Schroder British Opportunities (SBO), the £55m growth capital fund facing a wind-down vote early next year, saw the value of its investments fall 3% in the 12 months to 31 March as the technology weighted portfolio was hit by fears of artificial intelligence (AI) disruption.
Chair Justin Ward said the unquoted companies that accounted for most of its assets grew average sales and operating profits by 16.3%. However, seven of the 11 private equity holdings valued on a multiple of profits were tech companies whose valuation was squeezed on concerns they could be AI losers rather than winners, despite Schroders portfolio managers Tim Creed and Peraveenan Sriharan believing these businesses did not face fundamental risks.
“The board expects this to be a temporary issue as the market gains a better understanding of AI-related risks and opportunities,” Ward said.
The annual results showed net asset value (NAV) per share fell by 3%, to 107.2p with the shares, currently at 68.2p, narrowing their gap, or discount, to NAV from 37.1% to 34.7%. No dividend was declared.
Following shareholder approval to become a pure private equity fund last September, the managers sold 13 quoted company positions for £10m leaving SBO with £5m in listed investments at the end of the financial year. These helped fund their £10.7m investment in two more unquoted companies: insurance broker JMG Group and CSL, an “internet of things” connectivity provider.
The managers said the portfolio focused on established, cash-generative, asset-light businesses across software, tech-enabled services, insurance, healthcare tech, financial and consumer services.
Insurer CFC Underwriting made the biggest positive contribution as it expanded into intellectual property and contractor policies, but HeadFirst weighed on returns as the valuation of its software as a service platform fell despite a successful merger with Impellam.
Launched in 2020, SBO shares have fallen by a third in the past five years. As announced last year, the company is bringing forward a continuation vote to the first quarter of next year. Ahead of this Ward said the board would consult with major shareholders.
Our view
James Carthew, head of investment company research at QuotedData, said: “SBO appears to be another casualty of the agentic AI software sell off – although fortunately not to the same extent as HgCapital Trust (HGT). I would like to see this trust succeed but it is subscale. Better absolute returns and a route to expansion might be needed to avoid going into managed wind-down next year.”
