Update: Investment company activist Asset Value Investors has scooped up a £41.5m stake in Chrysalis Investments (CHRY ), bigger than the £27m position we reported this morning, making it the largest shareholder of the recovering growth capital fund.

Stock exchange filings show AVI bought a 5.7% stake in Chrysalis on 27 February, two-and-a-half weeks before the investment company passed a continuation vote with the support of 97% of voting shareholders.

Following this report, AVI told Citywire that in March it increased its stake to 8.4% across its flagship trust AVI Global (AGT ) and MIGO Opportunities (MIGO ), which moved over from Premier Miton last summer. AGT holds the majority at 7.7%.

AVI did not have to inform the market beause Chrysalis is domiciled in Guernsey, which only requires market notifications when a stake exceeds 5% or 10%.

Most of the stake is held in AGT, the £1bn investment trust managed by AVI chief executive Joe Bauernfreund, which specialises in buying out-of-favour closed-end funds and holding companies.

AGT’s latest factsheet shows 3.4% of the trust’s assets are in the late-stage private equity fund run by ex-Jupiter fund managers Richard Watts and Nick Williamson, while MIGO fund manager Nick Greenwood has made it a top-five position at 4.5% of assets. 

This puts AVI in the driving seat to ensure Chrysalis continues to prioritise shareholder returns and narrows its wide discount as it looks to build on a strong recovery in the past year and put the trauma of its 2022 crash behind it. 

The shares have staged an impressive recovery in the last 12 months, rallying 60% on hopes of interest rate cuts and the flotation of holdings such as credit provider Klarna that could fund a £100m share buyback programme.

They rose a further 1.9% to 84.3p today after Brandtech, the digital marketing and advertising agency that is Chrysalis’ third-largest holding at 11% of assets, was reported to have raised $115m (£91.6m).

While Chrysalis did not participate in the Series C funding round that values the former You and Mr Jones at $4bn, Liberum, one of Chrysalis’ corporate brokers, estimated the fund would see a 44% uplift to its investment, adding 7p to net asset value (NAV)  per share.

Analyst Shonil Chande said: ‘We see this as another sign that CHRY’s portfolio is as well-placed as it has been for quite some time.’ He reiterated a ‘buy’ rating and 118p target price.

‘Material’ upside

AVI’s head of research Tom Treanor agreed the shares were on the way up, while still less than a third of their peak in September 2021 and trailing 41% below NAV.

‘With a maturing portfolio and potentially more supportive IPO markets ahead in 2024 and 2025, we believe Chrysalis is at a key inflection point with scope for material NAV upside from what is now significantly more conservative carrying values for its key assets,’ Treanor said.

‘While the new capital allocation policy ensures that the next £100m of exit proceeds will be deployed into share buybacks that will be highly accretive given the very wide prevailing discount to NAV, we look forward to continuing our constructive dialogue with the board – as the company’s largest shareholder – on what a longer-term capital allocation policy might look like,’ he said in a statement to Citywire.

AVI’s purchase comes not long after managers Watts and Williamson spun off the the £887m portfolio from Jupiter, which they manage at their new firm, Chrysalis Investment Partners.  

This is the second time in the past year that AVI has emerged with a big holding before a continuation vote.

In September it hiked its position in Hipgnosis Songs Fund (SONG ) to 3.1% a month before two key shareholder meetings. It successfully led investor opposition to a controversial asset sale that saw the company lose the continuation vote, prompting a strategic review under a new board.