Smithson: the biggest ever UK investment trust launch
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Strong investor demand has enabled Smithson (LON:SSON) to raise £822.5 million at its recent IPO, making it the largest ever UK investment trust launch. The new vehicle from Fundsmith will invest in a global portfolio of small and mid-cap stocks, with a focus on companies with a market value of between £500 million and £15 billion, and an average of £7 billion.
Initially the plan had been to raise £250 million, but such was the demand that the target was increased to £600 million with the freedom to go up to £900 million. Smithson will make use of Fundsmith’s established strategy of: buying good companies; not overpaying; and then doing nothing; to build an initial portfolio of 25 to 40 stocks at launch.
The management team will be led by Simon Barnard with assistance from Will Morgan, both of whom joined Fundsmith from Goldman Sachs in 2017. Terry Smith, the high profile and controversial CIO of Fundsmith, will provide advice and support and has invested £25 million of his own money in the fund, with the firm’s other partners and employees contributing an additional £5 million.
£16 billion is invested in its flagship Fundsmith Equity fund
Fundsmith was set up in 2010 and currently manages over £18 billion, of which £16 billion is invested in its flagship Fundsmith Equity fund, which is the second-best performing fund in the global sector with a five-year return of 143.7%. It has fared much better than the firm’s Fundsmith Emerging Equities Trust (LON:FEET), which is towards the bottom of the Emerging Market investment trust table over three years.
Raising £822.5 million was a fantastic achievement, especially in the current market conditions, and I would imagine that it was only possible because of the strong long-term performance of the Fundsmith Equity fund and the high profile nature of the firm, which has a large following amongst retail investors and wealth managers. To put it into context, the previous largest investment trust IPO this year with a 100% equity mandate was Baillie Gifford US Growth (LON:USA), whichraised £173 million.
Prior to Smithson the largest ever UK investment trust launch was Woodford Patient Capital (LON:WPCT), which capped its IPO at £800 million in April 2015. This was backed by another high profile figure in the investment management industry, Neil Woodford, but the fund has struggled and is still trading below its issue price, although there are some positive signs.
Debt financing for the life sciences industry
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The next largest UK investment trust on launch was BioPharma Credit (LON:BPCR), which that raised £606 million in March 2017. This was the first London-listed fund specialising in debt financing for the life sciences industry and is currently yielding 5.5%.
Before that, you have to go all the way back to Kleinwort European Privatisation and Mercury European Privatisation in 1994. These were intended to capitalise on the wave of privatisations during the 1990s, although the returns failed to live up to the high expectations and both have since been wound up.
Another high profile launch that didn’t go to plan was Fidelity China Special Situations (LON:FCSS), which was initially managed by Anthony Bolton, who had achieved great success running the firm’s open-ended Fidelity Special Situations fund. FCSS attracted £460 million when it launched in April 2010, but the returns were poor, and Bolton eventually retired four years later. The investment trust is still going and has had a few decent years, although the sell-off in China is taking its toll.
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