This is a non-independent marketing communication commissioned by Schroder Investment Management. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
Schroders took on the management of the newly-named Schroders Capital Global Innovation Trust (formerly Schroder UK Public Private Trust) in December 2019. The journey since then has involved a lot of work and many hurdles have been overcome. In many respects, our transformation of the portfolio remains a work in progress, but the recent name change provides a valuable opportunity to look back on the important steps forward that we have taken and reflect on the prospects that await the trust.
In the early months, our key task was to get our arms more firmly around the portfolio by understanding the underlying holdings in much deeper detail. It was evident from the outset that the legacy portfolio contained a few real gems, some of which are still held today, but other assets have required greater input and careful nurturing. Against the backdrop of the Covid pandemic and a global economy in lockdown, the initial progress was gradual but measured, allowing the fund management team to gain a clearer sense of which assets would form part of the long-term future of the trust, while thinking strategically about how to optimise value from other parts of the portfolio. Other priorities included increasing the liquidity of the portfolio and reducing the level of financial gearing.
A sounder platform
A first key step in this process was completed in March 2021, with the sale of seven assets to Rosetta Capital for more than £50 million. That transaction represented many months of hard work, with significant contributions from several team members. Then, in April 2021, the sale of clinical-stage biotechnology company Kymab to Sanofi for $1.1bn milestone was completed, resulting in a significant profit for the trust.
Importantly, these activities paved the way for other positive developments. For example, the proceeds allowed us to fully repay the debt burden that had been inherited. Thus, we were able to establish a much sounder financial platform for the trust, and the prospect of making new investments into ideas generated by Schroders Capital’s well-established and highly-experienced venture capital team was suddenly much closer.
The journey so far
Innovative new ideas
Indeed, the first new investment for the portfolio was committed in May 2021, when we acquired a stake in the private, high potential UK cyber-security business, Tessian. This was quickly followed by positions in UK neobank Revolut, leading market research technology platform Attest, and the AI-based digital health business Ada Health, in a series of new investments committed through the rest of 2021, 2022 and continuing into this year. We are confident that this new idea pipeline will continue to deliver the opportunity to invest in similarly exciting young innovative companies that represent the leading growth businesses of the future.
In the meantime, we have also seen the successful IPOs of Oxford Nanopore and Immunocore, and the holdings in Kymab, Inivata and Kuur Therapeutics have all been acquired by larger healthcare businesses. These events have collectively realised a valuable gain for the trust. By contrast, several of the portfolio’s publicly traded holdings have performed poorly in what has been a challenging period for equity markets, particularly over the last eighteen months. Meanwhile, the holding in Rutherford Health was written down to zero when the business failed to attract sufficient new funding, and several other private holdings have seen write-downs due to disappointing developments, including Industrial Heat, Mafic and Spin Memory.
It is the nature of early-stage investments that the performance of individual holdings will diverge significantly. Some have developed positively and are fulfilling their high potential, whereas others, inevitably, have fallen by the wayside. The disappointments have been in businesses that were part of the portfolio long before Schroders took on its management, and in most cases, there has been little we could do to turn their fortunes around.
A global opportunity set
Another key milestone for the trust was the widening of its investment powers to include a more global remit, which was approved in May 2022. This too was influenced by Schroders Capital’s significant global resources, which can now be fully deployed for shareholders benefit, in providing access to the best venture and growth investment opportunities worldwide. Today’s name change reflects this global remit. It also captures the essence of the current shape of the portfolio and its direction of travel.
The road ahead
We are not complacent about the challenges that lie ahead. We’ve made significant progress in transforming the portfolio into one which reflects the opportunity set that we see, but it would be wrong to suggest that the job is complete. It is a work in progress. We know significant further efforts will be required to fully capture the global innovation opportunity that we see in front of us, and to fully restore the reputation of the trust in the eyes of the investing public.
Nevertheless, the trust is now on a path that the broader Schroders Capital business has been following prosperously for twenty-five years. We know where it is heading, and we are confident that the journey represents a compelling long-term growth opportunity. Now it is time to deliver that opportunity.
Fund risk disclosures
The company may borrow money to invest in further investments, this is known as gearing. Gearing will increase returns if the value of the investments purchased increase in value by more than the cost of borrowing, or reduce returns if they fail to do so.
Long-term outcomes are more binary – extremely attractive rewards for success but some businesses will inevitably fail to fulfil their potential and this may expose investors to the risk of capital losses.
The trust may invest in overseas securities and be exposed to currencies other than pound sterling – as a result, exchange rate movements may cause the value of the trust, individual investments, and any income paid to decrease or increase.
The trust may invest in unquoted securities, which may be less liquid and more difficult to value, because they are generally not publicly traded – the lack of an open market may also make it more difficult to establish fair value.
The price of shares in the trust is determined by market supply and demand, and this may be different to the net asset value of the trust. This means the price may be volatile in response to changes in demand.
As it can take years for young businesses to fulfil their potential, this investment requires patience.
Young businesses have a different risk profile to mature blue-chip companies – risks are much more stock-specific, which implies a lower correlation with equity markets and the wider economy.
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Issued by Schroder Unit Trusts Limited, 1 London Wall Place, London EC2Y 5AU. Registration No 4191730 England. Authorised and regulated by the Financial Conduct Authority.
This communication is marketing material. The views and opinions contained herein are those of the named author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.
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Past Performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. Exchange rate changes may cause the value of any overseas investments to rise or fall.
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Issued by Schroder Unit Trusts Limited, 1 London Wall Place, London EC2Y 5AU. Registered Number 4191730 England. Authorised and regulated by the Financial Conduct Authority.