Edinburgh Worldwide’s board has been reviewing the trust’s strategy, execution, and recent performance. It has determined that change is needed “to put the trust back on a path to growth”.
Some of the proposals need shareholder approval. Today it has published a circular setting out its plans for a change of investment policy, and a reduction in the share premium account.
Retaining exposure to private companies
The accompanying statement acknowledges that the trust has underperformed against its objectives and its peer group. The board reiterates that it “is enthusiastic about, and committed to, the trust’s vision and strategy to identify and access potential outsized returns from a carefully selected and managed portfolio of game-changing businesses that aim to transform end markets.” It also stresses that “The trust’s access to private companies such as SpaceX, and Psi Quantum, remains an important element of this strategy.”
Change to manager line-up
Baillie Gifford’s Luke Ward and Svetlana Viteva will become co-managers alongside Douglas Brodie, with the aim of “rebalancing the portfolio to increase focus and resilience; broadening access to a larger pool of global small cap businesses and tightening execution decision making and discipline.”
New investment policy
More focused portfolio – moving to 60–100 companies from 75–125.
Lift maximum market cap at time of investment from $5bn (set in 2014) to the size of the largest stock in the S&P Global Small Cap Index ($29.5bn at end September 2024), which is also being enshrined in the investment policy as the trust’s comparative index. [QD comment from James Carthew – NB this would take EWI’s permissible investments well into the FTSE 100 Index, which some shareholders – me included – might feel is excessive]
Preparing for significant capital return
The trust has built up a substantial share premium account following the high level of historic issuance of shares. The outstanding balance on what is currently a non-distributable reserve is £499,723,527. Under law any share premium reduction must be approved by shareholders and the Court.
Once the share premium reduction has concluded, the trust will have a significant pool of reserves which can be used in future to fund distributions including dividends, and any returns of capital, including any future tender offer and share buybacks.
The statement says that “The board is continuing to execute an active share buy-back programme while the shares trade on a meaningful discount and will consider other potential routes to return capital to shareholders in 2025. Subject to normal capital adequacy requirements and receipt of Court and shareholder approvals, the board expects to have the ability to return up to £130m of capital to shareholders.” [That compares to a current market cap of £630m]
[With the benefit of a post-election bounce in its shares, Edinburgh Worldwide is already trading close to asset value, which should alleviate some of the pressure on the board to return capital to shareholders. There is a big difference between what constitutes ‘small cap’ in the US and everywhere else, but permissible market cap size is not what has caused this trust to lag the returns of peers such as Herald. Nor does the change in the number of stocks in the portfolio seem all that radical. However, Edinburgh Worldwide is managed with a particular style and, for the trust to perform, that style needs to return to favour, which I believe will happen in time.]
EWI : Shake-up for Edinburgh Worldwide as it commits to hand back £130m to investors
