Will Schroder UK Public Private Trust ever recover?

Schroder UK Public Private Trust may be in the process of changing its name, but it’s still struggling to distance itself from Neil Woodford.

The trust, formerly Woodford Patient Capital Trust and soon to be renamed Schroder Capital Global Innovation, has had another difficult year.

In the latest results Schroder UK public-private trust (Supp) revealed that its NAV per share was down 40.7 percent for the year to December 31, 2022. The share price plummeted by 53.5 percent during the same period.

Lead portfolio manager Tim Creed has had a tough job since taking over in December 2019.

The investment trust was one of the largest in the UK when it raised £800 million in 2015. The intention was to invest in companies with the potential for long-term growth, meaning that the majority of the portfolio was invested in small and privately held companies.

Shares began to fall, however, when the trust was forced to write off some of its largest holdings in 2019.

After Woodford’s main Equity Income fund was suspended and eventually closed by the manager, Schroders took over the trust.

Since then it has suffered a double whammy from the pandemic and an environment of high inflation, which has done little to help the value of its underlying holdings. The NAV per share went from 98.83p at launch to 49.46p by the end of 2019. It is now 28.52p.

In an update to investors this month, chairman Tim Edwards said the board was “frustrated” after a “difficult year” following the invasion of Ukraine and pressures in financial markets dampening investor sentiment.

“While portfolio progress has been positive over the past three years, NAV has declined as the company continues to address issues in its existing portfolio, which has become more challenging due to the changing environment for growth capital investing.”

Creed said that while the trust had made “significant progress” in transforming its portfolio, “it would be wrong to suggest that the job is almost complete.”

While there were “a few real gems” in the portfolio when Schroders took over, the pandemic halted progress as the managers sought to increase portfolio liquidity and reduce levels of financial gearing.

In March 2021, the trust sold seven assets to Rosetta Capital for more than £50 million, before transferring the biotechnology company Kymab to Sanofi for $1.1 billion the following month.

It has made 11 investments since the trust changed hands, and while it is confident that its pipeline will continue to perform, the performance of some of its portfolio companies, particularly its publicly traded holdings, has been disappointing.

One of the biggest downsides to the portfolio was the performance of Oxford Nanopore, the trust’s largest holding.

The DNA sequencing company listed to much fanfare in London in 2021, with its share price rising by as much as 45 percent on its debut. Since then, however, performance has slowed and shares are now down 65 percent.

“Equity performance was disappointing over the period due to changes in market conditions – including a rotation from growth, a dislike of companies with negative free cash flow and weaker operating performance reported by peers,” the trust said.

It’s a tough pill for the trust, which invests nearly a quarter of its portfolio in Oxford Nanopore.

Elsewhere, a 19% discount to fair value was applied to BenevolentAI, which represents 4.9% of the portfolio, while Atom Bank was revalued by £14.5m. The challenger bank, which makes up 13 percent of the portfolio, was “downgraded due to a continued deterioration in the valuation of peers in the public market and a more cautious approach to the company’s new AIFM.”

Over the course of 2022, Supp made six new private equity investments totaling £15.1m. The majority of this was in the life sciences sector, but it also invested in technology marketplace Back Market, which now makes up 3 percent of the portfolio.

Last year, shareholders approved a change in investment policy that would allow more global investment and keep about 75 percent of the portfolio private. Currently, 61 percent of the portfolio is invested in private equity and the remainder in listed assets.

Edwards said: “The pivot to private investment, which has lasted longer than expected due to uncertainty in private markets in 2022, is expected to make further progress in 2023.”

The trust may still be transitioning, but some progress has been made, says Mick Gilligan, partner at Killik & Co.

“Debt is completely forgiven; problem cases have been written off, new investments have been made and shares have been purchased. The portfolio now consists mainly of later stage revenue-generating companies.’

“Despite the bad headlines, this confidence still has some companies with excellent long-term growth prospects.”

However, Numis analyst Gavin Trodd isn’t so hopeful: “If performance doesn’t improve significantly over this period, we think the fund’s future may be in doubt.”