‘Embarrassing’ admin error hits ex-Woodford investment trust

Schroders misvalues BenevolentAI for five months, leading to unwelcome drop.  

A valuation error has wiped 6.7% off the net asset value (NAV) of Schroder UK Public Private Trust (SUPP).

In a note to investors last week, Schroders revealed that due to an “administrative error” it had not updated the valuation of biotech firm Benevolent AI (EURONEXT:BAI) since it was listed on the Amsterdam stock exchange in April via a merger with a blank cheque acquisition vehicle, or SPAC.

The trust was formerly Woodford Patient Capital, but Schroders took over management following Neil Woodford’s resignation after he was fired from managing Woodford Equity Income in 2019. It is now called Schroder UK Public Private.

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BenevolentAI was a favourite stock of Woodford. It uses artificial intelligence to discover new drugs and is headquartered in Cambridge.  

Numis, the trust analyst, said: “This is an embarrassing announcement for the fund, with a write-down reflecting the incorrect valuation of Benevolent AI since April, reducing the NAV by 6.7%. This will do little to improve sentiment towards the fund, which trades at 18.7p, a 44% discount.”

Shares in SUPP have been in free fall this year and fell another 4% in reaction to the news. They are now down nearly 50% in 2022.

Benevolent AI was the third-largest position in the trust at 6.5% of the portfolio, as of the end of 2021, the latest data available. BenevolentAI shares have fallen nearly 60% since the SPAC merger in April this year.

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SUPP’s NAV per share fell 2.41p to 33.59p after Schroders updated the figure. It said: “It has been identified that, due to an administrative error, the valuation of the company's holding in BenevolentAI has been held at the valuation on the date of completion of the transaction with Odyssey [the SPAC vehicle] and not updated for the quoted price on a daily basis since 26 April 2022.”

The trust has taken steps to improve its valuation and fund administration process. With effect from 1 October 2022, and subject to regulatory approvals, Schroder Unit Trusts Limited will be appointed as the company's alternative investment fund manager, replacing Link Fund Solutions Limited.

At the same time as serving notice on Link, the trust also served notice on Northern Trust to terminate their fund administration and depositary agreements.

The company will appoint Schroders and HSBC to provide fund administration services, and HSBC to provide depositary services, with effect from 1 October 2022.

The Times reported that officials from the Financial Conduct Authority (FCA) were looking into the valuation mistake.

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Schroders commented: “We do not have responsibility for portfolio valuations – we are not involved with this aspect of the trust’s operation.

“The trust’s board announced in July that it intended to replace Link, which has been overseeing administration and compliance functions including the calculation of NAVs, to Schroder Unit Trusts Ltd.

“From 1 October, Schroders, supported by HSBC, will provide this service to the trust, subject to regulatory approval. This is the well-established operating model used where Schroders serves as a portfolio manager for other investment trusts.

“We discovered the issue as part of this migration process. We immediately took action to ensure that Link corrected it and updated the trust’s independent board and the market.”