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Behind the trust: Schroder UK Public Private Trust

Amid moves to democratise investing in private assets, Schroder UK Public Private Trust is backing some of the best innovative growth companies, wherever they may be in the world

SC. Tier 3 Pharmaceutical production line. Vaccine production from epidemic, cancer, disease, virus

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 can enable company executives to focus exclusively on their business growth and development.

Indeed, the bulk of innovation and dynamism is now happening at private companies. As companies experience more of their growth trajectory outside the realm of public markets, there is a clear implication for investors: to participate in the steepest part of a company’s growth curve they need to allocate to private markets.

Private equity and venture capital investing allow investors to do so. Private equity is capital invested in a company or other entity that is not publicly listed or traded, whereas venture capital is a form of private equity whereby funding is given to start-ups or other fledgling businesses that show potential for long-term growth.

Schroder UK Public Private Trust holds a unique position in the UK investment market because it gives investors access to companies throughout their life cycle.

Allowing retail investors to provide growth capital to private companies is relatively new. Having been incepted in April 2015 under a different manager, Schroder UK Public Private Trust is the longest running trust in the AIC Growth Capital sector. Some trusts in the sector have very niche investment remits – to invest in the space economy, for example. Others, like the Schroder UK Public Private Trust, have a much broader opportunity set.

Exactly how does the team behind the trust approach this type of investing and what make it a worthy addition to an investor’s portfolio today?

What does the trust do?

Schroder UK Public Private Trust aims to achieve long-term capital growth by investing in a diversified portfolio of 30-40 of the most innovative private companies.

Unlike other funds, there is no requirement to sell a company at initial public offering (IPO) or shortly thereafter, meaning the managers can continue to support companies and benefit from their growth as public entities.

The trust harnesses the depth and breadth of the skills, experience and research resources that exist within Schroders. Schroders Capital has a long and impressive history of investing in private companies having completed almost 200 investments as either a direct or co-investor and achieving a realised net internal rate of return of 30%1. Schroders also has a very long and successful track record of investing in public companies.

How does it do it?

Schroder Investment Management was appointed investment manager of the trust on 13 December 2019. Although the approach is a collaborative and team-based one, Tim Creed is chiefly responsible for the unquoted holdings and Roger Doig oversees the quoted holdings.

Under Schroders’ stewardship, the trust has been significantly rebalanced through realisations, full repayment of bank debt and new investments in leading private businesses. Analysts believe the trust is now in far better shape.The team’s ongoing objective is to continue to rebalance the portfolio by making new investments in innovative private companies. These will be diversified by sector, stage or strategy and country.

While the team inherited a trust that was significantly skewed towards healthcare, the managers are transitioning the portfolio to have a more balanced spread of exposures across six sectors. The long-term target portfolio will have 25% in both healthcare and technology, 20% in financials and 10% each in industrials, consumer and business services2.

It will also have a greater weighting to unquoted holdings, which will ultimately account for 75% of assets, up from 64%3 as of end-March 2022. This will be split as follows: 20% in early-stage growth companies, 45% in later-stage growth companies that may progress towards IPO in one to three years and 10% in life sciences companies across three subsectors (diagnostics, services and therapeutics). The quoted holdings will be reduced to 25%, down from 36% as of end-March 2022, most of which will be the result of existing unquoted holdings seeking a stock market listing.

And although the trust is predominantly invested in UK companies, the investment remit was widened in May 2022 to a global one. Changes are likely to be gradual but the team expects to see three-quarters of the new investments coming from continental Europe and Asia4.


Why invest?

1. Growth potential

Schroder UK Public Private Trust pursues investment in the leading businesses of the decades ahead. The managers look for world class businesses with the best disruptive innovations at the venture and growth stages and significant growth potential in their target markets. They favour high quality management teams and shareholder syndicates capable of steering companies towards becoming the institutions of the future.

2. Life cycle

By investing in private companies at various stages of their development and having the flexibility to continue to hold them as public entities, the trust taps into the growth potential of businesses throughout their life cycle. Having supportive and longstanding investors, from early stage to beyond IPO, allows a company to achieve its greatest potential and maximises returns for shareholders.

3. Global scope

Being able to invest in the best private companies wherever they are in the world ensures a high bar for new investments and differentiates the trust from Schroders’ UK private markets investment trust, Schroder British Opportunities.

4. Experience and network

The trust leverages the 25-year track record that Schroders Capital has in successfully investing in unquoted companies. The team’s strong global network and excellent reputation in this space affords it access to a wealth of attractive opportunities.

5. Active ownership

Attending portfolio company board meetings as an observer allows the team to support strategic planning and engage with management and co-investors. A key topic for engagement is sustainability. Schroders has long contended that responsible business practices enhance the long-term value of investments and benefit all stakeholders.

6. Discount

Despite the significant progress made by the managers, the trust’s discount has proven persistently wide. The board has started to buy back shares to help narrow the discount. For investors prepared to take a longer-term view, the discount could provide an attractive entry point.

View the trust page to find out more >

[1] - June 2022 slidedesck, slide 19

[2] - June 2022 slidedeck, slide 22

[3] - June 2022 slidedeck, slide 22

[4] - From call with investment desk

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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.

Risk considerations: Schroder UK Public Private Trust

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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Please remember that 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.

This marketing material is for professional clients or advisers only. This site is not suitable for retail clients.

Issued by Schroder Unit Trusts Limited, 1 London Wall Place, London EC2Y 5AU. Registered Number 4191730 England.

For illustrative purposes only and does not constitute a recommendation to invest in the above-mentioned security / sector / country.

Schroder Unit Trusts Limited is an authorised corporate director, authorised unit trust manager and an ISA plan manager, and is authorised and regulated by the Financial Conduct Authority.

On 17 September 2018 our remaining dual priced funds converted to single pricing and a list of the funds affected can be found in our Changes to Funds. To view historic dual prices from the launch date to 14 September 2018 click on Historic prices.