Schroder British Opps presses ahead with private equity pivot

Schroder British Opportunities (SBO ) has tabled plans to move entirely into private investments, ignoring scepticism from analysts since the idea was floated back in March. 

The trust – which has a market capitalisation of just £55m – has invited shareholders to approve changes allowing the managers to invest solely in minority stakes in private companies. 

The board also proposed policy changes removing the restriction on the minimum number of holdings, currently 30, and raising the cap on the proportion of the portfolio represented by any one company to 15% of net asset value (NAV). 

Additionally, the trust, which invests predominantly in the UK, is calling for its continuation vote to be pulled forward to early 2027, from early 2028.

SBO, launched in 2020 to fund promising British companies during the Covid pandemic, was set up with a ‘fixed life’. Even under the new proposals, the trust will be obliged to wind-down if a single vote is cast in favour of discontinuation, but the board expects to consult with shareholders ahead of the vote to mull over ‘alternative proposals’ for its future. 

Shareholders will vote on the changes at a general meeting set for September. 

Since its launch five years ago, SBO has delivered NAV total returns of 14.9%. Over the full year to 31 March, it saw a marginal rise of 0.5%. The trust’s share price fared less well in this time, allowing its discount to widen out to a yawning 37.1%.

As of yesterday the share price discount to NAV stood at 34%, according to Deutsche Numis. 

In a note today, the board explained that the lion’s share of positive returns since the trust’s stock market flotation have come from its private holdings, which have delivered 1.5x the original level of investment. 

Faced with ‘difficult market conditions’ the public equity investments have detracted from the overall NAV uplift. 

As such, both the investment manager and board are backing a wholly private portfolio they believe ‘offers a better opportunity for shareholder returns in the current environment.’

That plan was first outlined by the trust four months ago, with some analysts responding negatively to the news on liquidity concerns. 

Today, Deutsche Numis’ Ewan Lovett-Turner shared similar worries, noting that due to its mega discount and ‘sub-scale’ status, ‘it is hard to see a long-term future for the company’.

‘We would expect it would be likely to fail its continuation vote, given it will only require one vote to go into wind-down, and there are value-oriented shareholders on the register,’ he said. 

SBO’s largest shareholders at 31 March were Schroders itself, East Riding and 1607 Capital. Since then, Staude Capital, an Australian discount hunter with a growing presence in the UK investment trust space, has declared a 6.2% stake. 

Lovett-Turner added that ‘any potential wind-down will likely take some time, given the portfolio of minority stakes in private businesses, where it can be difficult to drive the realisation timelines’. In that light, he said ‘it appears unusual...to see the company proposing to shift into minority stakes in private companies, rather than retaining the exposure to more liquid public companies.’ 

According to final results also released today, 72% of SBO’s portfolio is currently held in 10 private companies, with 19% in listed companies, and 9% in cash or similar investments.