In control of their destiny
In control of their destiny
Schroders took over the UK Public Private trust in December 2019. While the Covid-19 situation has brought challenges, we now believe the trust is now master of its own destiny. In the months since taking over the trust, our focus has been on portfolio management – rebalancing the portfolio, improving liquidity and working with the underlying companies. This is ‘behind the scenes’ work, but vitally important to create a more robust portfolio in the longer-term
To our mind, the founding principle of the trust is sound: it seeks to back UK innovation, aiming to direct capital to exciting companies undertaking pioneering work across multiple fields. Our priority is to ensure these companies have the space to grow and fulfil their promise and that we are in a position to provide long-term reliable funding.
In the short time we have run the trust, we have seen this pioneering work in action. A number of the companies within the trust have been engaged in the fight against Covid-19, for example. Benevolent has been using its Artificial Intelligence to help identify potential treatments for the virus. Oxford Nanopore’s DNA sequencing equipment is being used to halt the spread of the virus.
This innovation is not limited to the Covid-19 outbreak. We see Rutherford Health driving change in cancer treatments, through its radiotherapy, chemotherapy and proton beam therapy. Autolus Therapeutics has developed revolutionary immuno-oncology treatment, the next frontier in cancer treatment.
In many cases, these are companies with a real purpose, doing vital work. Part of our motivation in taking over the trust was that we saw so many exciting opportunities. However, we also need to ensure disciplined portfolio management: that the holdings are the right size, that the portfolio is properly balanced and that we provide the right support to companies to help them grow. As such, while there have been a number of sales, our primary focus in these early months has been on getting these three elements right
We always seek to invest with high quality management teams. In growing companies, management teams that take good decisions have a disproportionate impact. However, we have a broad network, which can be a source of sound advice and may support them in their decision-making. In recent months, we have worked with companies to strengthen their cash management, use government funding schemes and pivot towards their strongest lines of business.
This engagement has proved particularly important during the recent crisis. Many companies have had to reassess and adjust expectations in light of the new environment. We have helped companies to reappraise their prospects from here. We have been using a traffic light system to identify those companies that are vulnerable and likely to need more funding but have also engaged with the boards to help them find solutions to manage the impact of the crisis.
In the longer-term, as part of our firm-wide engagement strategy, we believe companies cannot stand apart from society and their shareholders. We engage with our investee company boards to help their compliance with the UN-sponsored Sustainable Development Goals.
Amid the Covid-19 crisis, the trust’s focus on healthcare companies has been of real benefit. The world’s attention is turned to healthcare companies and funding is being directed towards the sector. However, it is important that the need for diversification is not lost amid the excitement of a booming sector and that the portfolio is sufficiently liquid.
In the longer-term we want to move to a better balance of sectors and to invest with companies across various stages of development – early stage, later stage and public. Our aim, ultimately, is to re-balance the exposure between private and public companies in a manner commensurate with the risks posed, spread across around 40 holdings. However, this will take time. In the meantime, we have made real progress in ‘right-sizing' some of the positions in the portfolio, ensuring that no one position is dominant.
This has involved bringing in a number of high quality co-investors. This has helped us reduce our exposure to certain areas through partial sales. At the same time, the right co-investor can bring an additional layer of expertise and scrutiny to the companies in which we invest. This has been vitally important in re-establishing sound controls in the trust.
Net asset value considerations
A final point on the trust’s NAV: the trust has traded at a significant discount to its NAV due to widespread selling pressure. We hope that stronger discipline and liquidity will ultimately improve investor perception of the trust. However, we recognise that the lack of a reliable NAV has also been part of the problem. From here, we will move to a system of quarterly NAV reporting. All positions will be marked to market at that point. This should provide an accurate picture of the value of the trust’s assets at that point.
It will take time to reshape the trust to exactly how we would like it. However, in the five months we have been running the trust, we believe that we have made considerable progress and, most importantly, have put the trust firmly in charge of its own destiny.
Any references to companies is for illustrative purposes only and not a recommendation to buy and/or sell.
The article is not intended to provide, and should not be relied on for investment advice.
Information and opinions contained herein are subject to change. Reliance should not be placed on any views or information in the article when taking individual investment and/or strategic decisions.
The value of investments may go down as well as up and you may not get back the amount you originally invested .
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