Investment trust insider on Smithson and HarbourVest – James Carthew: Loss of Smithson highlights need for private equity trusts
Smithson’s liquid holdings make it well suited to an open-ended structure, but not all trusts should be looking to do the same.
So, it looks as though we are waiving goodbye to Smithson (SSON) after seven years. When it listed, its IPO raised £822m, making it one the largest-ever new launches in investment company history.
It had a very successful few years but then – like so many other trusts – ran into the buffers when interest rates started to rise in 2022. As a discount opened up, it started buying back shares aggressively, but in the absence of a pick up in performance, this did not solve the problem.
SSON was a pretty vanilla investment vehicle, with good liquidity in the stocks in the portfolio – a median market cap of £8bn helps in that regard – means that it is suited to an open-ended structure.
That does not mean that all trusts with liquid portfolios should be doing the same thing. The investment company structure allows for the use of gearing, derivatives, short-selling, and greater flexibility around the management of dividends.
It also means that there is a board fighting in your corner to keep running costs down and managers on their toes. There is another big intangible benefit too, as managers can take a much longer-term view about the prospects for their investments….
…. the largest listed private equity company by assets is HarbourVest Global Private Equity (HVPE) at £3.1bn. Its size means that it is still relatively popular with wealth managers. I met the managers recently to get an update….
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