Merian Chrysalis predicted to raise more cash as it deploys IPO funds

Trust is 85% invested following Starling Bank stake

Merian Chrysalis’ progress in deploying the £100m cash secured ahead of its initial public offering has been hailed as fairly successful by commentators, who expect it could soon fundraise further cash it missed out on at IPO, as it reveals a £19m investment in Starling Bank.

Three months after listing on the London Stock Exchange the debut investment company from Richard Buxton’s (pictured) Merian Global Investors is now 85% invested following the challenger bank investment.

This is up from 23 January when 65% of the trust’s portfolio had been invested.

Merian fell short of its £200m fundraise goal, which some suggested was down to stiff competition from Fundmith’s Smithson trust. The Smithson Investment Trust is focused on listed companies and had invested 95% of the record £822.5m it raised at IPO a month into trading, though it had expected the capital to be fully deployed within a week of listing.

‘Fairly successful’ outcome

That said, Adrian Lowcock, head of personal investing at Willis Owen, said Merian Chrysalis’ current level of investment is a “fairly successful” outcome considering co-managers Nick Williamson and Richard Watts are targeting just a handful of early stage growth companies. “Given the volatility in markets and concerns over global growth the team could easily have been forgiven for taking longer to allocate money,” he said.

The Merian trust will have a concentrated portfolio of around 20 stocks, compared with the Smithson trust which is looking to have between 25 and 40 holdings.

Having a smaller pool of stocks means “they need to take their time to get the investments right,” said Lowcock, “and once they have identified a preferred investment, they may have to wait for the opportunity to be able to invest.”

“The fact that they are at 85% already reflects the work they had already put in and the strength of relationships they had within this area of the market,” he added.

More fundraising to follow

Jason Hollands managing director at Tilney agreed the team had managed to deploy cash raised in November “quite quickly,” suggesting they already had a “clearly identified pipeline of deals at the time of the fundraise”.

“I would expect further fundraising to follow in due course, not just to expand the portfolio, but because earlier-stage, fast growth businesses can burn through cash quite quickly and often need follow-on financing,” Hollands added.

However, Lowcock thinks the trust will be less affected by geopolitical uncertainty than other funds because of the types of “self-help businesses” it is targeting.

Starling stake

Lowcock said the fact the team’s latest investment in challenger bank Starling shows they are willing to invest in new business ideas but also underscores the level of risk inherent in the trust.

“The investment team, however, are excellent stock-pickers and do a considerable amount of research and due diligence before they invest other people’s money so are only going to invest when they have the confidence to do so,” he added.

Set up by former Allied Irish Banks COO Anne Boden in 2014, Starling Bank is a digital, mobile-only business.

Merian Chrysalis’ investment is part of a £60m series C funding launched by the challenger bank which will help accelerate its expansion in the UK and across Europe. The total amount raised by the trust is still subject to regulatory approval.

Williamson and Watts said they were impressed by Starling’s infrastructure and growth plans, believing there is a “significant opportunity” for the business to push into the SME space and “transform the wider banking sector”.

Co-manager Williamson said: “Financial services is a market undergoing considerable change, driven by technology and users’ desire for better and more convenient offerings. The Starling team has developed a highly impressive and efficient platform, which we believe positions it well to continue to take share in core banking markets, as well as the ability to offer innovative new services in the future.”

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