Woodford Faces Muddy Waters Fire as Short Seller Targets Holding
Woodford Faces Muddy Waters Fire as Short Seller Targets Holding
(Bloomberg) -- Bad news just keeps hitting embattled stock picker Neil Woodford.
Famed short seller Muddy Waters revealed its latest target is Burford Capital Ltd., which counts Woodford Investment Management among its top holders. Led by Carson Block, Muddy Waters also named Woodford’s protege Mark Barnett, a money manager at Invesco Perpetual, in its report that criticized the company’s financial reporting and governance.
An Invesco fund managed by Barnett invested in a struggling U.S. company that had borrowed money from Burford, allowing the company to repay that debt and Burford to say that it had made an outsized profit on its loan, Muddy Waters said.
“Absent the bailout, the case almost certainly would have been a total loss," the short seller wrote in its report. “Not only do we view Burford’s management as having acted highly unethically in this instance, but we also see Invesco fund manager Mark Barnett as having been equally complicit in ways reminiscent of some of the highly aggressive marking value techniques he and Neil Woodford have employed together.”
Burford, which provides cash to law firms or plaintiffs to finance lawsuits, dropped by as much as 66% in London trading Wednesday after the report was released, erasing about $2 billion in market value. The stock has previously been an investor darling, rising 1,021% since listing in October 2009 through Tuesday’s close. Among analysts tracked by Bloomberg, eight out of nine rate the stock a buy or equivalent.
Invesco said neither Barnett nor the firm did anything improper or unethical. “Invesco’s legal advisers are reviewing the accusations and we expect we will be able to make a broader statement in due course,” the firm said by email.
A spokesman for Woodford declined to comment.
Woodford, one of the best-known U.K. fund managers, is under pressure to liquidate his holdings so he can reopen his flagship fund that he froze in June. Since he suspended redemptions, his investment decisions have faced scrutiny and some of his oldest supporters have deserted him.
Woodford is the second-largest holder of Burford shares after Invesco, with a 7.45% stake as of Aug. 2, according to data compiled by Bloomberg. As of September, GAM Holding AG was the biggest holder of the about $620 million of bonds Burford has issued since 2014, according to fund filings compiled by Bloomberg.
“Based on the publicly available information the investment case from a credit standpoint has not changed,” according to Gregoire Mivelaz at Atlanticomnium SA, a Geneva-based asset manager that oversees some of GAM’s funds. “You have some allegations and now you have to give time to the company to react to that,” he said in a phone interview.
Mivelaz said GAM’s holdings had changed since the fund filings last year, without elaborating.
Burford responded by saying it will review the report and respond as rapidly as possible, adding that it has never been contacted by Muddy Waters.
In a statement before the report was published, the firm said its cash position and access to liquidity is strong and that it is investigating recent market activities and “will take appropriate legal action should we discover actionable misconduct.”
London-based ShadowFall Capital & Research disclosed a short position in Burford in a tweet on July 25.
Short sellers have picked on some of Woodford’s high-conviction holdings, including his bets on companies such as biotech firm Prothena Corp., Allied Minds Plc, a venture capitalist, Capita Plc and Kier Group Plc, according to data compiled by Bloomberg.
Woodford sent shock waves across U.K. financial markets with his decision to block investors’ cash in his main fund. He’s told investors that the fund may remain locked until early December. Woodford has sold some stakes including those in BCA Marketplace, NewRiver REIT Plc and Oakley Capital Investments, according to company filings.
Woodford first invested in Burford in June 2014 and Muddy Waters said in the report that he was responsible for Invesco’s initial investment in the company when he was a portfolio manager there.
--With assistance from Suzy Waite, Lucca de Paoli, Thomas Beardsworth and Irene García Pérez.
To contact the reporters on this story: Lisa Pham in London at lpham14@bloomberg.net;Nishant Kumar in London at nkumar173@bloomberg.net
To contact the editors responsible for this story: Shelley Robinson at ssmith118@bloomberg.net, Sree Vidya Bhaktavatsalam
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