The flotations of SpaceX and Bending Spoons, the Italian digital retailing platform, powered Schiehallion (MNTN) to a 29.1% investment return in the six months to 31 July.
Half-year results show Bending Spoons’ $18.5bn flotation provided an even bigger boost for the Baillie Gifford growth capital fund than SpaceX’s record $1.7trn IPO.
From January when it accounted for 14.6% of the portfolio, Bending Spoons generated an absolute return of 62.9% in the following six months leading up its Nasdaq debut in July.
That contributed 9.6%, or a third, of Schiehallion’s growth in net asset value (NAV), beating the 6.2% contribution from SpaceX which had accounted for 13.6% of assets in January and made a 28.7% return in the half-year period including its hotly awaited listing in June.
Over a longer period, however, SpaceX has been the more significant holding for Schiehallion. As its first investment after launch in 2019, Schiehallion has enjoyed a 53-fold return on the rocket, satellite and now artificial intelligence (AI) group from when it bought in at a $33bn valuation.
The coming to market of its two biggest private holdings leaves Baillie Gifford fund managers Peter Singlehurst and Robert Natzler with a question of what to do next. Over 35% of assets are now in listed companies, some way off its original remit of backing late-stage private businesses looking to float.
This gives Schiehallion a total “liquidity sleeve” of 42% including 6.7% cash, providing plenty of flexibility to switch more of these back into private companies.
Outlining where they were looking to reinvest, the managers expressed their first sign of concern at excessive valuations of AI developers. Noting the extraordinary concentration of private company fund raising, they cited Pitchbook figures showing more than half of the $413bn provided by US venture funds this year had gone to OpenAI and Anthropic.
Anthropic, the Claude developer, is reportedly heading for a $2bn IPO this autumn. It is a 6.1% top 10 holding for Schiehallion and also a key position for Baillie Gifford’s US Growth (USA) and Scottish Mortgage Trust (SMT).
“It continues to be an area where we are applying a great deal of thought particularly in the context of elevated valuations,” they said.
Flagging up the next generation of potential winners in the portfolio, Singlehurst and Natzler said they were “greatly enthused” by the opportunities facing TikTok owner ByteDance, fellow Chinese social media platform RedNote (held as Inspire Inc), UK challenger bank Revolut and Vinted, the European online resale platform.
The main negative was a derating of the shares which only made 10.1% over the period as they fell from a small premium over NAV to close at a 14.4% discount. This may have reflected investor concerns over inflationary pressures unleashed by the US-led war on Iran. High oil prices have helped push long-term US borrowing costs to a 22-year high of nearly 5.5% that casts a cloud over the sort of growth companies Schiehallion backs.
The emergence of the discount prompted the board to stop issuing new shares and start making a small number of purchases of its stock.
Over 12 months shares in the dollar-based fund have done very well, returning 63.3%, ahead of the underlying 55.8% growth in NAV. Today they firmed 0.5% or a cent to $2.19.
Our view
David Batchelor, senior analyst at QuotedData, said: “While returns may be lumpy, MNTN’s 29.1% NAV illustrates the potential rewards from backing exceptional private businesses early, with Bending Spoons and SpaceX contributing more than half the return. Both have now listed, which gives MNTN greater scope to recycle capital into the next generation of investments once lockups expire – useful now that the portfolio is fully invested. One consequence of this success is that concentration has increased, with Bending Spoons representing 17.3% of assets at the end of July.
“Frustratingly, shareholders have captured less of that progress, with the shares moving from a small premium to a mid-teens discount. Against this backdrop, resuming buybacks makes sense, although it is encouraging that purchases remain modest. Ultimately, the real value should come from progress in the underlying holdings rather than squeezing a few points off the discount.”
