetual. But I knew that by going to Perpetual, I could craft...

a sort of role for myself where one day I would be a fund manager on a fund, I could express my views in that fund. So you start this journey and one of the folks to whom I was talking said that when he started sort of breaking to you, there was that you were running a 30 million pound portfolio, which in due course became 33 billion pounds. So you earn this reputation as one of the UK's top fund managers specializing in UK equities. We're going to come back to the UK issues later on.

But give us some insight into your investment process. And particularly, I want to talk about the sector versus the stock dimension. Well, I suppose I ought to really give you a perspective on my fund management disciplines, if you like. So I'm very much grounded in the sort of Warren Buffett school. I think valuation is key.

But my perspective on valuation is much more involved. I think people have a two-dimensional view of valuation. If a stock's got a high yield and a low P, it must be a good value stock. And if it hasn't, it must be a growth stock. I think that oversimplification does damage to the industry. But nevertheless, my underlying sort of discipline was very much about driven by valuation.

And if you understand valuation, then before all of that, you have to do your analysis. You've got to analyze the company well. You've got to be able to understand a business. You've got to get close to the business or as close as you can do, get close to management teams, have a view about what the fundamentals of the business are like, what the people who are running the business are like, whether they're good or bad stewards. And I also emphasized, I think,

maybe unusually, but I also emphasized a focus as well on the things that would affect the business, but which the business didn't control, which was the macro economy. I think a rounded fund management view on a business involves having a reasonably clear view, as clear as you can get on the business, the people who run it, and the macro economy. And I blend all those things together. And what comes out of the analysis of all those factors is a valuation view.

So if we talk about two of those huge drawdowns that have occurred in our careers, the first was the technology DMT bubble. I was managing a balanced portfolio at Morgan Stanley, much lower profile than you, and was trying to assiduously avoid that sector. You were...

and assiduously did not invest in that sector. And I read, and this may not be right, but I'd be intrigued, that at that point in time, Perpetual was up for sale and you were going through a period of underperformance as everybody avoiding that did in 98, 99. And you were under some pressure to own some of those names and you resisted. Is that right? That is absolutely right. Yeah. Martin was a great boss and very charismatic. And I really enjoyed working for him and for the business.

But there were times when Martin would become exasperated, not least because he had a number of young kids who sort of matured and grown up and had completely bought into the TMT bubble sort of philosophy. So in one ear, Martin was getting the sort of, you've got these things we're doubling over every day. You know, it's fantastic. You really need to sort of get your fund managers to buy into this. And then on the other hand, myself and my colleagues in the UK team were saying, you

Look, it's a bubble. I don't know when it's going to burst, but these valuations are ludicrous and we're not going to play that game. Now, that created a bit of tension. It came to the surface once or twice, but not in a sort of an aggressive way. But there was a lot of pressure on me in the business. And you're right. Martin had decided that he should sell the business.

And negotiations were taking place. I wasn't a party to those. But nevertheless, contemporaneously, there were discussions going on. And of course, the growth trajectory of the perpetual is what had driven the valuation. And my funds were the principal earners and the principal growth engine of perpetual through this period. And when I started underperforming, I didn't get redemptions, but we had no inflow.

through that 98, 99 period. And therefore, it did have an impact on the business. And of course, that created an extra dimension of tension between what I was doing and what Martin wanted. And I was successfully, I was ultimately successfully resisting the pressure, but it was immense. And I think if it had gone on much longer, I think I would have been shown the door.

So yeah, it was what happened in 2000 came just in time, really. So I'm going to forget. It was Tony Dye, wasn't it? PDFM, one of the great UK fund managers who was let go or forced out, who had a very similar view. This TMT is nonsense, unsustainable. And almost within weeks of him leaving, the markets turn April 2000 and we start one of the great bear markets. Whereas I think I showed in the chart the other night at a talk, Amazon stock price fell over 90%.

So then we get to the financial crisis. So this is back to my point about sectors, is that for all the smart brains in the investment world, the subprime crisis erupts and takes with it any number of casualties, including Northern Rock. Now you had, I think I'm right in saying, no financial stocks. No banks. No banks. Just explain how you got to that position, because it was a strong position and many people might have disagreed. It's

This sort of speaks to the changing profile of the portfolio over that 25-year period. I had owned lots of mid and small cap. I'd owned lots of banks. I'd owned no banks throughout the period. The one consistent thing was really I didn't ever really have very much oil exposure, which is a big sector or was a big sector, still is in the UK market. But as you well know, as a valuation manager, as a valuation-focused manager,

pockets of value move around the market. They don't stay in one part of the market forever. I mean, for example, when I had a lot of exposure to banks, we had a very good run in them. I had over 30% of the portfolio in UK bank stocks.

And at the peak, they were trading at over three, three and a half times book value. Now banks trade. Well, Barclays is still after a great run. It's doubled last year, but it's still trading at a discount to book value. So this in microcosm just sort of illustrates how I think somebody told me at the start of my career, you'll see every stock on every valuation through an infomercial and career. And he was absolutely right.

So there were a number of factors that played on my mind at the time. There were one or two really good analysts who were highlighting the very dangerous nature of the very esoteric, I think Warren Buffett described them as weapons of mass financial destruction, words to that effect. I have to say, I didn't really understand all of the detail around these new financial instruments, but I have to say they did scare me.

What was happening in the banking sector is that people were losing sight of the cyclicality, inherent cyclicality, that was still very much a factor of the UK market and financial markets. I think they were losing sight of the sort of constraints that banks had traditionally operated under. They were becoming incredibly highly levered. Their capital was shrinking relative to their assets. I think tier one ratios were down at 2%.

or less, if you included all high quality capital, they were just becoming very dangerous to my mind. And it was a combination of valuation and my concerns about the balance sheet growth, the asset growth, and these very arcade instruments, which I didn't fully understand, but which scared me. And I exited the entire sector and it proved to be the right thing to do. So I was re-listening, Pete Davis of Lansdowne was a guest a little while back and

He replays the story of the fact they had the biggest short ever recorded in the UK, which is Northern Rock. And they'd gone not just not only, but they'd gone the other way. And he talks about the flaws. But this gets you to be regarded as the UK's preeminent fund manager. Some paper had dubbed you UK's answer to Warren Buffett, always a kiss of death. And you earn your CBE.

And I was intrigued as I looked at the portfolio, because you made the point about you'd had a third in banks at one stage. I think you had 25% of the portfolio in tobacco. And that actually you bought BATS, British American Tobacco, originally at £3 on its journey to £50. Given that concentration at times, how did you think about benchmarks?

Well, I was very conscious of the benchmark because I knew that was the way I would be measured by people who either bought the fund or who recommended the fund, and ultimately by those who passed judgment on the skills of active fund managers. But as a discipline in terms of where I allocated capital as a fund manager...

the benchmark was broadly irrelevant. Now, I know you're saying it may sound extraordinary for a business, for a fund manager that's running tens of billions, but I had always set my stall out as a non-benchmark constrained fund manager. I didn't have a risk budget in terms of the risk relative to the index. I was given the freedom that I had sought in the first place in going to Perpetual. And that continued. So I was able to

to add value by not tracking the benchmark. And ultimately, you don't deliver twice the index return over a 25-year period by tracking an index. You've got to do something different. And it's not that I set out to achieve that sort of return, but it's the product of my investment process and my stock choices. So you're managing this £35 billion. I think I'm right in saying you became such a big shareholder. You were able to change the CEO at AstraZeneca. I think...

I think at one stage, I don't know whether that's true or not, but you know, clearly, AstraZeneca was an important holding. You owned 13% of British Aerospace at one point, and there was a discussion, more than a discussion, a move to merge with Eats. And I know you were, I wouldn't say violently opposed, you were vocally opposed to that and was one of the reasons why the company stayed independent. So you were very happy to stand up and be seen. Yes, I wasn't.

seeking some sort of political limelight at all. These interventions that I decided to go forward with were a product of my views about valuation. The other thing I should mention is that I was always a long-term focus for manager. I had very low turnover. My average holding period was, I think, between three and five years.

Warren Buffett would call me very short term on the back of that. But nevertheless, the average holding period for most of our managers is measured in months, not years. So my average holding period was very long. I felt very comfortable holding positions through periods of underperformance as long as my valuation discipline produced the right sort of answers. And

And my views on BAE Systems and AstraZeneca were that although the bid terms would have provided a short-term sort of fillip to the share price, my view was that both businesses were worth substantially more than the bid terms that were on the table in both cases. And that's why I said, look, this may appeal in the very short term, but you're selling sovereignty, if you like, far too cheaply. This is not the right price. This is not the right thing to do.

more value will accrue in the long term if you remain independent. And I think, you know, there's Drax that you are one of the few people who helped finance their transition from coal to wood pulp. So you become a significant cog in a lot of UK corporate decision making because of the size of, you know, the funds and your influence. You're appointed in 2015 to the Conservative government's patient capital review. And as a person, how did you stay humble?

I think I did stay humble, by the way. Absolutely never went to my head. I don't believe that I ever became some sort of arrogant power broker. That's for sure. My motivation was how do I deliver an attractive return to my unit holders? What are the things I need to do to look after that ultimate goal? I knew what my job was. My job wasn't to become...

It wasn't driven by ego or anything like that. It was just driven by doing a good job for my investors. And all of those interventions, some of them were uncomfortable. Some of them were really, really uncomfortable, I have to say. And some of them inevitably involved

People pursuing me, I ruffled feathers. People were quite angry with me. I remember a confrontation with the chairman of BAE Systems that was a bit of a shouting match. I mean, it was very uncomfortable on a few occasions. But my motivation, I knew what my motivation was, and it was the right motivation, I believe. And so throughout that process, I remained close to my job, my role. I didn't sort of let the whole...

size thing overwhelm me. It could have overwhelmed me, I think, because over £30 billion of invested money is a huge amount. It's a huge responsibility. But I remain very grounded and focused, I think. Meanwhile, Invest Good Buyers Perpetual, you are the producer, etc. Ownership means change.

How did you respond to authority? It depends on what the authority is saying. I think I've got a lot of respect for people whose views are well-informed and whose strategy is, I think, has been crafted, if you like, appropriately.

What I'm alluding to is that the initial acquisition of Perpetual was a pretty sort of unpleasant experience. Not least because Invesco bought Perpetual. I can't tell you what was said, but in a brief... So the transaction happened. Martin was delighted but also upset because he was ceding sovereignty and he was going to take... It was going to be a sort of handover period, but essentially he was out of the business. And almost from day one...

And I saw this up close. I'd seen what M&A was like at my old job at the TSP. But this was up close, effectively a US company acquiring a UK company. We were, as you know, Perpetual had come from a period of underperformance, but it suddenly turned into this sort of, you were right, sort of label. And Invesco's UK business...

had very much embraced the growth dynamic, the TMT bubble dynamic, and their funds were having a terrible time by the time that the deal was done. Anyway, I can remember a meeting when the head of the UK business basically sat down with us and said that although the terms of the deal was that it was a merger, you'll probably have to edit this out. But he sat down and told us that there was no such thing as mergers. He said, there's a buyer and a seller. He said,

And that's the equivalent of a fucker and a fucky. And it was very clear that we were not the former, we were the latter. So I thought about this and decided that this wasn't an organization that I wanted to be a part of. And I resigned immediately. And Martin came to see me and we had a very emotional meeting in a side room of his lovely office. And he was in tears.

He said to me, what have I done? And he promised to re-engage, if you like, to change things.

the merger dynamic effectively, to do what he could to change the merger. The deals have been done. The finances have been agreed, but the who did what to whom thing, which is obviously so important, who gets what position, who's, I mean, for example, we were told you're not really required as fund managers. There may be jobs for you as analysts in London for, from some sectors. We need some analysts in London at the investor offices in London, but you know, we're not going to guarantee that there are any jobs for fund managers. Yeah.

That's an extraordinary sort of situation. But nevertheless, I just said, well, that's just not for me. I'll go and find a job somewhere else. Anyway, Martin re-engaged. I ended up meeting the chairman of Invesco, who was very influential. And although he had delegated the management, if you like, of the combination to the UK management team,

He was in charge, really, ultimately. Anyway, I had a meeting with him. I explained to him why I'd resigned, what the problem was. And in the end, the terms were changed. In fact, in the end, Invesco's offices in London were closed and they came to Henley. And we didn't lose our jobs. We remained in situ. And so the whole thing was sort of turned around, but it did require a bit of a sort of digging in of heels.

In the end, as often happens post-change, and I saw Morgan Stanley merge with Dean Witter and all the fallout of that, which was very uncomfortable for lots of people for a while, is that you decide to go that well-trodden path and set up your own business. It's 2014. You leave Perpetua. You establish Woodford Investment Management. Neil, it just made me wonder, how long did you pause for before putting your name on the door?

It wasn't my idea. I set the business up. The circumstances are that the guy who set the business up with me, Craig Newman, he left Invesco before I did. And really, I think we decided that Invesco had become a business that we didn't really want to be a part of anymore. We didn't like the culture. We adapted to fit in.

But there'd been this sort of gradual boiling frog situation. And we were finding it increasingly uncomfortable as the culture shifted, as some important control changes took place. And we felt that the business didn't share the same values that we did anymore. And so we decided to leave. Now, I couldn't leave straight away. Craig was able to leave straight away. He then started to set up the new business. And it was his decision to call it Woodford Investment Management.

And with the benefit of hindsight, that was a mistake. But nevertheless, it was the name on the door. And I joined the business in April 2014. And I literally stopped working for Invesco.

one day and started working for Woodford Investment Management the next. Wow, that's amazing. Most of us have non-compete clauses for a while. Well, I sort of served my – whilst I continued to work for Invesco. Right. So the aim on the tin is to provide a reasonable level of income together with capital growth to be achieved by investing primarily in UK-listed companies. It was the Woodford Equity Income Fund.

And I just wondered how in your mind you had always and were defining the word income. It was different for income. And I remember for Invesco, I'd run an income fund and a high income fund. So I had to sort of differentiate between the two. Although they had pretty much the same portfolio, the high income did adhere to that naming convention. It had higher yield than the income fund. But both funds typically yielded more than the market.

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I'm going to take a little detour here and talk about fund structure. For those less familiar in the UK, retail funds, such as the open-end investment company that you ended up running, are required to have something called an ACD, an Authorised Corporate Director. This entity has to be FCA approved. And you could have done this internally, as some large firms do, or it can be outsourced. Firstly, why outsource? It was a cost thing, really. If

If we have created the infrastructure ourselves, it would have been very expensive. We didn't have the capital. We had one friend who helped us set the business up with a loan. But essentially, we wouldn't have had access to the capital required to set up an infrastructure to do the job that an ACD does for funds. So it was a cost thing.

But it is true to say that we did not want Link. We had a sort of beauty parade very early days. We didn't want Link. We actually wanted to appoint a smaller ACD. But we were told in no uncertain terms, if you don't appoint Link, you won't get approved.

And what was strange to me is that the FCA wanted you to work with Capita, who you already knew. Capita later on sells a business that becomes called Link. But they had been the ACD for Arch Crew that had imploded and had, I think, regulatory censor and another collapse of Connort Income, where I think the FCA found that Capita had not carried out adequate due diligence and they had been fined. So your feet were tied, right?

or put to the fire. We were optionless. I think we recognised the problems that Link had had. We knew about them. It weren't a secret. And indeed, our head of compliance had been at the FCA and had been one of the guys who'd investigated

the con aught problem at the FCA. So we knew very well all about what was going on, what had happened in that situation. And I think that helped frame our view, which is that we wanted another ACD.

So you kick off your portfolio very quickly. Looks like your old portfolio. AstraZeneca, Glaxo, I think, Rashbats, Imperials, Rolls-Royce. You get major asset inflows. James' Place, although they had a separate vehicle with no privates. We're going to be coming back to privates. Hargreaves Lansdowne, who were...

evangelical. I read, if these are right, that Peter Hargreaves said, I'll be investing at launch, suggest investors consider doing the same. Mark Tamper, who was head of the research, said, no hesitation adding the funds to our wealth, 150 list of favored funds. So you're up and running, your performance gets going pretty well.

And this is where I want to bring in somebody who you remember, Tyrell Young. He was a senior equity sales. He said, Neil Woodford was a client of mine for many years. And I did invest in his fund when he split from Vesco. I sold after a couple of years of decent performance because he seemed to be drifting away from what I thought was on the tin.

My concern was that the names of the companies that started appearing in the top 10 that I hadn't heard of, some of which were unquoted or at the least extremely illiquid. I thought at the time his track record came largely from picking well-known names which paid dividends. The addition of illiquid names coupled with lesser performance prompted my sale. Is that fair? I don't think it is because what I did at Woodford was no different. My fundamental investor approach was exactly the same as I deployed throughout Woodford.

my investment career. As I said earlier, the constant in my investment career is that focus on fundamental valuation and that desire or that what drives that valuation view is a fundamental analysis of the business, the people in the business, people who lead the business and make decisions and the macro economy. And there was an additional long-term

to those investment decisions. So those are the sort of key pillars of my investment approach. They remained unchanged. But as you know, and as we discussed already this morning, valuation doesn't remain...

Undervalued stocks do not remain undervalued stocks. Undervalued stocks become overvalued. Overvalued ones become undervalued. The valuation opportunity shifts around the market, shifts from sector to sector. And as I can, I repeat what I said earlier, in your career, you will see every stock on every valuation. And that's very true.

And my shift away from the sort of thing that I think Tyrell was talking about, the more familiar BATs of this world, the AstraZeneca's, was a product of the valuation opportunity being really eroded in those companies as they perform well and shifting to other areas of the market where there was extreme valuation opportunity.

Now, the idea that the portfolio was, you know, I suddenly sort of developed this desire to invest in unquoted. I'd had 1.2 billion pounds invested in unquoted.

at Invesco. I'd been investing in Unquoted since broadly the end of the 90s. So it wasn't some sort of new departure for me. I'd had 20 years of experience of, nearly 20 years of experience of investing in unlisted businesses. So this was not a new departure. This was a product of me scanning the investment horizon, my investment universe, where I was allowed to go within the fund mandate and looking for opportunity, looking for valuation opportunity in that investment universe.

And so when I look at the fact sheet, 2018, top 10 holdings, Imperial Brands, Barrett Developments, Burford Capital, and then we go Provident Financial, and then there's Theravents Biopharma, Benevolent AI, BCA Marketplace, IP Group, Purple Bricks, New River Reit. So would you accept that optically it looked quite different? Yeah. And would you accept that the Woodford Equity Income Fund...

even at the most basic level, appears to be substituting potential capital gain for income? No. No, I wouldn't. Even though a lot of those are not yielding stocks or were not yielding stocks. Yeah, but I had a yield mandate. So I'd always said...

Indeed, if you look back over my track record at AdInvesco, there were stocks in the income fund and the high income fund that didn't pay a dividend. But you manage the portfolio to deliver a yield outcome or at least a distribution outcome. I think it's much more difficult to target yield. It's much easier, much easier. It's the only really practical way for an income fund to manage distribution or to target distribution.

So you can actually forecast distribution. You can calculate how much money you're going to accrue based on the dividends that you can anticipate from the portfolio. And you can target the distribution and target the growth in that distribution. So although some of the larger holdings were not income-paying stocks, some were, some weren't, the overall portfolio was delivering an income target. It does look quite different. And so your argument is that it reflected...

overvaluation in traditional areas where you might have fished. But the privates are growing in number. You have a 10% cap legally, which we'll come back to in a minute. But for example, Jupiter's CIO, John Chatfield-Roberts, I think he had a billion with you, said when we started, there were six unquoted in the fund. By the time we sold, there were 45. So the portfolio looks different and it is different in some really important respects. Yeah, we had gone from zero to 17 billion under management. So you don't keep buying...

I mean, the nature of Unquoted is typically that you are involved in funding rounds. You commit capital initially, and then you make some sort of commitments to future funding rounds.

If the fund goes from nought to 17 billion, inevitably, you can't suddenly say, well, I'll just double up on that. There isn't an opportunity to do so. So naturally, if you are growing the fund and looking for other opportunities to complement what you've already got, then naturally, you're going to grow the list of unquoted. I understand. But let's stay with the privates because, of course, it's the inclusion of the private assets in the end that are the problem.

Hear me out on this because first of all, higher level question is that was it fair to say that you saw yourself increasingly as the kingmaker of putting enterprise and capital together because you were able to do it and others could follow you? Let me just tell you why I was looking in that part of my investment universe for value.

What I saw, and I was on record, we were very transparent about what we were doing. As you know, we were the only fund management group that was publishing monthly portfolios. So none of this was a secret. This was entirely transparent to everybody who was investing in the fund, who might want to invest in the fund, or anybody who wanted to comment on the fund.

What I was saying was what I observe, and it's got worse since, by the way, is that broadly Britain's scientific establishments, whether it's Oxford, Cambridge, Imperial College or Manchester, our academic institutions and our research institutions,

lead the world in many areas. We develop cutting edge science in this country. We spin out, out of those institutions, cutting edge science companies led by brilliant people. And typically because those early days on spin outs are very tax advantage through EIS or VC funds. Typically funds can, or those businesses can raise small amounts of capital on VC funds and EIS funds, and they can start on their journey.

The problem comes two or three years into that adventure when EIS funds or VC funds have to exit because they've got time-limited investment periods or because the company has had too many investment rounds or there are many reasons. But ultimately, the early backers of spin-outs tend to have to sell.

Three to five years into the life cycle of those companies. You then have an opportunity. Well, the challenge then is for those businesses, they obviously have a desire to commercialize. Many of them are developing the technology that they first created on a lab bench in a university lab. And they are refining.

refining it, commercializing it. For example, in drug development, for example, they might be going through preclinical stages and getting into the clinic, for example. Obviously, as those companies develop, their capital needs grow. Just at the time when their early backers are exiting, there is a massive capital opportunity. Well, there's a capital challenge, but a capital opportunity. Because their capital needs are increasing dramatically, but because there isn't a ready source of finance for these companies,

The valuations that we saw in these companies with cutting edge science, with fantastic teams, the valuations were on the floor relative to the valuations of European peers, US peers, and other peers elsewhere. I saw a valuation opportunity in these companies. I talked about it. I had great relationships with Oxford and Cambridge and London University and a couple of other universities around the country had good relationships with the IP group. And increasingly, I saw an opportunity in these companies.

And I think Pete Davis saw exactly the same opportunity. And it's fair to say that during that period, I think over the life cycle of the last 25 years, I helped 20 unicorns emerge in the UK. But what I didn't anticipate and what became a bigger problem for us with this strategy was that other investing institutions,

who might historically have been there, for example, pension funds with long-term liabilities, the perfect sort of asset pools that would have been great or would have been the sort of trusted or normal, expected to be the normal partners for these businesses, were basically withdrawing from this sector. So the problem that I encountered that I hadn't anticipated with these companies is that they found it really, really hard to raise the sort of capital they needed to commercialize.

I'm saying that I therefore had to become the only investor. There were other investors. Typically, these companies had to look internationally for investment, but it became a much more challenging thing for them to do because the domestic pool of capital, which are deep and very professional institutionalized pools of capital, just decided we're not investing in anything like that.

We're going to come back to the point of contention here, which is I'm going to argue that the privates were the Achilles heel and the undoing. In the end, one quotation which was sent to me, which is, it all comes down to risk management. If the rules say you can have up to 10% in unquoted investments, then sensible risk management will dictate that you never have a number anywhere near that. Right.

Why? Because there's a sharp downdraft connected with geopolitics, for instance, which is completely unforecastable, which results in significant withdrawals in the fund. Then the illiquid holdings will, by definition, rise as a percentage of your fund, possibly in breach of the rules. So at the very basic level, Neil, if you had never had privates in that fund, presumably the fund would still be alive today. I don't know that it would, because the reality is, and I know this is the narrative,

The privates were not the Achilles heel. If you're talking about the Achilles heel, which resulted in the fund suspension, it wasn't the unquoted that caused link. I'm not actually very, even to this day, and despite now knowing many of the things that I didn't know before, I, to this day, still don't understand why they suspended the fund. Now, we're sort of going off script, but it's really important that I address this situation. The unquoted situation is,

The unquoted that we had has not formed part of the investigation into what happened. The unquoted outperformed the broader part of the quoted part of the portfolio.

So this idea that I had too much in unquoted, I couldn't liquidate them, therefore the fund had to be suspended, or this idea that the unquoted were the reason for the underperformance is just wrong. The unquoted outperformed the quoted part of the market. That created a problem in and of itself because I was seeing outflow and the unquoted element with low volatility was getting bigger in the portfolio. Remember, the portfolio went from 10 billion to 3 billion. We saw

7 billion of outflow during a period it was a two-year period if we'd have had by the way we didn't have 10 we put a limit on any more on unquoted when we got to seven and a half now i'd had 6.6 in my fund in the high income funding unquoted at imbesco so not much more than i had in the high income fund in the woodford fund the woodford income fund income and growth fund

So we did put a stop. We didn't wait to get to 10%.

The unquote is outperformed. During a period of 7 billion going out of the fund, that created a problem, as you can imagine. They're not as liquid as... They are sometimes liquid, and there's always ultimately a price for an unquoted. But if you have to sell in a hurry, you inevitably take a hit on valuation. But the point is that the unquote is outperforming. We capped them at about 7.5%, I believe, from memory. But what

But what created a problem was that the outflow meant that the unquoted were becoming a bigger portion of the portfolio. And I therefore had to keep trimming the portfolio and working hard to reduce my exposure to the unquoted to make sure they didn't breach the 10% limit, which they didn't breach. But back to my earlier point, is that if this had been an entirely public portfolio, no privates,

there would ultimately have been significantly less pressure for the found to have been wound up. You might have gone through, I was at Vantage. We were having had great numbers after the great financial crisis. We boomed and then hedged up a portfolio that was a hedge fund portfolio. And we sat there, markets kept on going, and we didn't think they could. And it was a miserable time because people said, well, they've lost their mojo, etc. You

You might have, in a public-only portfolio, have had further underperformance, but there would have been no reason for the fund to have been stopped. It's hard to know. It's a very good point that you make, but it's hard. I just don't know the answer to that question because ultimately the fund was suspended for reasons that are still not clear to me. And the fund was certainly liquidated, again, for reasons that are completely and utterly unclear to me. Well, I'm going to come back to the liquidation...

In a little bit. But let's just stay with these private companies. But the significant part of the underperformance came from the listed part of the portfolio. Remember, the reason I was under, the contemporaneous sort of backdrop was we voted to leave the European Union in 2016. Theresa May called an early election, I think in 2017. She lost the majority. We had a hung parliament.

Jeremy Corbyn was leading the opposition. And of course, there were factions within the Tory party that were very resistant to Theresa May's version of Brexit.

We had paralysis, political paralysis in Parliament. And as a result of that paralysis and of the crisis, the constitutional crisis that unfolded in the UK, the UK stock market went through a very difficult period. And particularly domestic, anything focused on the domestic economy was smashed completely.

My portfolio was very focused. My quoted listed portfolio was very focused on the valuation opportunity I'd seen in the UK market post-Brexit when domestic stocks fell out of bed. I shifted the portfolio away from the sort of thing that Tyrell was talking about, the sort of AstraZeneca's bats and Imperials, shifted towards the valuation opportunity I'd seen in the stock market, which was in middle to small cap, basically. The companies that were very focused on the UK economy.

And that was the bit of the portfolio that really underperformed. And that was the pit that really drove the performance piece in 2017. And thereafter, we went to that very difficult period whilst there was paralysis in Westminster. And that created a very difficult headwind. And that, in large part, was the reason for the $7 billion of outflow.

And of course, the media's inexorable focus on what was going on in the portfolio. Okay. So back to my mountaineering analogy, you're now descending rapidly into the crevasse, metaphorically. And you've got these private companies, which are clearly a headache because of the breach of the 10%. And you then make this move to list some of them in the Channel Islands. Yeah. We didn't breach the 10%.

What we did was we had a challenging period, as I've said, 7 billion outflow, our unquoted portfolio that was outperforming, but we couldn't allow it to breach 10%. Yes. Okay. So you list some of these companies on the channel lines, which within the letter of the law, but not perhaps the spirit of the law, Andrew Bailey of the FCA said later to the parliamentary inquiry that you were sailing close to the wind. At that point in time, how did you think about what you were going to do? Yeah.

And I'm talking about the listing. What were your options? Well, we made it very clear to the companies that we had big investment, the unlisted companies. We said, we cannot continue to support you if you don't. This wasn't Woodford's decision. We can't list a company in the channel lines. The companies made the decision to list in the channel lines. This is, again, another myth. What we said to the companies, like Benevolent, for example, was,

We are one of your most important funders. We cannot continue to support your business. When you come to the next funding round, we cannot give you any more capital. We are up against our limits. Okay. So if you want our support going forward, you have got to find a way to become a public company.

It's up to you. We're just telling you that's the situation. So the alternative for us was don't fund, don't increase your investment, stand back. The companies then responded to that. So Benevolent, for example, and others listed on ties in Guernsey. Now, we asked our internal legal, we asked the depository, Northern Trust, and we asked Link, this is what these companies are doing.

Is this consistent with what you believe we're allowed to do? Is this something that we are permitted to do? We didn't do anything until we were told, yes, you can do this by our depository, by link, by our external legal opinion council. And as a result, we were able to retain holdings in those businesses, which we would otherwise have had to sell or

And we certainly couldn't have supported, not all of them, but we certainly couldn't have supported them if they had remained private businesses. That was the situation. So if this had been a hedge fund structure, there's a term for those who are less familiar, which is gating, which is that, you know, the manager would have shut the fund down temporarily and that would have prevented outflows, but could have allowed for a more orderly, you know, unwind. You didn't have that option because of the structure. I just want to talk about your board. How did you view your board? At Woodford. Of the fund. So I'm talking here about Woodford Equity Income and...

There wasn't a board of the fund. Okay. So we're going to talk about patient capital. The patient capital was the board. That was the board. Okay. So let me ask that question then because we're going to talk about patient capital in a minute. How did you view the board and their role? I think we had some good people on that board, really good people. There were some people on that board who I had known from businesses that we backed, for example,

I forget her name. She was the CEO of BTG, which is a business that we backed and that had ultimately been taken out by a US company for a substantial premium. She was really helpful. The CEO of a company called Sucasio was on the board. So,

I think a cynical perspective, well, this was a board appointed by Woodford. I mean, I didn't appoint the board, but nevertheless, we invited people to come onto the board for patient capital. We wanted people on the board who had experience of the sorts of businesses that we were investing in, in patient capital. We wanted people on that board who'd walked that journey, who'd been on that journey of what it's like to have a science and technology business that needs to raise capital and go through multiple rounds.

and ultimately commercialize a new technology. We felt that those sorts of people, rather than sort of investment trust experts, would be the people who would give us lots of valuable insights on when we encountered issues or problems. They would certainly understand the strategy and they would certainly understand the businesses that we were investing in.

Would it be fair to say that strong world fund managers don't really like their boards? I was told somebody didn't want to join Terry Smith's board because they thought they wouldn't be able to be heard. I saw it up firsthand. I get the impression that there was some acrimonious or heated exchanges in your boardroom, particularly when patient capital was debating taking positions in from the Woodford Equity Income Fund. Again, the transaction you're talking about is when we were up against the outflow,

We did all we could to maintain and support the businesses whilst keeping to the fund strategy, maintaining liquidity, maintaining the fund within the limits and meeting redemptions as and when they fell due without harming price, which is a very important test. And we did that throughout the period through transaction cost analysis. Anyway, the point is that we were doing a number of things with respect to patient capital.

What we had in patient capital was a mandate to invest in science and technology businesses. Some unquoted, some listed, but there were limits on how much we could have in unquoted in the fund.

We were below those limits as the income fund was seeing outflow. And what we thought was, well, to ease the pressure on the income fund, we could swap some of the direct quoted investments for an investment in the income and growth investment. Sorry, the patient capital investment trust, which was a liquid mid cap investment.

So we could swap illiquid investments that were already in the patient capital investment trust. We could swap for a holding in patient capital investment trust. Again, this was something that we thought about. It would ease the pressure on the income fund. It would avoid the need to have to sell down some of the unquoted at prices that would have harmed investor value. And we thought that it was an appropriate transaction. We put that case to the board of

Patient Capital Investment Trust. And of course, we had to get Link's approval because Link is the fund manager. Link is the regulatorily responsible party. So this wasn't our decision. This was a decision made by Link, their legal advisors, and the board of Patient Capital and their advisors. And they all had separate advisors. We made the proposition that

those boards decided what to do. Now, there were discussions that took place. I mean, I wasn't a party to discussions with Link. I was, you know, on the board meetings. Not all of them because some of them were held, obviously, in absence of any people from Woodford Investment Management.

for understandable reasons. But the board came to that decision. There were some grown-ups on that board, lots of grown-ups on that board, who were perfectly capable of saying, no, we don't like this. But they approved the transaction. Their lawyers approved the transaction. Link's lawyers approved it. So we did it. This wasn't something that we forced through on the people who had independent legal advice and the authority to say, no, we don't want to do this. This is not something that we're comfortable with.

So the shutters come down. Suddenly, you know, your links say it's all over and they're shutting the fund and then moving to close it, you know, sometime after that, which then leads us to

The fire sales, and I'm going to call them fire sales because I have spoken to one company in which you were invested and the CEO said, you know, Link had no idea. They ended up selling these assets way too cheaply. And by the way, that CEO did also say that in your financings, there are businesses in the medical area today serving people and helping therapeutics that wouldn't exist had you not funded them. So,

So that was just an observation that I thought I would share. But Acacia, I think was a US entity, ended up buying a series of these private assets. I think you were hired as a consultant to give them some advice later on. They ended up making a very handsome, very quick return on a number of those assets. What were your observations on that process?

Let me go back a bit. So the fund suspension, as I've said, I'm still not clear why Link decided to do it. Given the nature of what I'm going through at the moment, I can't tell you why the information that I have creates that level of confusion because I am confused. But nevertheless, as Andrew Bailey said after the fund suspension, fund suspensions are legitimate mechanisms that

to protect the interests of investors. They should not be demonized. Words to that effect. The fund suspension, I mean, there are hundreds of funds that suspend every year. We suspended. In my view, it wasn't inappropriate. It wasn't necessary. But nevertheless, the fund was suspended.

The travesty was the forced liquidation of the fund, which happened four months later. Now, I won't bore you with all the things that happened between June and early October, but basically, we were told in a meeting, you're fired, no warning, the fund's being liquidated, you're fired, it's the end, cheerio. And Link told us, we're now the fund managers, you're not the fund managers, you're not the fund managers.

And our revenue stream, of course, ended at that moment with no notice. Now, that was the thing. That was the event that crystallized

the investor losses. As you know, underperformance can be recouped through outperformance. And the fund would have performed, as we well know. It was structured to perform, and it was performing. Indeed, the two days... So we were told on the Monday, okay? On Monday, October, the something. I can't remember the precise date. It was a Monday. It was a meeting in London at Lynx offices. On the Thursday and the Friday before that meeting, I'd had the best two days I had ever had as a fund manager with my portfolio. And that was because...

the Tory party had elected Boris Johnson to lead the party and the view suddenly was my god Boris can win a general election against Jeremy Corbyn and for obvious reasons which we won't get into but that completely changed the perspective on the UK market and suddenly domestics were back in fashion and I as I've said I had an outstanding Thursday and a Friday with the portfolio.

So the travesty was the forced liquidation. That crystallized the underperformance. But worse than that, of course, we believe that there was a fire sale of the assets. Now, some of the assets that the fund was liquid had a huge exposure to FTSE. By that time, I had, under instruction, changed the profile of the portfolio through that four-month period, June and summer, and the portfolio was very liquid in the October period.

But Link decided to fire us and liquidate the portfolio. Now, it's easy to sell FTSE 100 positions. We deliberately structured the fund, had a lot of cash, had 90 odd million of cash, and it had 60 odd percent of the portfolio was in FTSE 100 companies or positions that could be liquidated in a day.

The rest of the portfolio was in more tricky to liquidate situations, situations I knew well in small, mid-cap, and unquoted. And that's where the damage was done. And the damage was done because Link really didn't know what they were doing. I agree with what that CEO said. And the transaction with Acacia took place, I think, in the following March.

And if you remember, March 2020 was the bottom of global markets during that first part of the COVID crisis.

The pandemic had started in January for every time and markets had absolutely collapsed. And on March, I think it was about the 23rd, markets bottomed and then rallied. The transaction took place on the 23rd of March between Link and Acacia. And my understanding is, from my conversations with Acacia, is that Acacia had covered the entire book cost of the transaction before they'd even paid for it.

by selling on parts of the portfolio at much higher prices than they paid for them when they bought them from Link. And just so we're clear, the Financial Conduct Authority investigated Link Fund Solutions subsequently and required them to make a £235 million payment to investors following what they described as critical mistakes and errors, with the result, because they said the fund failed to have a reasonable and appropriate liquidity profile.

So before we continue this conversation, we're going to take a short break to have a note from our sponsors. IFM Investors is a global asset manager founded and owned by pension funds with capabilities in infrastructure, equity and debt, private equity, private credit and listed equities. They believe healthy returns depend on healthy economic, environmental and social systems. And these are evolving on a scale never experienced before.

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So let's talk about patient capital. Listed Investment Trust, its investment objective centered on achieving long-term capital growth through investing in a portfolio primarily UK companies with significant potential for innovation and disruption. Now, Neil, we have to wind back quite a few years, but I was in a meeting with you and I asked you if I was committing some of my own personal money into one of the three funds that you're running, which one should I invest in and use it without doubt, patient capital?

I remember the meeting very well because somebody else did the same thing. Now, patient capital still exists today. Schroeder's manager has a different name. It still exists. It's down 90%. So I'm the loser, as you might gather, not such a sore loser that we can't talk to each other. And even today, the portfolio, because I have a portfolio here, it's very similar. Atom Bank, Oxford Nalapore, Revolut, names that you owned, and many of which are household names. But

The value is, and the performance has been, shocking. And doesn't that come all the way back to the earlier observation, is that you have been extremely successful in the listed space with bigger companies. And the venture into the developing, emerging, exciting, but often unproven, has proved significantly less successful. I think that's a fair conclusion. But there are a couple of points.

By the way, I put my entire pension fund in the Patient Capital Investment Trust. So I, like you, suffered a poor return. No return. There are a number of points. I think, first of all, the nest asset value performed much better, but was still poor, very poor. The circumstances surrounding the trust were really not helped at all by what happened to Woodford Investment Management. I mean, the fact is that we were fired and Schroders took over.

They did change the portfolio. We didn't own Revolut or many of the other things that they bought. Now, there are some legacy names still in the portfolio. And I'm not suggesting at all that Schroders have done a bad job. I think they've done an okay job. But the problem, I think, is that...

Many of the businesses had lots of potential. Many of the technologies that we backed still have lots of potential. But what they need, you cannot turn great investment ideas, you cannot turn great technology into commercial value without capital backing. It's the missing ingredient that this economy and our industry has failed to sort of recognize fundamentally.

We sit here scratching our head wondering why we haven't got a Meta, why we haven't got an NVIDIA, why we don't have a technology sector in the UK. Everybody jumps up and down about ARM or Oxygen Anapol, for example, but pretty much those are the only two names that they can come up with. The fact is that we lead the world in science and technology in our research institutions, but we fail to produce a commercially viable technology sector.

And the reason is because the finance industry has failed to provide capital to those businesses. Because you can't turn great technology into commercial reality without that missing ingredient. And that is the gulf that I stepped into, seeing an amazing investment opportunity. What I failed to understand and what I hadn't anticipated is that there will be a Gadarene exit soon.

of UK investing institutions, long-term patient capital investing institutions from that space. So I ended up sometimes backing the wrong technology, but equally being an investor in that space and finding that the businesses that we backed, some of which were incredibly exciting businesses, couldn't get the capital to commercialize. And as a result, went into some sort of hibernation mode.

So in fact, Peter Harrison, who's just retired as the CEO of Schroders, who of course bought Patient Capital, said this, which is right on the nub of it. The issue you were addressing, how do we get equity growth capital to the hundreds of great small and mid-sized companies which are coming out of universities, has become even more pressing in the UK due to the lack of UK risk capital. Is there a solution and how would you address it?

There is a solution, but it requires bold moves by the government. And in a way, that was what the patient capital review was set up to do. We've been here numbers of times when we've addressed this challenge. So just a bit of history. I had a good relationship with Jeremy Hayward, who was the cabinet secretary to many UK prime ministers, I think five or four. So I developed a good relationship with Jeremy. He understood this problem. I had regular meetings with Jeremy to brief him on the challenge that the UK science and technology sector was confronting.

He bought into that idea and he was the catalyst that created this patient capital review, which ultimately resulted in a budget measure to put two and a half billion aside of taxpayers' money into, I think, the British Business Bank. This was back in 2016, 2017, to be deployed to sort of help fill this void that had been created by the exit of long-term patient capital pools from this sector.

And of course, the intention was there. Lots of very sensible and wise people contributed to that review. All of them highlighted this problem. The government tried to present a solution. But as is often the case with government initiatives, the people that they appointed to deliver this better outcome with this pool of capital failed to execute. And they ended up not doing the very thing that really they should have been mandated to do. And I'm not sure that they were equipped to do it either.

The British Business Bank, they had no experience of investing in early stage science and technology. The government was reluctant, I think, to hand over the portfolio management of that pool of capital to people who did have experience. And as a result, it never really worked.

was deployed appropriately in that space. So the government's tried and failed to solve this problem. What they have to understand is that there is market failure, first of all. It's not often that I would advocate government stepping up to address a market failure, but there is clearly market failure. UK long patient pools, deep patient pools of capital in the UK have completely exited UK equities, let alone private markets in the UK.

They need to be encouraged and I think mandated to invest in the UK. They are benefiting from tax breaks that the taxpayer funds. The contract should be that they, in my view, should be forced, mandated to invest in this sector. They're not going to be able to solve it overnight because investing in this space requires a lot of experience. You've got to have a risk appetite that can embrace things that don't go well, things that fail.

But ultimately, we will not solve this major long-term economic challenge to the UK that we don't have a commercial science and technology sector of any scale. We are not providing the state with a return on the investment that it puts into our research and academic institutions. That money is just money effectively down the drain, effectively. We're developing lots of very smart academics who take their technology over to the US and commercialize it there. And the value accrues to other economies. It doesn't accrue to the UK.

I mean, that's a broad and probably generalization. But nevertheless, that is the truth. Now, it needs to be resolved. And I believe the government can take and should take a lead. As I said, deep pools of capital. We don't lack capital in the UK. The capital is there. And a tiny fraction of what those long-term pension fund assets deploy in other financial assets would transform the prospects of this sector in the UK.

And I think that we know the UK pension fund assets invested in the UK is now sub 2%. So it's been an extraordinary 40-year journey for all sorts of reasons that we're not going to go into now. Before we get into that looking ahead, I mean, we're coming out of the crevasse here, Neil. For those, and we know people who invested in the early made handsome returns, but for those who had the losses that they suffer, what would you say to them? There isn't a day that goes by that I don't think about the poor investment returns that investors who back me

It weighs on me, I would say, every single day. And it's a burden that I'm going to have to take with me.

the history of what happened. I mean, you've asked me today a number of questions, which I think are the product of misapprehensions. And I tried to sort of illustrate exactly what happened. I am constrained. I can't give the full unvarnished truth, unfortunately, because I'm subject to an FCA investigation. My burden is I underperformed as a fund manager. I did not deliver the investment performance that I had hoped to deliver. I had three good years and then two very poor years.

But what I was denied was the opportunity to repair that.

by the events of the fund suspension and the forced liquidation of the fund. That no fund manager, all fund managers go through periods of underperformance. What they want to have is an opportunity to repair that in time when their strategy comes to work. That's what I believe would have happened. I think it's very obvious how that would have happened. And indeed, we tracked the performance of the fund post the events that occurred in 2019. And I think my investors would have said, thank you.

If that had happened in a parallel universe, if that had been permitted, then maybe we could have done a much better job and delivered much better returns to you, Simon, to my own pension fund, and to all those investors who backed me, who nursed, you know, and who've taken a hit to their wealth.

So let's do this base camp looking ahead. We talked to sort of a UK problem. There isn't a day goes past when somebody doesn't write something in the papers again about the lack of listings in the UK or the delistings. Although I see, I think it was the president of Apollo last week who came up with a number, which is that there are only half the number of listed US companies than there were 20 years ago. It's a global phenomenon of this.

you've been in that public listed space in the UK equities, obviously very successful. Which are the one, two or three sectors that you would want to own with a clean piece of paper today? And maybe the one, two, three names that would be absolutely the first ones you'd buy. Bit of background.

I remain more optimistic about the outlook for the UK economy than consensus. I think there are some important things that the consensus just isn't really focused on. Clearly, we've had a difficult six months in the UK economy post the budget, and the economy is broadly flatlined.

I think it will grow through the remainder of 2025, and I think it'll accelerate in 2026. And the reason is because I think, fundamentally importantly, we're still seeing good real wage growth in the UK. We've got relatively full employment. I mean, we have over 9 million people who are economically inactive, but nevertheless, we have 4%, just over slightly 4% unemployment in the UK, which is very low in the context of 2030 history.

People in work are enjoying good real wage growth. We have a level of consumer borrowing which is at historic lows. What we have, though, is a relatively high interest rate environment, which is, I think, tilted inappropriately the balance between borrowers and savers. Interest rates are too high. That has encouraged people to save more and consume less.

And I think through 2025, the reductions that we're going to see in base rates down to three and three quarters, maybe even lower, will rebalance the sort of economic interests of borrowers and depositors effectively. So the incentive to save will diminish, the incentive to borrow will improve. And at the moment, deposits are growing about 5%, loans are growing at 1% to 2%. Now,

That tells me that the rate environment is wrong and you need to rebound. They need to be growing roughly in line with each other. I'm not at all advocating the 10% loan growth that we saw in the noughties, but absolutely not. But clearly 1% is just not high enough for an economy that needs a bit of momentum from the consumer. So my guess is with lower rates, the consumer will start to open their wallet

and we'll get more consumption growth in the UK. That will lead the economy. It will be a consumption-driven, better growth environment, despite the headwinds that we're obviously seeing in terms of an upward blip in inflation and higher taxes. But importantly, one thing that the government will be doing this year is spending a lot more money

And that's going to provide an engine of growth as well. I don't think it's the right policy, nevertheless, but it will inevitably help the economy in 2025. So we're going to see a three quarter percent about growth from government spending. So that combined with what I see happening as rates come down gives me confidence that the economy will do better than the very gloomy consensus.

And so what do you want to own? So what do I want to own? I want to own house builders. I want to own banks. And I probably want to own building materials, which have had a torrid two years.

Got it. There's three related sectors. Okay. Now you have, and still no oil, so BP is very cheap. It's very cheap. I'm not sure I have a huge level of confidence in its leadership, but it is very cheap. It is very cheap. In an international context, it's ludicrously cheap. Okay. Well, I'm an owner, so there you go. That's my declaration. You've been writing in your Woodford blogs, and we're going to come on in a second to the next chapter, but how would you...

summarise the position vis-a-vis China? Well, China's very interesting. You know, I remember Anthony Bolton shifting in a Woodford-esque sort of style, maybe, but an incredibly successful European for manager. And then he went over to China and he actually had lived there, I think, briefly in China.

His initial performance was poor. I think he performed much better later, but that's history. But nevertheless, I'd sort of looked at China. I'm an interested observer and very fascinated by the sort of economic miracle that's unfolded in China over the last 25 years. Inevitably, it's become a vibrant and dynamic and very developed economy in many respects, even though some would argue that it is still a developing economy.

With all the caveats about China, you've got to get comfortable with the political system. You've got to get comfortable with the state control of many aspects of private enterprise or control of the economy. It's a very different political economy from the US or Europe.

And there are risks associated with unforecastable interventions, for example, in individual companies. We've seen that in the recent past, obviously, with Jack Ma and Alibaba, for example. But I've been to China many times in the last two or three years, and you can't not be impressed with what's been achieved.

Now, the stock market has had a disastrous 10 years. The economy has continued to grow, if you believe the official data, but profits have been very poor. And in part, that's, I think, a product of the structurally low profitability of the large state-owned enterprise sector. But nevertheless, within China, there are many leading global technology companies and companies that lead in other sectors like EVs, for example.

And these are not state vehicles. They are entirely privately owned. Some of them are listed in the US as well as being listed in China. But there are a broad range of very large, very dynamic, high quality companies with good balance sheets with forecast strong growth.

and yet they're trading on ludicrously low ratings. And I see that as an opportunity. Now, China, after 10 years of very poor performances, has been described by some very respected global investment banks as uninvestable.

And that, for me, always sort of gets the sort of, hang on a second, there must be something interesting here. If people are deserting the market and now believe it to be uninvestable, there's got to be something interesting going on there. And my view is that the ratings...

more than discount the risks associated with investing in China. I think there is a broad portfolio of very exciting companies that are growing very nicely. Some of them have performed very well since September, but I think they have lots of headroom. Well, and the Jack Ma handshake last week and the reintroduction maybe sends a stronger signal than was picked up by many. Neil, I know the FCA haven't finished their investigation, five and a half years and counting seems extraordinary to me, but what can you and what can't you do?

What I can tell you is that I am fighting the FCA's case, okay? They've outlined their case publicly, and I disagree with every single aspect of what they've said. I'm not saying here that I'm not responsible for the underperformance. I'm not saying that at all. I'm not saying I wasn't responsible for the underperformance. Clearly, I was. But what I have been accused of, I believe, is wrong. So I am fighting that case. It's been a long fight, and it will go on.

There are events coming up in the next few weeks and there'll be another stage of the investigation thereafter. But the fight goes on. It's been, as you can imagine, an incredibly difficult period.

post the events of 2019. It's been going on, as you say, for five and a half years. It'll be, I think in three months or so, it'll be a six year anniversary of the fund suspension and the launch of the investigation. So it's been a painful period for me, but I have become acclimatized to it. You know, in the end, you do become acclimatized to these things, extraordinary though they are. And I am acclimatized to the fight and that's what's going on. Your investor or investment appetite hasn't diminished significantly

How would you like to see yourself five years hence?

I would like to be doing what I'm doing now, but on a bigger scale. So what I am doing now is I have a blog and I'm enjoying writing about investment, about the economy, about anomalies, about things that I think are really interesting in this eternally fascinating industry that we're in. The responses I get are very encouraging. I've had great feedback from the blog. People like what I'm writing.

I'm getting a slightly more controversial recently. You know, I come from a background of having been constrained by,

regulatory oversight, you know, risk and compliance, et cetera. All of those things had an impact on what I was able to say through my fund management career. Now I have, I'm getting acclimatized to the sort of the freedom to say more of the things that I've wanted to say. I'm enjoying that. So that's what I'm going to be doing. And that may grow into other sorts of activities as well. Well, as reminded, JK Rowling said, rock bottom became the solid foundation on which I rebuilt my life.

So I thought about how I was going to conclude Dale today because...

This has been quite a long project. We've talked about having an interview over a number of years. And I think three investing lessons that we should remember, the Money Mates podcast tries to share insights and thoughts and give advice. Number one, we as investors must always diversify our investments. Number two, Howard Marks, who we've just interviewed, who is an extraordinary fund of wisdom. And as we were saying before, he's really Buffett-esque, said, there is no place in our profession for certainty because we live in an uncertain world.

I think it's very important for one's success and self-protection to be extremely, brutally frank about all the stuff that you don't know. I think that applies to me. I would say it applies to you. And number three, investing is, has, and will remain an activity aimed at making us more money than cash. And its pursuit is inevitably marked with periods of great happiness when it works and episodes of profound despair when it doesn't. So there was a quotation I found by C.S. Lewis who said, you can't go back and change the beginning...

but you can start where you are and change the ending. So Neil, thank you so much for your time today. And I wish you and your family the best for your endeavors. Thank you very much, Simon. Thank you.

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