Scottish Mortgage waits to see if $6bn Tempus AI IPO passes market’s test

Baille Gifford flagship and stable mate Schiehallion hope to see a validation of their valuation of the genetic tester which floated on Nasdaq on Friday.

The $6.1bn flotation of genetic tester Tempus AI on Friday is being seen as another positive step in the recovery of Scottish Mortgage (SMT ) by analysts at its two brokers.

Shares in the Chicago-based Tempus, which uses artificial intelligence to process medical data, listed on the US Nasdaq technology exchange on Friday at $37, the upper end of their initial public offer (IPO) range. They rose 9% to $40.25 before falling back to $36.50 yesterday.

Although the £12bn Baillie Gifford investment trust held just 1.4% of its assets in Tempus at 31 May, the IPO reduces Scottish Mortgage’s private equity holdings to 25%, giving its managers more room for manoeuvre against a 30% limit on unquoted companies.

Providing the shares don’t fall back much further, it could also provide a stock market endorsement of the valuation Baillie Gifford placed on Tempus AI. This follows a period in which doubts about Scottish Mortgage’s large exposure to private companies have weighed on the shares which, despite a 31% rally in the past year, trade at a discount of nearly 9% below net asset value (NAV).

‘Consequently, while the resulting uplift to NAV is very modest, it highlights [Scottish Mortgage’s], and, more generally, Baillie Gifford’s marks have passed their first big test in the new world order of higher interest rates,’ said Jefferies analyst Matthew Hose.

‘We believe it should be positive for sentiment towards the private investments that liquidity is available through the IPO market,’ said Ewan Lovett-Turner, head of research at Deutsche Numis, Scottish Mortgage’s other corporate broker.

After the $2.7bn flotation last summer of AI-driven health and wellness company Oddity, in which Scottish Mortgage held a 0.6% weighting, Tempus is the second lsting from one of the trust’s private companies in the past three years after IPOs dried up in response to stock market volatility caused by rising interest rates.

Tempus AI is backed by Japan’s Softbank and its other investors include Alphabet’s Google and fund managers Franklin Templeton and T Rowe Price, according to PitchBook.

It is also a 2.2% holding in Schiehallion (MNTN ), Baillie Gifford’s £957m listed private equity fund that has also enjoyed a rebound. A 21% rally this year leaves its shares 24% below NAV although this is about half the discount they stood at last October.

Scottish Mortgage shares were given a boost in March when the company launched a £1bn share buyback programme, following which Elliott Management disclosed a 5% stake that the US activist hedge fund is thought to have halved since then. They have risen 16% in the past three months but at 890p remain 41% below their £15.28 peak in November 2021. Long-term performance remains strong with total shareholder returns of 370%  over 10 years.

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