The Schroder British Opportunities investment trust is set to launch on 1 December after it managed to raise the minimum £75 million it needed from investors ahead of its IPO.
Net proceeds are expected to be £73.5 million, equivalent to a net asset value (NAV) of 98p per share, but the figure is well below the £250 million the trust had hoped to raise.
It comes after two other investment trusts, Tellworth British Recovery & Growth and Buffettology Smaller Companies, pulled their launches after failing to raise enough interest.
The fund, which will trade under the ticker ‘SBO’, seeks to invest in high quality growth companies in the UK small and midcap space, both public and private, with a market value between £50 million and £2 billion. It will charge a management fee of 0.6% a year.
The focus will be on companies with sustainable business models that may require additional equity to maximise their growth potential or return to their previous growth trajectory.
‘ONCE IN A GENERATION OPPORTUNITY’
The fund will be run by Schroders head of equities Rory Bateman and head of UK and Europe private equity Tim Creed, who said the attractive valuations on offer in the UK market right now – thanks to both the pandemic and Brexit – present a ‘once in a generation’ investment opportunity.
Bateman, who will run the part of the portfolio investing in listed companies, told Shares the ‘short-term horizons of many active asset managers’ has resulted in many ‘compelling’ opportunities among high quality but unloved small and mid caps.
He said, ‘There’s been a lot of uncertainty in the market, really in the past four years since Brexit and international investors – who love British companies – have been shying away at the moment. But we’re a great nation of entrepreneurs, and when we get clarity on a vaccine, and clarity around Brexit negotiations, the pound will strengthen and I think we will see domestic UK companies doing very well.’
While the managers aren’t able to give any names of stocks that could be in the fund, it will have a bigger weighting towards tech, healthcare and education, and also have exposure to industrials, financials and consumer stocks.
FRESH EQUITY A ‘DIFFERENTIATING FACTOR’
Creed, the manager who will run the private part of the portfolio, said the injection of capital they will put into businesses through ‘fresh’ equity is an important differentiating factor for the trust.
He said, ‘Debt doesn’t finance really big growth, so that’s why we’re looking to put fresh equity into companies. There is a real need from small and midcaps for fresh equity to maximise their growth potential or return them to their previous growth trajectory.
‘That equity is crucial to future growth and innovation for these companies, and without that there is a real risk that UK knowledge, intellectual property and insights will be lost, with the UK suffering a permanent loss of capital value. It helps these businesses capitalise on innovation and drive long-term value.’
The managers insist the companies in the portfolio won’t be distressed and will have strong balance sheets. Instead, Bateman said the trust will do ‘what the stock market is supposed to do – put fresh equity into businesses.’ He added that most will also have double-digit returns on capital and compound annual growth rates.
Analysts at broker Numis said that ‘whilst it is a good result to get an IPO away’, its £75 million of assets means the fund is ‘small and will need to grow to put itself under the radar of a wider investor base.’
The analysts add, ‘It gives Schroders an opportunity to build a public/private portfolio with a clean sheet of paper, whilst Schroder UK Public Private (formerly Woodford Patient Capital) was encumbered by a legacy portfolio, which was highly concentrated and heavily focused on healthcare.’