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Game of two halves as Schiehallion Fund falls back to earth

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Schiehallion Fund Limited has announced annual results for the year ended Jan 31, 2023. Since its launch in March 2019, shares have ridden a rollercoaster, reaching a peak of more than 150% above list price, however as we have seen across the growth universe, many of these companies crashed back down to earth over the past 12-18 months.

During the financial year to 31 January 2023, the company’s ordinary share price and net asset value returned negative 56.6% and negative 24.5%, respectively. Taken since launch, a period of roughly 3 years, shares and net asset value returned negative 8.0% and positive 19.8%, respectively.

Commenting on the volatility, Dr Linda Yueh noted;

“In each of the company’s previous annual reports, I noted the level of premium to net asset value at which the company’s shares have traded and explained that investors should bear in mind that shares bought at a high premium to net asset value can quickly lose substantial value if the premium is eroded. Unfortunately, this proved to be the case over the last 12 months as sentiment turned against growth stocks and private company investments.”

On the outlook, investment manager Peter Singlehurst was positive:

“From a deployment perspective, 2023 has got off to a good start. We are currently in deep diligence on companies in the US, China, Italy, and Israel. In all these instances, price realism exists, sometimes at valuations below previous rounds. We believe normalising down rounds is essential for high-growth private markets. Far from viewing it as a marker of failure, we applaud those founders and boards willing to adjust their expectations to market norms. We have more respect for those companies that raise rounds at lower valuations than those that use artificial means to maintain valuations set in an environment that no longer exists.

“Most of the capital we have deployed from Schiehallion has been primary investment into companies. Companies create and issue new shares, with the capital we use to buy them going directly onto the companies’ balance sheets. This is our preferred means of investment as it gives companies extra resources to fund their growth. Put another way, the investment itself favourably twists the odds and magnitude of success. This contrasts with secondary investment, where shares are bought from existing investors, with none of the capital going to the company’s benefit in the same direct manner. Our preference has always been, and will continue to be, for primary over secondary investment, but in the current environment, we are seeing some compelling secondary opportunities that are too good to ignore. Early investors at the end of their fund life are coming under pressure to realise gains and return capital to their clients. This is giving rise to a spike in the supply of shares in private companies, with a corresponding decline in the price at which we can buy these shares. We have been more actively exploring this market in conjunction with our dealing team. Though we have not yet transacted in this manner, we see it as an extra string to our bow that, over time, has the potential to broaden the opportunity set for The Schiehallion Fund.

“We want to finish by thanking shareholders for their support in 2022. As we look into 2023, we see strong reasons for optimism for both our existing holdings and new opportunities. Our proposition around long-termism and alignment with companies is more relevant today than it ever had been and we maintain our conviction that this will lead to attractive returns for shareholders.”

MNTN: Game of two halves as Schiehallion Fund falls back to earth

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