Caledonia Investments (CLDN ) has proven its worth following the sale of its stake in family office Stonehage Fleming. However, it has failed to impress investors with a stubborn discount that remains north of 30%.

The £1.9bn self-managed multi-asset trust, which is half owned by the Cayzer family that historically made its money in shipping, yesterday announced the sale of its minority holding in Stonehage Fleming to US-based Corient Private Wealth for £288m. This equates to a 30% uplift to the last valuation.

Stonehage was the top holding in the fund at 7.6% of the portfolio, despite only being purchased in 2019. This proved to be a shrewd move as the original investment has trebled from £90m to a £221m valuation at the end of March. 

Analysts have been quick to applaud the sale and said it reflected the strength of Caledonia’s skill in picking unlisted companies, which it targets alongside quoted equities and private equity funds.

Peel Hunt analyst Anthony Leatham said the deal was ‘another endorsement of the long-term, supportive investment approach adopted by the private capital team’.

‘The multiple achieved on this exit is comparable to realisations achieved by some of the best performing private equity trusts,’ he said.

Another premium deal

The deal also caught the eye of Winterflood Securities’ Shavar Halberstadt, who said the trust maintained its place on Winterflood’s 2025 recommendations list ‘in part due to its exposure to mid-market private equity opportunities’.

He pointed to the ‘strong premium’ associated with the Stonehage transaction, similar to the 32% premium achieved when Caledonia exited its investment in wealth manager 7IM. In 2023, Caledonia sold its stake in 7IM for £255m, having invested £74m in 2015.

Halberstadt estimates the latest wealth management sale should result in a 2.3% uplift to Caledonia’s net asset value (NAV), including the deferred proceeds that will come through in stages.

Deutsche Numis analyst Ewan Lovett-Turner said Caledonia has shown its strength as a ‘long-term supportive investor’, investing in Stonehage through a ‘period of organic, as well as acquisitional growth’. During this time, assets under administration increased to $175bn (£132bn) across 14 countries. He forecasts a 2.2% uplift to NAV from the sale.

While Caledonia is rivalling its private equity peers, Lovett-Turner said the ‘more arms-length style of ownership’ preferred by the trust’s management team – headed by chief executive Matthew Masters – is ‘attractive in a sector where retaining culture under private equity ownership can be difficult’.

Discount dilemma

Despite two impressive sales in two years under its belt, both of which saw the initial investment treble, the trust continues to trade at a 32% discount. Over the past year, Caledonia’s discount averaged 35%, according to Deutsche Numis data.

While the shares climbed modestly on the Stonehage sale announcement, in the 12 months to close of play yesterday they had only risen 3.8%.

Over three years, shareholders are up 10.5%, including dividends reinvested, which compares to a 7.2% gain by the average trust in the AIC’s flexible investment sector. 

Part of the problem sits outside of Caledonia’s control, given the investment trust sector has fallen out of favour, with discounts widening across most sectors and funds with a private equity element have been particularly hard hit.

Halberstadt said many in the private equity sector hope the Stonehage deal will be seen as ‘further evidence of an M&A revival in what has been a disappointing year, punctuated by geopolitical volatility’.

Peel Hunt’s Leatham is surprised that Caledonia’s discount remains so wide when ‘results have been consistently strong and the private capital pool has achieved a 13% annualised total return over the last 10 years’.

Caledonia’s discount is significantly wider than the sector average at 23%. Earlier this year the trust proposed to split its shares 10-to-one to boost its appeal to a wider range of investors.

Buybacks have also been key to boosting the trust’s appeal but a ‘rule nine waive’ to allow the trust to consistently buy back shares means the Cayzer family does not have to make a bid for the trust if its stake exceeds 50%, which happened in May.

Iain Scouller, an analyst at Stifel, suspects the deal will take net cash to £355m or 12% of NAV in the first instance and ‘will be helpful given the sizeable commitment totalling £416m to be funded in the next few years’. Nevertheless, he sounded a note of caution on the discount.

‘We retain our “neutral” rating given we think this discount will stay wide given the Cayzer family stake is now over 50%,’ he said.