The Baillie Gifford UK Growth Trust has become the latest investment company to seek approval from shareholders to increase its exposure to unlisted companies.
In the £365m trust’s results for the year to the end of April, the asset manager said it wants to increase the proportion of unlisted companies in the portfolio to a maximum of 10%. The current exposure is zero.
Portfolio managers, Iain McCombie and Milena Mileva (pictured), said: “We are keen for shareholders to give us permission to have the ability to invest in private companies, subject to prudent limits.
“We see the private company space as potentially an interesting area to find exciting growth companies to invest in that we believe can help us in our objective of generating total returns in excess of the FTSE All-Share index.”
Widening the universe
They noted the trend for growth private businesses in the UK, and more globally, is to stay private for longer than in the past, adding the investment trust is the “ideal vehicle” to own such businesses.
The focus will remain on UK listed equities with a portfolio of 35-65 holdings, the majority of which will be in the FTSE 350.
“To be clear, we see this proposal as simply widening the universe and are under no obligation, nor do we have a strong desire, to use these powers unless a compelling individual opportunity presents itself,” the managers added.
They also vowed not to alter the type of businesses the trust currently seeks to invest in. “We would not be investing in small, early-stage venture capital style businesses,” they said.
An uncontroversial move for Baillie Gifford
An analyst note from Numis said the proposed change to the policy was “uncontroversial for a Baillie Gifford strategy”, most of which have permission to invest in unquoteds.
Last year Scottish Mortgage shareholders voted to increase its allowance in unlisted companies from 25% to 30%.
Over the past couple of years Baillie Gifford has assessed more than a thousand private companies, approximately 180 of which were UK businesses. Baillie Gifford invested in eight of these names and two have subsequently listed while one has been subject to a takeover.
Numis added: “Baillie Gifford has built substantial expertise in this area and have strong access to dealflow. In addition, exposure to unquoteds is intended to remain a modest proportion of assets. Baillie Gifford also have an active approach to valuation.
“We would expect shareholders to approve the change and that any increase in exposure to unquoteds to be gradual over time as opportunities present themselves.”
Trend for trusts to target fast-growing private companies
The announcement comes just a day after the Fidelity China Special Situations trust proposed increasing the limit on investing in unlisted companies from 10% to 15%, subject to shareholder approval.
Association of Investment Companies communications director Annabel Brodie-Smith said there is an increasing trend for investment companies to invest in private companies.
“In recent years we have seen several new launches of investment companies targeting fast-growing private companies, along with existing investment companies widening their remit to be able to allocate more of their portfolios to unquoted assets.,” she said.
“This is partly because many ambitious, successful businesses are choosing to remain private for longer and can achieve significant scale whilst still unquoted. Investment companies are perfectly suited to access these opportunities as their closed-ended structure means managers can be patient backers of businesses without having to deal with inflows and outflows like open-ended funds.”
Baillie Gifford UK Growth beats benchmark
Over the year to 30 April, the Baillie Gifford UK Growth Trust’s net asset value per share total return was 37.7% compared to a total return of 25.9% for the FTSE All-Share index. The share price total return for the period was 53.7%.
It said performance was driven by several names, including Farfetch, an online luxury fashion retailer; Ashtead, a construction equipment rental business; Volution Group, a supplier of ventilation products; and Just Group, a provider of retirement income products and services.
The trust added two new positions during the year, insurer Lancashire Holdings and credit scorer Experian. It exited positions in aero engine manufacturer Rolls-Royce and the pub and restaurant chain Mitchells & Butlers.
Gearing on the trust stood at 1% of shareholders’ funds as at the year end.
