(Update) Baillie Gifford is launching Schiehallion Fund (MNTN), a new closed-end investment company dedicated to the unlisted ‘unicorns’ that its flagship Scottish Mortgage Trust (SMT) has successfully pioneered.
It is looking to raise up to $600 million (£454 million) or a minimum of $250 million from institutional investors only for the Guernsey-based, dollar-denominated fund which will list on the London Stock Exchange's specialist funds segment.
Peter Singlehurst, head of Baillie Gifford’s unlisted equities team who joined the firm in 2010, will be its lead manager. Mark Urquhart, the Citywire AA-rated manager of Baillie Gifford Long-Term Global Growth, an open-ended fund version of Scottish Mortgage, will be his deputy.
Edinburgh-based Baillie Gifford will aim to treble investors’ capital over 10 years through investments in unquoted companies it believes have transformational growth prospects and that will eventually float on public stock markets.
Broker Numis Securities says the target is equivalent to 11.6% annual growth. As a long-term growth fund Schiehallion, which is named after one of Scotland's best-known hills (pictured), does not expect to pay dividends.
One example the company’s prospectus cites is Lyft, the ride sharing company in which SMT is invested, which is seeking to raise $2.1 billion in a US initial public offer that would value it at $20 billion.
Schiehallion will aim to hold between 20 and 60 of such companies and to invest two thirds of the money it raises in two years.
The fund launch, which is being marketed by corporate broker Winterflood Securities, is not aimed at private, retail investors but only professional or advised investors who understand the risks of illiquid, unlisted stocks. Minimum investment in a share placing closing on 21 March has been set at $5 million.
A group of North American pension funds are backing the launch, led by Florida Retirement System Trust Fund which is set to take a 40% stake if the fund raises its minimum $250 million.
A spokesman for Baillie Gifford cautioned there would be very little liquidity in the shares after launch as the pension fund backers were long-term investors who were unlikely to sell any of their holdings. This would make it difficult for private investors to buy in the secondary market.
‘At this stage, private investors are much better off looking for this exposure via Scottish Mortgage (which can hold up to 25% in private companies), Edinburgh Worldwide (EWI) (15%) and Baillie Gifford US Growth Trust (USA) (50%), all of which have holdings of this type, are available on platforms, have ongoing liquidity and are cheaper,’ the company said in a statement.
Baillie Gifford has increasingly focused on the pre-IPO market as a way of capturing high returns, a move that has captured the imagination of investors, who have propelled Scottish Mortgage into the FTSE 100 and poured £173 million into the launch of US Growth Trust a year ago.
The Schiehallion prospectus states: ‘It is Baillie Gifford's view that the prevailing model of dividing investment strategies between private and public investing is broken. An arbitrary line is too often drawn at IPO, with investors seeking exposure to growth on one side of the line or the other, but not both. As a result, investors in public companies often have not had access to value created before a company is admitted to trading on a public stock exchange.
‘Investors in private companies, on the other hand, too often are compelled to invest through limited life funds, and are therefore unable to hold investments for the long term after those companies IPO, even if significant upside remains.’
The Walkhighlands website describes Schiehallion, a 731 metre summit in Perthshire, as 'one of the easiest Munros to climb on a fine summer's day'. Time will tell if that is an apt comparison for a new fund navigating unlisted tech companies at what could be the end of a lengthy bull market.