Schroders is launching a second investment trust focused on UK private and public businesses less than a year after inheriting the Woodford Patient Capital Trust and rebranding it Schroder UK Public Private.
The Schroder British Opportunities Trust plc is targeting an “ambitious” £250m at IPO setting it up in competition with former Schroders fund managers Paul Marriage and John Warren, who this week announced the IPO of the British Recovery & Growth trust.
A press release announcing the launch, first mooted in the summer, said the investment trust would invest in “the future growth of British Business, both public and private, while supporting UK employment through the pandemic and beyond”.
Marriage’s trust is also marketing itself as a backer of British business, stating it would “support UK businesses with equity, support UK employers and promote UK technology and innovation”.
See also: Paul Marriage seeks £100m for patriotic investment trust in barren year for IPOs
Could Schroder British Opportunities merge with the former Woodford trust?
The Schroders investment team will be led by head of equities Rory Bateman and head of UK and European private equity Tim Creed (pictured), who is also a co-manager on the Schroder UK Public Private. Schroders cinched the former Woodford Patient Capital Trust in October 2019 and began managing the portfolio from that December.
Willis Owen head of personal investing Adrian Lowcock said there appeared to be a lot of potential crossover between Creed’s two investment trusts, although for now the Schroder UK Public Private trust has a biotech bias.
The objective of Woodford’s former investment trust to is “achieve long-term capital growth through investing in a diversified portfolio with a focus on UK companies, both quoted and unquoted”. It aims for annual returns of 10% over the long term.
Lowcock thought over the time the two trusts could converge. “And a merger at some point in the future would help Schroders move further away from the Woodford history linked to the trust.”
A Schroders spokesperson said it had “absolutely no plans to do this” and described the strategies as “very, very different”.
See also: Schroders trust makes headway despite Woodford ‘baggage’ and virus crisis
Schroders more than doubles Tellworth’s IPO target
Tilney managing director Jason Hollands said: “While this might be seen as a bit of a head to head as they target many of the same investors, the approaches differ somewhat with the Schroder trust targeting both public and private businesses while Tellworth are focused on listed companies.”
Within the existing investment trust universe, Hollands thought Fidelity Special Values and Mercantile were the closest rivals due to their small and mid-cap bias.
AJ Bell head of active portfolios Ryan Hughes thought the £250m target sounded ambitious in the current market. “I’m sure they’ve already sounded out some key investors to see if they’re interested, so good luck to them if they get that level, but it’s obviously a very challenging market right now.”
Although activity is starting to pick up, only one investment trust, Nippon Active Value, has IPO’d this year, raising £103m just ahead of the Covid-19 sell-off in February.
There are a trio of IPOs planned for October, including the Tellworth British Recovery & Growth trust. Additionally, the Home Reit is seeking to raise £250m to invest in accommodation catered to people who are homeless, while Triple Point Energy Efficiency Infrastructure Company is targeting £200m to invest in energy efficiency assets.
Hughes said Schroders’ captive distribution may help it rake in more assets than Tellworth given it has a multi-manager team and wealth management business that may invest in the IPO. “Tellworth is much, much smaller with a much, much smaller following and is younger in its corporate journey so I’m sure they’ll be more cautious in how they go about it.”
See also: UK Smid managers come back fighting after being tarred by Brexit and Covid sell-off
Schroders says government support of businesses is unsustainable
In a press release, Bateman described the current pandemic as “once-in-a-generation opportunity to invest in the future of British business”. He also emphasised that investors could make a “positive impact” while doing so.
“The companies that require funding are often too large to be the focus of government initiatives, but too small to have the necessary impact with banks or credit markets,” he said.
“The current level of UK government debt-driven support is unsustainable and as support comes to an end, we believe many high-quality UK growth businesses will require an injection of ‘fresh’ equity to grow and succeed through the pandemic and beyond.”
Lowcock said any crisis presents an opportunity for savvy investors. “It is also up to financial markets to provide capital to businesses, at least usually. The crisis is so extreme that it has the potential to damage potentially excellent businesses.”
The investment trust will encourage companies to align with the UN Sustainable Development Goals and adopt best ESG practices.
