Chrysalis Investments (CHRY) fund managers Richard Watts and Nick Williamson have hit back at the board of the growth capital fund after it served six-month protective notice on them and criticised the pair for a lack of development in their business since spinning off from Jupiter Asset Management.
Announcing an extraordinary general meeting to approve changes to its investment policy in preparation for a three-year wind-down when no new investments will be made, chair Andrew Haining expressed disappointment in Chrysalis Investment Partners (CIP) which Watts and Williamson set up two years ago.
“It was hoped that, by enabling a spin-out of the IA [investment adviser], CIP would be well positioned and funded to build out its own regulatory and operational capacity as communicated at the time. In the board’s view, the IA has not developed its regulatory and operational capacity as envisaged over this period.”
He also expressed dissatisfaction with the performance of their investments.
“The company had a portfolio of 12 growth company investments in March 2024. It was hoped that, by extending the life of the company by a further three years, these growth companies would have the chance to develop and their value could be maximised.
“This is still the case for Starling and Smart Pension, which have both increased in value and hold potential for further growth. However, the remaining four investments have not progressed as hoped,” the chair said in reference to Klarna, the credit provider that has slumped since its New York listing last year; insurer wefox, marketing platform Brandtech and online travel company Secret Escapes.
He also confirmed the appointment to the board of consultant Sam Dobbyn, a former director of Allied Minds and Urban Exposure who as a non-executive director will oversee the wind-down of the company’s assets. The company has returned £108m to shareholders and believes continuing to do so is the right way to deliver shareholder value.
Haining said: “Sam brings deep public market expertise and an impressive track record of experience that will be an asset to the board. We have had the opportunity to work with Sam since late last year as a consultant to the board, and his experience will enable the company to execute the new strategy in the interest of shareholders.”
This has angered Watts and Williamson who slammed the board’s proposal to make them part-time consultants for five months after their contract is terminated. This “would not provide the continuity, accountability and sustained focus required at this critical stage in the company’s lifecycle and risks impairing, rather than protecting, shareholder value.”
They claimed the board did not have the expertise to wind down the portfolio and warned: “The company is likely to permanently lose its board representation at Starling Bank, which accounts for more than half of the company’s net asset value. The loss of influence at such a pivotal holding would materially weaken oversight and impair value realisation.”
Chrysalis shares were broadly unchanged at 95.4p. They have more than halved in the past five years but have recovered 45% in the past three years but still stand on a wide 42% discount to net asset value. Haining said this partly reflected the “perceived risk of reinvestment in the Chrysalis strategy” of buying private growth companies before they float.
The EGM will be held on 24 March. The latest time for shareholders to submit proxy votes is 1pm on 20 March.
Our view
James Carthew, head of investment company research at QuotedData, said: “Time and again, the UK is criticised for failing to back the innovators and entrepreneurs that we produce. Trusts such as Chrysalis were designed to bridge the funding gap between venture capital and private equity/public markets. Listed closed-end vehicles, which are ideal for making long-term illiquid investments, ought to be good structures for delivering that but CHRY didn’t even get a decade to prove itself.”
Stay a step ahead. Our daily newsletter brings you the latest on investment trusts and active ETFs. Subscribe here.
