Ruthless vulture funds are circling companies backed by Neil Woodford in a bid to make a killing if their shares plunge.
The fallen investment star’s holdings are seen as soft targets because he is currently trying to raise millions of pounds in a hurry.
Now hedge funds are betting that a fire sale by Woodford, 59, will drive down the price of some of his top assets – allowing them to make money when shares fall.
Smelling blood: Fallen investment star Neil Woodford’s holdings are seen as soft targets because he is currently trying to raise millions of pounds in a hurry
Companies being targeted include lawsuit funding firm Burford Capital, kettle parts maker Strix and construction company Watkin Jones.
The threat underscores how ongoing turmoil at Woodford’s investment empire is hammering many of his investments as well – making it harder for him to raise money to pay back savers.
In a brutal blow this week, Wall Street hedge fund Muddy Waters cut the value of one company backed by Woodford in half after accusing it of being ‘arguably insolvent’ and having ‘laughable’ corporate governance.
The attack on Burford Capital led investors to wipe £1.1billion off the value of the firm.
Yesterday Carson Block, the founder of Muddy Waters, said he and other short-sellers were targeting Woodford’s holdings because many of them were not in areas of the fund manager’s traditional expertise, meaning they are seen as possible bad picks.
Short-sellers place bets against company’s shares and make money if they fall in value.
Block said Woodford had a successful track record in investing in big companies such as retailer Next and Lloyds, but this was not the case with smaller firms.
Woodford has come under repeated criticism for the number of holdings he has in smaller companies, which often have stock that is more difficult to trade and therefore hard to sell quickly.
Block told the BBC: ‘Short-sellers do definitely look for where Neil Woodford is invested, especially where he is invested outside of large-cap value.
He does not have a great track record in life science, some of these smaller-cap stocks. So there’s always the temptation to go looking where he’s been invested.’
Woodford’s strategy of taking large stakes in those firms he supports could also backfire, as it makes it difficult for him to offload shares in large numbers without devaluing the stock.
Analysis by the Mail has found a host of Woodford’s investments have been targeted by short-sellers in recent years, including healthcare firms Circassia Pharma, Midatech Pharma, Sensyne Health and online estate agent Purplebricks.
Woodford banned savers from pulling money out of his flagship Equity Income fund in May when too many backers tried to exit at once.
It left him without enough ready cash to refund them. He is now overhauling his portfolio to move more cash into bigger companies that have shares that are more easily tradable.
Woodford has apologised to investors for the fiasco but has so far rejected calls to give up the lucrative management fees he is making from clients, thought to be £100,000 per working day.
He stands to rake in £12m during the fund’s closure if it remains shut until December.
His spokesman said he was focused on ‘repositioning the portfolio’ and so still required the fees to be paid to fund his operations.
Woodford has decided not to take any income or dividends from the company while the fund is suspended.