International Biotechnology Trust has decided to appoint Schroder Unit Trusts Limited as its fund manager and AIFM. Shareholders had told the board that they wanted continuity of the company’s investment approach under the existing investment management team and to retain the dividend policy.
Ailsa Craig and Marek Poszepczynski (who have been lead managers on the fund since March 2021) have accepted Schroders’ conditional offer for them to continue as portfolio managers. Under their stewardship, the NAV has outperformed its benchmark, the Nasdaq Biotechnology Index, by 6.7%. It has also beaten that benchmark by 9.0% and 35.5% respectively over the last five and ten years.
There are also no plans to change the company’s discount and premium management policy.
These appointments are subject to finalisation of legal documentation and to regulatory approval, and International Biotechnology is expected to transition formally to Schroders in November 2023, following publication of the annual results to 31 August 2023.
The trust will continue to have a relationship with SV Health Managers LLP in connection with the existing unquoted portfolio, which is principally invested in two SV Health Investors funds.
Major shareholders have indicated their support for the board’s process. In accordance with the articles of association, a continuation resolution will be proposed at the December 2023 AGM.
Ailsa Craig and Marek Poszepczynski commented:
“In Schroders, the board has found an excellent new home for IBT. We’re pleased to be able to continue our focus on managing the company’s portfolio and delivering value for shareholders. We look forward to IBT benefiting from integration into an investment management business which is well-resourced in many key areas.”
The chair Kate Cornish-Bowden currently serves as a non-executive director of a Schroders-managed investment trust. In order that she continues to be deemed an independent director of International Biotechnology, she intends to resign from that other directorship prior to Schroders’ appointment.
IBT will be positioned within Schroders’ global thematic equities capability as its flagship biotechnology offering. Ailsa and Marek will join Schroders’ quoted healthcare team, which has a global footprint including specialist analysts in London, New York, Tokyo and Hong Kong. The seven-strong healthcare team of Schroders Capital, Schroders’ private markets investment division, will be an additional resource available to the fund managers.
IBT expects to benefit from Schroders’ broad client base and marketing capabilities. IBT will be Schroders’ only pure biotechnology strategy available to retail UK investors and will be the subject of dedicated promotional campaigns.
IBT will further benefit from the operational support that comes from Schroders’ long standing experience managing investment trusts and other fund products. This is particularly important in light of the increasing regulatory burden on investment trusts as retail-facing products. Schroders currently has 14 investment trusts on its platform, with c. £10bn of assets under management, and IBT is expected to benefit from cost and operational synergies that come from managing multiple investment trusts.
Schroders’ commitment to sustainability and impact investment strategies will support IBT’s established Environmental, Social and Governance (ESG) policy. IBT strives to ensure that its portfolio companies consistently prioritise ESG principles in their day-to-day operations.
Schroders will charge a management fee payable by IBT on its quoted portfolio of 0.7% per annum, which is broadly in line with the effective fee currently payable to SV Health Investors.
This will be in conjunction with a performance fee structure, being 10% of the relative outperformance of the quoted portfolio above the Pound Sterling-adjusted NASDAQ Biotechnology Index plus a 0.5% hurdle, capped at an amount equal to 1.25% of the company’s net assets in any financial period. As currently, any underperformance of the quoted portfolio against the index will be carried forward for the current financial period plus two succeeding periods and performance fees in excess of the performance fee cap will be carried forward for the current financial period plus two succeeding periods and paid in such subsequent period(s) subject to any offset against any subsequent underperformance before being paid out. Additionally, any performance fee calculated in respect of a financial period shall only be paid if the NAV per share has increased over such financial period, with any performance fee not paid being carried forward and paid in the next financial period in which the NAV per share increases (subject to the performance fee cap).
In respect of its unquoted portfolio with SV Health Investors, IBT will continue to pay the prevailing management fees and carried interest on its investments in two SV Health Investors venture and crossover funds, which represented 7% of the NAV as at 30 June 2023. There will no longer be any management fee payable on the existing direct unquoted portfolio, which represented 2% of the NAVs as at 30 June 2023; the current performance fees on these assets will continue to be payable, subject to an annual cap of 2% of the company’s net assets.
Compared to the costs and fee arrangements prevailing for the current financial year, it is anticipated that IBT’s ongoing charge ratio (excluding any performance fees) will reduce marginally for its next financial year to 31 August 2024, and further over time.
Schroders has agreed to make a significant contribution to the company’s costs in connection with the change of fund manager, by way of a waiver of up to six months of management fees, which is expected to offset the company’s direct transaction costs.
[This feels like a very good outcome for International Biotechnology shareholders and we are really pleased that Ailsa and Marek get to stay on as managers.]
IBT : Schroders takes on International Biotechnology