The challenge facing UK equity fund managers seeking to launch new investment trusts was underlined today as Sanford DeLand pulled the initial public offer (IPO) of the Buffettology Smaller Companies investment trust due to insufficient demand.
However, there was better news from Augmentum Fintech (AUGM ), a £150m growth capital trust, which announced plans to raise £28m to invest in more early-stage financial technology companies after its shares rebounded to a premium rating after a setback late last year.
Second UK small-cap trust canned
Sanford DeLand, a Manchester-based boutique, had hoped the prospect of the same approach used by its top-performing £1.3bn Buffettology fund being applied to UK small caps, currently trading at bargain valuations, would overcome pessimistic investor sentiment on the sector.
A statement said there had been ‘a broad level of support from a significant number of investors’ but that the minimum raise, set at £100m, had not been met.
It becomes the second UK equity trust to have its launch pulled in quick succession, after the Tellworth British Recovery & Growth failed to clear its £75m minimum hurdle, leaving Schroder British Opportunities the last remaining in a trio that had been hoping to list.
Laith Khalaf, financial analyst at AJ Bell, which had thrown its backing behind the Buffettology trust, said it was now a case of ‘two down and one to go’.
‘The Buffett name and the excellent performance record of Sanford DeLand simply hasn’t put enough bums on seats to get its UK smaller companies launch off the ground. Sentiment towards the UK market is at a low ebb and a resurgence of virus cases has further undermined confidence,’ said Khalaf.
‘Schroders has the benefit of a bigger distribution network than the boutique operators Tellworth and Sanford DeLand, but it looks like it’s facing an uphill battle to pull money in, and the failure of a second IPO will no doubt give Schroders pause for thought,’ he added.
The new Schroders fund is targeting a raise of £250m, but a prospectus has not yet been published setting what the minimum floor would be.
Khalaf suggested investors disappointed that the Buffettology trust had not got off the ground take a look at Standard Life UK Smaller Companies (SLS ), which is trading on an 8% discount.
Broker Stifel had questioned previously whether investors would back the new UK trust launches, given numerous existing options with good performance records whose shares are trading at wide discounts to NAV.
Although conventional trusts are struggling to get off the gound, the same is not true of new funds listing to invest in ‘alternative’ assets outside equities. This month Triple Point Energy Efficiency Infrastructure Company (TEEC) successfully raised £100m and Home (HOME) real estate investment trust attracted £240m for their IPOs.
Today’s announcement of a share issue marks a potential turning point for Augmentum, whose shares derated from late 2019 after setbacks at Zopa, the peer-to-peer lender turned bank, which was then its largest investment. While they remained at a discount to NAV, which was still stuck at 10% three months ago, the 30-month-old trust was effectively unable to raise fresh cash.
But as the coronavirus pandemic has spurred digital adoption, the shares have roared back 25% to trade at a substantial premium, enabling the RIT Capital Partners (RCP ) backed company led by Tim Levene to come back to the market.
Commenting on the announcement, chair Neil England highlighted the attractive backdrop and increasing opportunities.
‘The trend towards a digital economy has accelerated as a result of the change in life and work routines over the past year. The fintech sector has been a beneficiary of this acceleration,’ he said.
It is looking to build up its cash pile with an issuance of new shares at 120p. That represents a 3.4 % premium to the latest net asset value (NAV) of 116.1p per share, as of the end of March, but a 6.3% discount to the 128p which the shares closed at last Friday.
The shares shed 3%, or 4p, to 124p in response to the news.
The proceeds are set to fund investments in a near-term pipeline of £120m of investment opportunities.
An offer is also being made on the same terms on the PrimaryBid platform, which is open to retail investors. The placing to institutional investors closes on Friday afternoon.
Augmentum also provided an update on its stable of 18 investments.
Notable developments included Tide, an SME-focused bank and the second biggest holding, passing 4% market share of business accounts in September, according to Augmentum. At the third biggest position BullionVault, pre-tax profit as at the end of August saw over 100% growth year to date, as growth in users on its marketplace was driven by demand for precious metals.
It is anticipated that Augmentum’s NAV for the end of September, expected to be announced in December, will reflect the recovery in public market valuations since the lows in March.
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