QD view – Backing the future
One of the things that I love about the investment company sector is that your investments can make a difference. Buying a share in Diageo won’t lead to exciting innovation in the drinks industry. Buying a share in a bog-standard UK equity fund probably won’t have much of an effect on the world either. However, backing a fundraise from one of many exciting investment vehicles funding the companies of the future will.
The future is battery powered
This week saw a £135m fundraise by Gore Street Energy Storage that will fund new investments in battery storage projects across the UK and Ireland. These are essential components of a power grid that is adapting to the fluctuations in supply associated with renewable energy generation. Gore Street bills itself as the largest fund in the sector by MW – 440 to Gresham House Energy Storage (GRID)’s 425MW, but GRID is the larger fund by market cap. Neither is likely to run out of projects to invest in. Gore Street has an 80MW project acquisition lined up for the next few weeks but says it has a 1.3GW pipeline. This week, GRID completed on a 30MW project at Byers Brae (near Livingston, Scotland) that forms part of 485MW pipeline that it had identified when it last raised money in November 2020.
Climb every mountain
Gore Street’s fundraise is dwarfed by that of Schiehallion, however. The Baillie Gifford private equity vehicle named after a Scottish mountain is issuing $700m worth of C shares. This is a great fund – it made investors 80% from launch on 27 March 2019 to the end of January 2021 (its last year end). Since 31 January, the shares have been pretty much flat, but that is not a bad result given the sell-off in tech. However, there’s an issue with it, in that because it is listed on the Specialist Fund Segment of the London Stock Exchange, many share trading platforms actively block ordinary investors from buying it, the platforms I use are among them. I, and I am sure many other private investors find that incredibly frustrating. There’s no legal reason why this should be the case. Private investors were shut out of Schiehallion’s fundraise too. If they can hold it, they’re stuck with buying it in the market at more than a 20% premium. Given how hard it is to invest in, why bother? Well Schiehallion is funding tomorrow’s leading businesses and performing very well.
At the end of January, Schiehallion was invested in 29 businesses. The bulk of these are in the US but this is a global fund. The fund is not just about technology, which might be why it has been relatively resilient over the past few months.
The largest holding, and one of the most successful, is Affirm, a fintech company providing credit at the point of sale. Payments companies were one of the areas that prospered last year as online sales boomed and we shied away from using cash. Stripe, the second-largest holding also falls into this category as does Transferwise, which ranks about eighth. Affirm IPO’d in January and its shares almost doubled on the first day of trading.
Next on the list is Bytedance, the company behind TikTok, its Chinese equivalent Douyin and a news site Toutiao. The company upset former President Trump but he was ousted before implementing a plan to force the sale of its US business and Biden seems less inclined to penalise it. There are rumours of an IPO and a valuation close to $250bn, which would provide a substantial uplift to Schiehallion.
Rocket to the moon
Add in Warby Parker, a direct-to-consumer eyewear business and SpaceX, Elon Musk’s company that just won a contract to take us back to the moon and that accounts for a third of the portfolio. Life sciences companies, video games, computer chips and even synthetic biology feature elsewhere. However, rather than me trying to explain it here, representatives from Baillie Gifford’s private equity team are joining our private equity day, as part of our spring webinar series, on the 19th May. Click here to register.