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Investing in unquoted companies

2 September 2019

The closed-ended case.

Recent events have illustrated that the closed-ended structure of investment companies is particularly well suited to investing in unquoted companies.

Investment companies are increasingly focused on unquoted opportunities as businesses stay private for longer and the number of public companies shrinks. Data from Pantheon International has shown that the number of North American and European listed companies in 2017 had decreased by 29% from 20,326 to 14,393 since 2008.

At a media roundtable held today by the Association of Investment Companies (AIC), Richard Watts, manager of Merian Chrysalis which invests in later-stage private companies across Europe, Suresh Withana, manager of Adamas Finance Asia which invests in private companies across Asia, and Richard Matthews, Co-Founder and COO of Augmentum Fintech which invests in unquoted fintech companies, discussed the attractions and risks of investing in unquoted companies, the benefits of the closed-ended structure for this type of investment and where they are currently finding opportunities.

The roundtable follows the AIC’s launch in May of its new Growth Capital sector. Separate from the existing Private Equity sector, Growth Capital is home to investment companies which generally take non-controlling stakes in unquoted companies with high growth potential.

Annabel Brodie-Smith, Communications Director of the Association of Investment Companies (AIC), said: “Using an investment company to invest in unquoted companies gives investors access to a professionally managed, diversified portfolio of private companies not normally available to individual investors. It has been interesting to see several new launches of investment companies targeting fast-growing private companies, along with existing investment companies widening their remit to allocate more of their portfolios to unquoted assets.

“But investing in these hard-to-sell assets is high-risk and requires a long-term mindset. The closed-ended investment company structure frees up the manager from having to worry about inflows and outflows, while at the same time giving investors a chance to sell when they want to via the stock market. In contrast, open-ended funds that invest in illiquid assets can come unstuck when investors want their money back.”

Why private companies?

Richard Watts, Manager of Merian Chrysalis, said: “Over the last decade an increasing number of companies have chosen to stay private for longer in order to de-risk an IPO. Unencumbered by stock market volatility, businesses often achieve significant growth and return on investment during the later stages of unquoted life.”

Suresh Withana, Manager of Adamas Finance Asia, said: “We find that many high-quality Asian SMEs struggle with access to traditional sources of financing, especially those in nascent industries; many of these SMEs are typically private companies. The resultant financing gap means that there is a plethora of investment opportunities for Adamas Finance Asia. In particular, we target companies that are likely to have an attractive exit route through a public listing or by acquisition at a premium, giving them a greater growth potential over a publicly listed alternative.”

Richard Matthews, Co-Founder and COO of Augmentum Fintech, said: “We invest in disruptive private fintech companies across Europe, where the fintech opportunity is still in its nascency. We view the fintech sector as at ‘the end of the beginning’, and with its maturity comes unprecedented growth. Public market pressures are leading companies to stay private for longer, and the trend is towards the bulk of a company’s value being generated prior to public exit. We provide exposure to high performing assets before their value is realised. We are the UK’s only publicly listed fintech fund, and we are proud to have opened up an emerging and hard to access asset class for institutional and retail investors. Our structure provides inherent liquidity and means we can provide patient capital to our portfolio companies, unrestricted by conventional venture capital timelines.”

Where are you finding opportunities?

Richard Watts, Manager of Merian Chrysalis, said: “With the European unicorn scene thriving, led by capital-light, tech-enabled disruptors, we’ve already made sizeable investments in a number of attractively valued, high-growth companies, including TransferWise and Klarna. Importantly, and of equal significance as knowing where to invest, we are clear on which companies to avoid. We don’t invest in businesses in the infancy of their journey or sectors such as biotech, where success is so varied.”

Suresh Withana, Manager of Adamas Finance Asia, said: “One of the great economic themes across Asia today is the increasing spending power of the middle class. We consider investments in healthcare and pharmaceuticals, education and technology as attractive ways to gain exposure to this ongoing trend. We source opportunities through our network, leading to proprietary deal flow which investors would not ordinarily be able to find themselves.”

Richard Matthews, Co-Founder and COO of Augmentum Fintech, said: “We focus on the disintermediation and disruption of traditional services across the financial spectrum. We invest in ambitious, talented fintech teams across Europe at Series A funding and beyond, with investment sizes of £2 million plus and our four key areas are banking services, for example our current portfolio includes Zopa, iwoca, Habito and Tide, asset and wealth management (Farewill, interactive investor, WhiskyInvestDirect), technology infrastructure (Onfido, DueDil) and insuretech.”

What do you look for?

Suresh Withana, Manager of Adamas Finance Asia, said: “We look for companies that operate in an industry with a favourable regional outlook with clear growth prospects. We also prefer to invest in companies that have positive cash flows derived from non-cyclical products. We support strong and proven management teams with a clear plan to execute their growth strategy.”

Richard Matthews, Co-Founder and COO of Augmentum Fintech, said: “When evaluating potential investments, an exceptional team is a must. We only invest in teams that have the talent, passion and grit to transform sectors and become industry leaders. We’re uncompromisingly data-driven and look for strong unit economics that are sustainable with scale. We avoid propositions that imply huge capital-intensive requirements to reach scale and profitability. The size of the opportunity is crucial - our investments must operate within large markets, have strong scaling capabilities, and have a clear route to exit. We seek sector-redefining propositions – there is huge potential for businesses that can truly disintermediate and disrupt financial services; we cut through the noise to find truly game-changing businesses. Lastly, we only invest where we can add value – this is core to our investment thesis. We are active investors and will turn down investments where we feel we are not the absolute best investors for the company.”

How does market uncertainty affect your portfolio?

Richard Watts, Manager of Merian Chrysalis, said: “With market uncertainty unlikely to be alleviated soon, we believe the opportunity for unquoted investments will continue to grow, leading to a greater number of attractively valued businesses, particularly against a listed market background.”

Suresh Withana, Manager of Adamas Finance Asia, said: “Our portfolio companies are not publicly listed and our investment timeline is relatively long term so our investments are not subject to volatile price movements which publicly listed investments suffer from. We have also witnessed that market uncertainty, such as the ongoing China/United States trade war, can create investment opportunities elsewhere in the region.”

Richard Matthews, Co-Founder and COO of Augmentum Fintech, said: “Many of the fintech businesses that Augmentum are investing in have global ambitions, and already operate cross-border with operations throughout Europe. Of those that are UK based, many rely on the four pillars that have allowed the UK to become the Global Fintech centre. These four pillars, Capital, Regulation, Central Bank support and Government engagement will ensure the UK remains one of the leading fintech centres in the world.”

Venture Capital Trusts (VCTs)

Venture Capital Trusts (VCTs) are another form of closed-ended investment company that give their shareholders access to smaller private companies with high growth potential. VCTs, which currently manage assets of £4.7 billion, offer generous tax benefits to investors because of their value to the growing economy.



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  1. The Association of Investment Companies (AIC) was founded in 1932 to represent the interests of the investment trust industry – the oldest form of collective investment.  Today, the AIC represents a broad range of closed-ended investment companies, incorporating investment trusts and other closed-ended investment companies and VCTs. The AIC’s members believe that the industry is best served if it is united and speaks with one voice. The AIC’s mission statement is to help members add value for shareholders over the longer term. The AIC has 359 members and the industry has total assets of approximately £200.3 billion.
  2. Disclaimer: The information contained in this press release does not constitute investment advice or personal recommendation and it is not an invitation or inducement to engage in investment activity. You should seek independent financial and, if appropriate, legal advice as to the suitability of any investment decision. Past performance is not a guide to future performance.  The value of investment company shares, and the income from them, can fall as well as rise.  You may not get back the full amount invested and, in some cases, nothing at all.
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