Broker rubbishes Schroder British Opps’ plan to go 100% private

Schroder British Opportunities announces plan to ditch public holdings after they have held back performance, but Panmure Liberum analyst Joachim Klement finds the move ‘disingenuous’. 

Panmure Liberum analyst Joachim Klement has said Schroder British Opportunities (SBO ) should be ‘put out of its misery at the earliest possible opportunity’ after it proposed a change to its investment policy today. 

The sub-scale £51m investment trust, which invests across both private and public UK equity markets, intends to refocus its portfolio entirely on private equity. 

Currently, the portfolio is predominantly private, at 70%, but has 23.5% in listed shares with the rest in cash. 

If shareholders approve the change, SBO also plans to bring forward its 2028 continuation vote to the first quarter of 2027, stating that the trust should be regarded as having a ‘fixed life’. It expects that all public equity assets will be transitioned to cash, pending reinvestment into private equity holdings. 

If all goes smoothly, the trust aims to be fully invested in private equity by the end of 2026.

Since its IPO in December 2020, SBO has seen an increase in underlying net asset value (NAV) of 13.4%, according to today’s announcement. Public equity investments detracted from overall performance during this period, while private equity assets had delivered a 50% return, factoring in both realised and unrealised gains, by the end of last year. 

In its latest interim report, eight out of 10 of the trust’s top holdings were unquoted companies – the biggest three being Expana (formerly Mintec), Cera Care and Pirum Systems. 

Over this time, the trust has suffered from a lack of demand for its ‘best of British’ approach, with the shares falling 19.3% over the past three years and now trading on a nearly 38% discount.

Panmure Liberum’s Klement said investors should reject the proposals and ‘push for a thorough strategic review with the possibility to wind down the portfolio as soon as possible’, as well as highlighting the mediocre performance versus peers.

He said: ‘Rather than changing the investment strategy to one that will make the fund less liquid and more difficult to wind down, we think the fund should be put out of its misery at the earliest possible opportunity. 

‘With a portfolio valued at a mere £81m, it is far too small to make any sense, and trading at a 37.7% discount to NAV the company will not be able to raise any capital any time soon. The result is that investors are stuck with excessively high fees and poor performance.’

He added: ‘What we find particularly disingenuous is that the board proposes to bring forward the winding-down vote to 2027 if the change in investment strategy is approved. But if the change in investment strategy is approved, the winding down vote will be held on a fund that is 100% in private equity with a significant portion of the investments newly committed and thus locked up for many years.’

From that perspective, he said the proposal ‘almost looks like an effort to lock in as many fees for as long as possible’.

Tim Creed and Peraveenan Sriharan will oversee the proposed change as portfolio managers of the trust, supported by Chris Taylor, Schroders’ head of pan-European equities. It was also announced today that Uzo Ekwue will be stepping down from her role as co-manager after two years.

The news follows an earlier announcement that Rory Bateman will be retiring as co-manager of the trust in February, ending a 17-year career at Schroders.