Chrysalis Investments (CHRY) is weighing proposals for its future after the growth capital fund found investors split on the investment company’s next step.
A six-month consultation by investment bank Rothschild & Co with holders of 58% of Chrysalis shares found “widespread agreement” that the £613m pre-flotation, private equity fund holds attractive investments, such as Starling bank, credit lender Klarna and Smart Pension.
However, while a “significant proportion” of shareholders believe Chrysalis should be given time to allow its assets to achieve their full potential, another “proportion” of investors want “an orderly exit” “in a shorter timeframe” from their investment in a listed fund trading 30% below net asset value (NAV).
In response, the company’s board and its advisers have started a “detailed consideration of how best to evolve Chrysalis in response to the divergent shareholder views.”
Fund managers Richard Watts and Nick Williamson, who were not involved in the shareholder consultation, will contribute to the analysis with the board aiming to publish its “favoured proposal” with next month’s annual results.
In the meantime, Chrysalis will continue with the commitments made under the capital allocation policy adopted this year, under which it promised to make no new investments before the next annual general meeting in March 2026 and complete the return of £100m of capital through share buybacks. As of 31 October it had returned £93m.
It will then continue to buy back its undervalued shares to return at least 25% of profits from realised investments.
The news came alongside a third quarter update showing that the value of Chrysalis’ portfolio had dipped in the three months to 30 September. NAV per share fell 1.92p or 1.1% to 171.65p with an 8% fall in the post-flotation share price of Klarna weighing on returns.
This followed a strong second quarter when NAV leaped 13.7% on the back of a big valuation increase in Starling that underpinned a 21.5% underlying return over 12 months.
Chrysalis closed the quarter with net cash of around £48m. Last month it repaid £10m of its £70m term loan.
The shares, a victim of the 2022 growth crash, have more than doubled since hitting a low of 52.9p in October 2023, but shed 1.5% to 118.8p today. Launched at 100p in 2018, they peaked at 271p in September 2021 before inflation and interest rates started to rise.
Our view
James Carthew, head of investment company research at QuotedData, said: “The significant rise in Chrysalis’s NAV over 2020/21 and pullback over 2022 may cloud investors’ perception of the trust. However, since its launch seven years ago, it has done a good job of generating value while providing much-needed financing to a range of growing businesses. It has also succeeded in realising value from a substantial part of the portfolio, with the prospect of more to come. Now seems about the right time to offer an exit to those shareholders that want it while seeking fresh funds as part of that process. I would also suggest committing to the provision of future liquidity opportunities at say five-to-seven-year intervals, as this would give additional reassurance to prospective investors.”
