Given the recent rally in UK equities, it seems an apt time to get involved in one of the most unloved asset classes this year.
This was certainly the view of Rory Bateman, head of equities at Schroders, discussing the upcoming launch of the firm’s British Opportunities Trust. The closed-ended fund is looking to raise £250 million on its current roadshow and given the unusual 50/50 mix of both private and listed equities in the portfolio may appeal to those looking to ride the Covid recovery wave.
“It’s a once in a generation opportunity, valuations in UK market are really attractive. It's a fantastic time, the market is very unloved [due to] Brexit, what with the handling of the crisis it seems to have been quite a negative spiral recently and so that's one of the reasons why we think right now is a really great opportunity [to launch the trust],” Mr Bateman told Fundeye.
Tim Creed, head of private equities at the firm explained the areas of interest for those companies in private hands. He said that technology and healthcare are of crucial importance to the trust, adding that’s its those two sectors that the firm has been focusing on for the last 10 to 15 years. There appears to be a degree of happenstance for Schroders as given what has happened this year it is those two sectors that have seemed to benefit the most from the pandemic.
Mr Bateman added that the portfolio will be more diversified on the public side although this part of the portfolio has some pretty strict ESG filters so no alcohol, tobacco or other sin stocks can be included. This may be aided by a market cap limit of between £50 million and £2 billion which excludes tobacco majors or drinks giants such as Dieago (whose market cap exceeds £90 billion).
He added that while valuations have presented opportunities in the market, this by no means a special situation or distressed debt type fund, looking to pick up assets on extremely low valuations.
This trust will have a lifespan of around seven years and this goes back to its private equity holdings. A typical private equity venture will have around five to seven years until an exit is found (via an IPO or changing hands) although if the business is going well the team say they will go ahead with a continuation vote. Therefore while seven years is the presumed lifespan of the trust, if investors are happy with its performance and its trading on a decent premium, they can vote to keep the vehicle going.
Another good omen for this trust is that Schroders itself is willing to put up to £20 million during the offer period which is open until 26 November. Although some may see this trust as another version of Woodford’s Patient Capital Trust (now run by Schroders) it seems a very different beast and one apt for these times.