Baillie Gifford: ‘complex’ Schiehallion Fund could be sold to private investors

Fund manager reserved its new private equity trust for institutional investors in March but after high-growth portfolio's strong start says shares could be offered to retail investors in future.

Schiehallion (MNTN), the private equity investment trust quietly launched by fund manager Baillie Gifford for some of its institutional clients earlier this year, has said it may offer its shares to private investors in future.

At its listing in March the fund raised £364 million from a group of North American pension schemes looking to exploit Baillie Gifford’s access to rapidly growing technology businesses before they float on public markets.

Although Schiehallion, named after a Scottish mountain, was not marketed to private investors it has aroused interest from individuals keenly aware of Baillie Gifford’s success in backing tech disrupters such as Airbnb and Spotify through its flagship Scottish Mortgage Trust (SMT ).

In addition to Scottish Mortgage’s strong returns, investor interest has been piqued by the 17.5% rise in Schiehallion’s shares since their debut on 19 March. The advance from $1 to $1.175 has lifted the trust’s market value to £455 million and put it on a 16% premium to its underlying net asset value of $1.01 per share.

In maiden half-year results last week Schiehallion’s chair Linda Yueh noted the investor demand indicated by the high premium and said it could issue more shares. ‘The company has authority to issue further shares if the directors determine such issues to be in the best interests of shareholders and the company as a whole,’ she stated.

Speaking at an investor forum in London yesterday, James Budden, Baillie Gifford director of marketing and distribution, confirmed a retail share issue might be possible.

Replying to a question from an investor, Budden said: ‘Further down the line it may have wider scope. It is deemed to be a “complex” vehicle and is therefore inappropriate for the public,’ he added.

Budden explained the motive for ‘the launch was to offer unlisted exposure to our existing institutional investors’ and not to appeal to private investors who could gain the group’s expertise in pre-flotation companies through Scottish Mortgage as well as its Baillie Gifford US Growth (USA ), Edinburgh Worldwide (EWI ) and Baillie Gifford Shin Nippon (BGS ) investment trusts.

In addition to being denominated in US dollars, which exposes investors to potential currency risk, Budden stressed that the shares were illliquid – and therefore difficult and possibly expensive to buy and sell – due to the founding institutional investors holding on to their long-term stakes and not selling.

Slow start

Schiehallion’s fund managers Peter Singlehurst and Mark Urquhart are in no hurry, making just eight investments from the 150 private companies they had looked at since March. As a result the portfolio is largely uninvested with 83% in cash at the end of June, which is one reason why the underlying NAV had risen just 1.2% by the half-year end (the other being private companies are infrequently revalued).

Three of these investments have not previously been held by other Baillie Gifford funds. They included luggage company Away, which uses ‘online distribution and savvy social media strategies’ to sell its high-quality luggage in a ‘market than has not evolved in decades’, the managers said.

China’s ByteDance, a machine learning-enabled platform that allows its users to post 30-second videos, has also made it into the portfolio after approaching the asset manager for funding.

The third new addition to Schiehallion is Flix, a German technology company that aims to make booking bus tickets and route planning easier. The managers said they had been looking at Flix since 2016 and like ByteDance, it had approached Baillie Gifford when planning its latest funding round.

The remaining five businesses are known to investors in other Baillie Gifford trusts, including Elon Musk’s space rocket company SpaceX, which is held in Scottish Mortgage, Edinburgh Worldwide, a global smaller companies fund, and Baillie Gifford US Growth, which launched last year.

TransferWise, which offers cheap international money transfers; Tempus, which has built a library of clinical and molecular data; and Heartflow, which has developed a non-invasive coronary artery disease detection system, are all held in Schiehallion and the FTSE 100-listed Scottish Mortgage Trust.

Schiehallion also has a position in 3D-printing company Carbon which aims to ‘disrupt the $12 trillion industrial manufacturing market’, which the managers said it is doing ‘enthusiastically’ and has a growing number of partners.

Baillie Gifford was part of a $260 million funding round earlier this year, which pushed Carbon to a valuation of $2.4 billion.

The managers said they were looking for an ‘extension of the disruption that has transformed media and retail into other industries’ and areas that were ‘relatively untouched by the technological change of the last few decades’.

Through Schiehallion, Scottish Mortgage and the other trusts, Baillie Gifford now manages £2 billion in private equity. Although a small portion of the £207 billion the group manages in total, it plays an important role in its fund managers’ quest to find ‘exceptional growth’ companies, an increasing number of which are delaying their entry on to public stock markets.

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