Keystone Positive Change (KPC) has announced its annual results for the year ended 30 September 2024. Over the year, the company’s NAV total return was 2.2% compared to a total return of 20.4% for the benchmark index. The share price total return for the same period was 13.5% as the discount narrowed from 14.0% to 4.6%. The first half of the year, to 31 March 2024, offered encouraging signs of improved performance, with total returns of 10.7% for the NAV, 13.5% for the share price. The second half of the year proved more challenging, with the NAV losing much of its first half gain and the share price remaining flat.
Since the company adopted its investment strategy in February 2021, NAV total return (to 30 September 2024) has been -26.9%, share price total return -29.2%, while the index has delivered +40.3% over the same period. The board recognises that these shareholder returns are very disappointing and that in order to meet the company’s investment objective of the NAV total return exceeding that of the MSCI All Country World Index in sterling terms by at least 2% per annum over rolling five-year periods, the portfolio would have to deliver significant outperformance for the two years to 30 September 2026 to make up the accumulated shortfall. The board has, of course, been monitoring performance from the outset, and the positive change strategy has historically succeeded in delivering such outsize returns, most recently while benefiting from the pandemic recovery, when portfolio companies such as Moderna were producing life-saving vaccines on an unprecedentedly expedited timeline. The company repositioned the portfolio in line with the current investment strategy at a peak valuation point for growth stocks and since then the macroeconomic environment has been far less supportive of early-stage, innovative businesses of the type that form this company’s investment universe. Such companies are, the board believes, essential for the world to see the climate, biodiversity and social progress that it needs, but have been out of favour with investors.
Following consolation, the company announced on 30 September that it would be proposing a managed wind up with shareholders offered a cash exit in full but, reflecting the board’s confidence in the long-term prospects for Baillie Gifford’s “Positive Change” strategy adopted by the company in early 2021, shareholders will also be offered the option to rollover into Baillie Gifford Positive Change Fund, an FCA authorised open-ended investment company with assets of c.£1.8bn. For shareholders opting for the cash exit, KPC says that this will be “at a modest discount to the formula asset value” calculated for the purposes of the scheme. It is expected that the transaction will take effect during the first quarter of 2025 and further announcements will be made in due course.
Chair Karen Brade commented: “The board retains a high degree of conviction in the positive change strategy and believes it is well suited to an investment trust structure which enables the managers to access the significant impact opportunities available from committing primary capital to private companies and investing in less liquid public companies for the long term. However, we recognise that the company has not received sufficient support from shareholders to allow the current strategy the time needed to play out over the period to the February 2027 continuation vote that we recently introduced. The board has therefore reluctantly agreed to propose the scheme, which will provide shareholders with an opportunity to continue their investment through the rollover option.”
KPC: Underperformance the final nail for Keystone Positive Change
