The portfolio manager of Baillie Gifford’s flagship private equity fund Schiehallion (MNTN ) believes he deployed too much capital at valuations that appeared cheap in 2021, but now look expensive.

Speaking at the Winterflood conference in London last month, Peter Singlehurst said that with the benefit of hindsight ‘things got out of hand’ in early 2021 as valuations soared to cause a bubble, around the time of the fund’s heavily oversubscribed C-share issue that raised £502m.

‘I can think of one company in particular where we invested in a [price-to-earnings] multiple, or the multiple it appeared to be trading at, was less than half (that of relative peers). Of course, if the multiple it appears to be trading at is also completely wrong, even if you invest at half doesn’t necessarily help you. So with the benefit of hindsight, we would have deployed less in 2021,’ Singlehurst (pictured) said.

He added that he would be compounding that mistake if he weren’t then progressive in deploying capital when he saw compelling opportunities, pointing out that he has recently invested in companies that are growing at up to 100%, and in some cases, at single-digit PE multiples.

Companies in the fund’s pre-IPO hunting ground have been raising cash at much lower valuations as rising interest rates increased the cost of capital, which was a ‘much needed change’ as it signifies a healthier market than one that only sees valuations rise, he said.

With many companies, particularly those closer to the ‘innovative heartland’ of Silicon Valley, refusing to raise cash at these lower valuations, more companies will die, shrinking the sector, Singlehurst said, which was a good thing because those that remained would be better companies.

Singlehurst and co-manager Robert Natzler have identified some good opportunities in China, which makes up 7% of the £969m fund, as well as across secondary transactions that are at a discount to previous funding rounds.

Singlehurst added that companies tend to remain private for longer, given the increased pressures that come with going public, such as greater regulation.

Seven companies remain in the portfolio that have listed, which the pair are holding onto until the shares reach the right valuation, he said. These include the heavily-weighted UK payments company Wise (WISE), which makes up 5.1% of assets and US fintech company Affirm, which makes up 4.3%, according to the January factsheet.

The largest individual position is Elon Musk’s unlisted company SpaceX, which makes up 7.2% of the fund, and could see its spinoff satellite business Starlink float on the stock exchange later this year.  

The duo hold 14.4%, or £77m, in US government bonds, providing liquidity to fund the £16m share buyback programme announced in November, as well as for deploying into new companies. 

Since launch in March 2019, underlying returns total 25%, while the shares have slumped 41%, according to Morningstar data. The shares closed on Thursday at a 46% discount to the February net asset value of 118.66 cents per share.

Performance since launch 

Source: Morningstar