Behind the trust: Schroders Capital Global Innovation Trust
Amid moves to democratise investing in private assets, Schroders Capital Global Innovation Trust is backing some of the best innovative growth companies, wherever they may be in the world.
While achieving a stock market listing was once considered a badge of honour, a growing band of companies are postponing a public listing and staying private for longer. Forgoing the management and regulatory headaches that come with being publicly traded, while remaining accountable to a select group of specialist supportive long-term shareholders, can enable company executives to focus exclusively on their business growth and development.
Indeed, as the pace of innovation accelerates globally, more and more of the best new ideas and technologies are being created in private companies. These can represent extremely high potential investment opportunities, with the steepest part of a company’s growth trajectory typically coming in the relatively early stages of its development. To access that growth curve, investors must allocate capital to private markets.
Private equity and venture capital investing allow investors to do precisely that. Private equity is capital invested in a company that is not publicly listed. These opportunities may be in businesses at any stage of their maturity, from nascent technology businesses through to mature companies, but venture capital is the subset of the private equity asset class that specifically funds start-ups and other fledgling businesses that show potential for substantial long-term growth.
This makes the venture capital investment landscape diverse, exciting and constantly evolving, but it is clearly not without risk. Many of these early-stage ventures may never fulfil their potential and those that do often require patience and careful nurturing along the way. The asset class therefore requires highly-specialised skills and experience, which has meant that, historically, it has been seen as the exclusive domain of large institutional investors. More recently, however, vehicles like Schroders Capital Global Innovation Trust have launched, to offer democratic access to all investor types.
What does the trust do?
Schroders Capital Global Innovation Trust aims to achieve long-term capital growth by investing in a relatively concentrated portfolio of the most innovative private companies it can find globally. It also has the ability to hold publicly-traded assets, which means it isn’t forced to sell when a company lists on a stock exchange via an initial public offering (IPO).
Schroders was appointed investment manager of the trust in December 2019. The lead portfolio manager is Tim Creed, Schroders Capital’s Head of Private Equity Investments, but the approach is collaborative and team-based. This allows the trust to harness the full depth and breadth of the skills, experience and research capabilities that exist within Schroders.
Schroders Capital has a long and impressive history of investing in private companies having completed more than 200 investments as either a direct or co-investor over the last 25 years. During this time, it has developed deep long-standing relationships across the venture capital industry, with investment ideas sourced from more than 50 leading firms.
What sort of opportunity does the trust invest in?
Under Schroders’ stewardship, the trust’s portfolio has been gradually rebalanced through realisations, full repayment of its debt and new investments in leading private businesses. Meanwhile, the investment remit was widened in May 2022 to embrace the innovation opportunity more globally. The transformation of the portfolio remains a work in progress, but the trust is now on a path that the broader Schroders Capital business has been following prosperously for 25 years.
Every young innovative business that the team invests in is unique. But there are some characteristics that the managers consistently look for. When seeking out ground-breaking investment opportunities, they look to back genuinely best-in-class products and services with high barriers to entry and which look poised for significant long-term growth. Their private equity businesses will be managed by a world-class management team, and they aim to consistently invest alongside other like-minded, high quality co-investors.
Currently, just over 60% of the portfolio is invested in private equity assets, with the balance in publicly-listed businesses. Over time, the managers expect that the private equity strategy will rise to represent about 75% of the portfolio. Around 20% of the portfolio will be targeted towards early-stage venture opportunities, c. 45% towards early and mid-stage growth opportunities, and c. 10% in private life sciences opportunities. The remaining 25% of the portfolio is targeted to be in listed equities, which will predominantly be IPOs from the private portfolio.
- A compelling long-term growth opportunity
Gain access to the leading growth businesses of the future, and by investing during the fastest growth phase of a company’s development, you can access higher potential returns.
- Invest with an experienced venture specialist with proven expertise
Schroder Capital’s private equity team has global coverage and a venture track record spanning 25 years and more than 200 direct / co-investments that have delivered a net internal rate of return of 26%.
- A global innovation remit
Benefit from exposure to some of the world’s best innovation opportunities, wherever they may be found. The portfolio focuses on eight key innovation themes: artificial intelligence, cybersecurity, fintech / payments, consumer, infra software, vertical SaaS, oncology and biotech discovery platforms.
- Exceptional access to deal flow
Our opportunity set spans parts of the early-stage company life cycle not accessible to many investors. Investment ideas are sourced from more than 50 leading venture capital firms including Accel, A16z, Index, Lightspeed and Sequoia.
- Portfolio taking shape
Schroders has now been responsible for management of the trust for three years – portfolio restructuring is still a work in progress, but the opportunity is taking shape and direction of travel is becoming clear.
Significant progress achieved under Schroders’ stewardship, but not yet reflected in the trust’s share price, which remains substantially below net asset value. The board has started to buy back shares to help narrow the discount. For investors prepared to take a longer-term view, the current steep discount could provide an attractive entry point.
Click here to find out more about the Schroders Capital Global Innovation Trust >
Fund risk disclosures
Gearing risk: 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.
Investment risk: 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.
Overseas investment risk: 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.
Private companies risk: 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.
Share price risk: 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.
Small companies risk: As it can take years for young businesses to fulfil their potential, this investment requires patience.
Young companies risk: 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. Registered Number 4191730 England. Authorised and regulated by the Financial Conduct Authority.