A specialist private client business has pounced on an opportunity to invest in a bundle of Mark Barnett’s unwanted unquoteds which were dumped by Invesco at a steep discount.
Connection Capital raised £4.3m from its private clients to invest in a portfolio of 16 unlisted US and UK life sciences and tech companies via the HP Special Opportunities (HPSO) fund.
The fund was set up when venture capital investor Hambro Perks acquired the assets from Invesco earlier this year. The financial details of the deal were not disclosed but Hambro Perks is understood to have scooped up the portfolio at a deep discount to NAV.
Barnett’s unquoteds had already taken a 60% haircut in March 2020 when Invesco announced it would be divesting them from his High Income and Income funds to shore up liquidity.
His collection of unlisted assets, many of which were legacy holdings from his predecessor Neil Woodford, had become a big problem for Barnett following the suspension of the Woodford Equity Income fund and his prolonged run of poor performance.
Barnett left Invesco by “mutual agreement” last May and has since resurfaced at Tellworth Investments.
See also: Invesco prepares to rid Mark Barnett funds of unquoteds as values slashed 60%
‘You don’t come across these opportunities every day’
Connection Capital managing director Claire Madden said the stigma surrounding the deal with Invesco was ultimately what created the opportunity for Hambro Perks and its own clients to invest in the assets on the cheap.
Unlike other buying opportunities in the market at the time, the divestment was not Covid-related but down to a structural issue at Invesco of holding illiquid assets in an open-ended fund, making it more attractive for Connection Capital’s clients, Madden said.
“I’ve no doubt whatsoever that the pricing and the potential of the assets is not necessarily reflected in the NAV that was paid for them,” she said. “That was purely down to a transactional discount because you had a very motivated seller.”
Around 80 of Connection Capital’s clients participated in the fund raise, which was over 2x subscribed and completed in a matter of hours.
“It was a bit too quick, actually,” Madden reflected. “I had a lot of disappointed clients unfortunately. You don’t come across these opportunities every day so… we knew demand would be very strong for it.”
HPSO top holdings
The fact that a big institution like Invesco had carried out the valuations gave Connection Capital more comfort to take the plunge.
Valuations for private assets are typically determined by their most recent funding round. But there were several stakes in Barnett’s former portfolio that had not raised capital recently.
“Invariably when you get these portfolios, you set a valuation of zero against quite a lot of them,” Madden said. “You know there’s a handful of assets that are going to generate the most interesting returns for you in terms of the overall portfolio, and then everything else is a bit of a cherry on top.”
One of the holdings Connection Capital thinks has the most potential is Gelesis, a biopharmaceutical company that makes a US FDA-approved anti-obesity drug.
One of the top five holdings in HPSO in terms of NAV, Gelesis is one of a handful of unlisted holdings Barnett initiated himself in Invesco High Income though it is a spin-off of legacy Woodford holding PureTech.
Other meaningful positions in the portfolio include First Light Fusion, a portfolio company of Woodford favourite IP Group that is researching safe, nuclear fusion energy; silicon battery business Nexeon; and Vedanta which develops immunotherapies for cancer treatment.
