Merian Chrysalis Investment Company, the first trust from Richard Buxton’s newly separate single strategy fund business, has raised £100m, half of the amount it had been targeting.
In a stock exchange announcement on Friday the group confirmed it had made applications to the main market of the London Stock Exchange to admit 100 million new shares.
The trust is expected to begin trading next Tuesday under the ticker MERI.
The fund’s co-manager Richard Watts said the team was pleased to have raised half of its goal amid “challenging market conditions” following the global sell-off in October and “investors adopting a cautious outlook”.
Watts, who also manages the £3.3bn Merian UK Midcap fund, is running the trust alongside small-cap specialist Nick Williamson. The investment company is aiming to generate long-term capital growth by investing in a very concentrated portfolio of between seven and 15 private companies.
“There is significant interest in the asset class and our strategy and we have identified a strong pipeline of high-growth private investment opportunities,” Watts added.
‘Terry Smith might have taken all their money’
Ben Yearsley, director of Shore Financial Planning, hailed the £100m raised by Merian as a “decent result” tweeting on Friday that “gives them the scale to start”.
When Hargreaves Lansdown research director Mark Dampier pointed out the group raised “way less than expected” Yearsley replied: “Think Terry Smith might have taken all their money!”
“It was a joke but there might be a little bit of truth to it somehow,” he told Portfolio Adviser afterwards.
Yearsley said the Merian trust’s ability to raise capital had been restricted by a variety of factors, including competition from Terry Smith’s investment trust which launched last month. The Smithson trust is playing in a similar space to Merian Chrysalis targeting small-cap companies.
“There’s been lots of investment trust new issues, Terry Smith’s trust took an absolute truckload of cash and you’ve had some pretty nasty markets. You add all those factors together, I think £100m is actually a pretty decent result.”
Despite not being a named manager on the fund, the trust from Smith’s Fundsmith boutique raised £822m last month, triple its initial target, surpassing the record set by Woodford’s Patient Capital trust. “It took far more than anyone anticipated, and far too much in my view,” said Yearsley.
Surprising outcome
Darius McDermott managing director at Chelsea Financial Services said he was “a bit surprised” Merian Chrysalis had missed the mark.
He told Portfolio Adviser Chelsea had supported the initial launch.
“I expected them to get nearer to the £200m than the £100m if I’m honest. The mid and small-cap team are one of the best small cap teams around. The range of the funds and the performance of them speaks for itself.”
McDermott reiterated a point he has made before that investing in private companies is “not a new thing” for co-managers Watts and Williamson. He added that he doesn’t consider the trust a high-risk venture because “whilst the businesses are private companies, they’re not tiny companies”.
But he admitted that the Merian duo launched at a “tricky time” for UK markets in which there has been a really high demand on investment trust buyers with IPOs and secondary placings.
“There’s been a lot of supply. If you take that into account with choppiness and volatility in markets maybe it’s not as big a surprise as we might have first thought.”
No incentive to buy on day one
Yearsley said he will own the Merian trust “at some point”. But he said he doesn’t feel the need to buy it on day one despite liking the team and its approach.
“You’re buying unquoted assets, they don’t change price every day,” he explained. “If you’re a normal investor as opposed to a discretionary needing to buy £10m or £20m you’ll be able to pick up the stock you want in due course.”
Yearsley said this holds true for all private company-focused trusts, including Woodford’s Patient Capital trust. “Woodford’s exactly the same. You never needed to buy Woodford on day one.”
The Merian trust is not the only high-profile trust to come up short of its fundraising goals. The debut trust from Mark Mobius’ new investment boutique also only managed to raise half of its £200m target in late September, which the star manager blamed on bad timing and poor investor sentiment toward emerging markets.
Merian Chrysalis will have an ongoing management fee of 0.5% per annum of its net asset value. There will be no fee on uninvested cash until 90% of the IPO proceeds have been deployed.
The team will also charge a performance fee of 20% of returns in excess of 8% per annum.
