Scottish Mortgage Trust (SMT) is seeking shareholder approval for an extra £250m capacity to invest in unquoted companies after SpaceX’s doubling in value late last year and share buybacks pushed its private equity holdings to 37% last month, well above a 30% cap.
The additional capacity, equivalent to 1.7% of the £15.2bn total assets held by the FTSE 100 investment trust, would enable Baillie Gifford fund managers Tom Slater and Lawrence Burns to make follow-on or new investments in private companies when its holdings in unquoted stocks exceed 30%.
The extra capacity would require annual approval by shareholders starting with a general meeting in London on 10 April to launch the scheme. A circular will be published with all the details, including how to vote ahead of the meeting.
The global growth trust says it requires the flexibility to invest above the 30% cap at times because of factors outside its control. For example, last year it bought back £3bn of shares in response to its stock trading at an average 12-month discount of nearly 10% below net asset value (NAV). As this was largely funded by selling listed stocks, it pushed up the proportion held by SMT in unquoteds.
However, the biggest factor in pushing the investment trust over the 30% level in private equity was the doubling in the valuation of Elon Musk’s SpaceX. Its jump to $800bn, during a regular tender offer enabling staff in the rocket and satellite company to sell their shares, saw its position in Scottish Mortgage swell to 15.1% from 8.2% of the portfolio in December. At the end of February this stood at 15.4%.
If SpaceX floats this summer as reportedly planned, Scottish Mortgage would likely see its private equity exposure fall below 30%. SpaceX is believed to be pursuing a $1.5trn valuation, having already achieved $1.2trn through its merger with sister company xAI. However, Scottish Mortgage has other unquoted businesses such as Anthropic, the $380bn Claude AI chatbot operator, Databricks, the $134bn AI data platform, and Stripe, the $159bn payments processor, which have also enjoyed valuation increases to apply upward pressure on the private equity limit.
Scottish Mortgage shares, up 6p, or 0.5%, to £11.88 this morning, have rallied 26% in the past year and narrowed their discount to net asset value to 6.7%. SMT’s five-year performance still bears the scar of the 2022 crash with a total return to shareholders of just over 5%. Over 10 years, however, it is the best-performing global investment trust with a 414% total return.
Our view
Matthew Read, senior analyst at QuotedData, said: “We think Scottish Mortgage’s proposal is a pragmatic solution that seeks to balance managing the level of unquoted exposure within the portfolio – still anchored around 30% of total assets – while allowing the trust to participate in follow-on investments where the manager believes these are appropriate. There may be instances where being unable to support subsequent funding rounds could be detrimental, either because value-accretive follow-on investments cannot be made or because SMT’s stake in successful companies could be diluted if it is unable to maintain its position.”
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