William Heathcoat Amory
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Updated 03 Aug 2023
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Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by International Biotechnology. 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.

The board of International Biotechnology Trust (IBT) announced on Thursday (03/08/2023) that Schroders will be the new manager, following its previous investment manager, SV Health Investors Ltd, having served notice to terminate the investment management agreement, wanting to focus on its core venture capital business.

The trust’s existing co-lead managers, Ailsa Craig and Marek Poszepczynski, will move to Schroders and will continue to manage the trust in exactly the same way. The mandate will remain unchanged, including the payment of a dividend from capital equal to 4% of the NAV, at the end of the preceding year end (31 August). Schroders is well experienced within the investment trust world, with 14 existing trusts constituting c. £10 bn of assets under management. Ailsa and Marek will sit within the Global Healthcare team at Schroders.

We understand that there were over 20 expressions of interest from prospective investment managers, and the board undertook a thorough process to arrive initially at six options. With Ailsa and Marek having had a long association with the trust, and then becoming co-lead managers of the trust in March 2021, the board felt most comfortable with Schroders’s proposition given that it included taking the team on with their impressive track record. To the end of July 2023, IBT has outperformed the benchmark on a NAV basis over 1,3,5 and 10 year periods, with lower volatility than the benchmark. Ailsa commented that since becoming co-lead manager in March 2021, IBT has outperformed in both up and down markets.

Schroders was also able to offer a compelling commercial package, with an initial fee-free period to offset the costs of the transition. The annual management fee at Schroders will be 0.7%, in line with the effective fee currently payable. The performance fee will be retained, and is payable on the quoted portfolio of 10% of NAV performance above the benchmark return +0.5% subject to a cap of 1.25%, and payable only when the NAV per share has increased.

One of the differentiators that IBT has relative to peers is its unquoted venture capital exposure, which will remain as part of the mandate, at up to 15% of NAV. Currently the majority of this exposure is through the SV Life Sciences Fund VI and the SV Biotech Crossover Opportunities Fund. The board commented that these will continue to be the main way in which IBT gets exposure to the exciting return potential of private biotech companies. That said, the SV funds have fixed lives, and so when over time they reach the end of their investment periods, the board has said it will consider the trust’s options then.

Ailsa and Marek say that they are excited about the prospect of working within a new team at Schroders and that the prospects for investment remain bright. They observe that worldwide, demand for healthcare solutions continues to ratchet higher. On the supply side, innovation continues at pace. At the same time, patent expiries mean M&A within the sector remains ever present, and the trust has historically been a consistent beneficiary of portfolio companies being bought at significant premiums in M&A transactions.

IBT’s shares reacted positively to the announcement, but the shares trade at a discount of c. 8.6%, broadly in-line with peers. The trust has a continuation vote every two years, the next one being in December 2023. IBT retaining the existing management team who have a track record of outperforming the benchmark with lower volatility, a formulaic dividend of 4% of NAV paid from capital, no change to the unquoted exposure and now backed by the significant marketing heft of Schroders, means investors can be hopeful that the discount may narrow over time.

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