The fund managers of Schroders Capital Global Innovation (INOV ) believe the tide may finally be turning for the former Woodford Patient Capital Trust after a strong end to another difficult year for shareholders.

Tim Creed and Harry Raikes said that while net asset value (NAV) of the largely private equity portfolio fell 11.2% in 2023, a 7.9% increase in the last three months of the year was encouraging.

Key drivers in the end-of-year rally - which coincided with a broader market rebound at the prospect of interest rate cuts - included the first milestone payment of £4.6m following the sale of healthcare company Kymab to Sanofi in 2021, with potentially a further £15.4m to come.

The sale of email cybersecurity company Tessian, which completed in December, delivered proceeds of £5.2m and marked a 32% uplift to the previous year’s valuation.

The acquisition of Carmot Therapeutics by Swiss pharma giant Roche in a deal valuing INOV’s position at £4.3m, a 219% increase to the June 2023 valuation of £1.3m, was particularly pleasing.

While the exit was sooner than planned, with the managers only investing last May, they said it demonstrated the strength of their process of identifying attractive companies at good prices.

Unfortunately, since Schroders took over from Neil Woodford at the end of 2019 the team has only been able to replace 30% of the trust’s equity positions due to difficult market conditions delaying the sale of the former manager’s holdings.

Nevertheless Creed (pictured below) was upbeat. ‘The tide is turning. 2023 was a challenging year overall for markets and for particularly venture [capital]. In fact, I could even say the last three years have been challenging for venture. We feel we’ve managed to navigate the trust through this challenging period and the 17 new investments we’ve made in that time have performed really well,’ he told Citywire after the annual results last week.

All in all, realisations from both private and public assets generated proceeds of £32.8m, funding the buyback programme that saw the board snap up 5.2% of share capital while funding six new investments.

Listed positions saw some contrasting return last year with Autolous Therapeutics rocketing 240% after receiving drug approval, while BenevolentAI plunged 75% after its own drug failed to demonstrate efficacy. The company then ‘reset its strategy’. Illiquidity in the shares meant the managers couldn’t sell the position.   

Over the last 18 months, the managers have sought to reduce overall risk by diversifying the portfolio and adding new positions, including two in India  with agricultural start-up AgroStar and B2B retail platform Bizongo alongside US cybersecurity company Securiti, AI software company MMC and Memo Therapeutics.

These were funded by trimming listed equity holdings leaving the trust with £12.6m in cash and liquid money market funds and £54.6m in public stocks at the end of the year.

‘The market is very attractive now for new investments. It’s taken a long time to stabilise and we’ve had to be very, very careful and we will continue to be very careful in this kind of the current market environment. But we do see a very full pipeline across the three strategies of growth venture and life sciences,’ Creed added.

The optimism of the fourth quarter has faded in 2024 with INOV shares down nearly 14% this year, taking their decline over five years to 84%. This has reduced the trust’s market value to £106m, a sad outcome for a fund that raised a then record £800m at its flotation in 2015.

At 12.7p yesterday, the shares stood at a 46% discount to net asset value of 23.5p at 28 March. This is the last daily NAV statement by the trust which has moved to reporting its valuation quarterly. The next NAV for 31 March will be published in June.

‘Unless an investor can find particular reasons to be positive on some of the larger INOV portfolio holdings we see little reason to choose INOV over a more diversified, larger cap private equity investment company, noting that while discounts in the sector have narrowed recently, they remain wide and attractive in our view,’ said JPMorgan Cazenove analyst Christopher Brown, who retained an ‘underweight’ rating on the stock.