Ian Cowie: Schroder UK Public Private Trust, will patience pay off?

Our columnist is 63% down, but three pieces of good news have contributed to the trust’s share price rise over the past month.

Three under-reported news events suggest patience might finally pay off for long-suffering shareholders in Schroder UK Public Private Trust (LSE:SUPP), who subscribed £800 million for the skills of former ‘star fund manager’ Neil Woodford. Since the initial public offering (IPO) in April 2015, SUPP has been an unmitigated disaster.

So, this would be a good point to fess up that your humble correspondent is currently 63% down here, having subscribed at 100p per share in this investment trust’s IPO and topped up at 76p in March 2018. Please don’t laugh, but the shares traded at 35p this week.

Wiping away the tears, that’s 31% higher than they were a month ago and nearly double the 18p low-point hit during last March’s pandemic panic. What’s up at SUPP?

First, it survived an existential threat when banks agreed to rollover its debts, rather than force a fire sale. Then one of its top 10 holdings agreed a $1.5 billion (£1.1 billion) takeover by the French pharmaceutical giant Sanofi (EURONEXT:SAN) and - this week - another announced plans for a $100 million float in New York.

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They all add up to a hat-trick of good news for this trust that invests in early stage UK companies, including unlisted biotechnology ‘binary bets’; in plain English, that’s hit or miss. To be fair, this trust was always promoted as a high-risk venture suitable for investors willing to take a 10-year view; so those of us who took the warnings seriously and held on, despite the financial pain, are only a little over halfway through.

Priyesh Parmar of Numis Investment Companies is cautiously optimistic about how the debt rollover reduces short-term stress on the trust’s newish managers, Ben Wicks and Tim Creed, freeing them up to pursue medium to long-term returns.

Parmar explained: “This gives the managers some time to rebalance the portfolio and pay down debt.

“The fund has visibility on a significant cash inflow following the agreement by Sanofi to acquire Kymab. The deal is expected to complete in the first half of this year, at which time it will lead to initial proceeds [of] £65 million for the fund. There is also a potential further £5 million deferred payment, over 24 months, and up to £20 million based on contingent milestones over seven years.”

Kymab, which develops antibodies and immune-oncology therapies, comprises more than 3% of SUPP’s net asset value (NAV). Immunocore, which this week announced its intention to float on the Nasdaq, also develops immunotherapy drugs to fight tumours and accounts for just over 6% of NAV.

Along with SUPP’s top holding in Rutherford Health, followed by Oxford Nanopore, which together comprise more than a third of NAV, there is plenty of scope for further innovation-led recovery. I had better admit straightaway that I know nothing about the science involved, but that is precisely what I thought the professional fund manager would provide.

As I have said several times since then, the only thing I got right with this one was not to put too much in. It never accounted for more than 1% of my modest life savings and I suspect those howling loudest - and keenest to blame someone else - had invested much more than that.

Even if this partial recovery from a very low base proves anything more than temporary, investors in open-ended funds formerly managed by Woodford are unlikely to celebrate. They have been forced to watch its assets being liquidated on a fire-sale basis and will not benefit from this month’s news.

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So perhaps one good thing will come from the sad tale of the so-called star fund manager who fell to earth. It should prompt intermediaries who promoted his fund to reflect on the advantages of investment trusts’ closed-end structure.

That might sound like a technicality, but it allows medium to long-term investors to sit out short-term stock market volatility. This is more important than ever when any pooled fund is investing in illiquid assets, such as unlisted shares or commercial property, which might prove difficult to turn back into cash.

Here and now, SUPP shares still trade 35% below their NAV, potentially tempting bargain-hunters. Considering this month’s news, some brave souls may take the view that once could be good luck, twice might be a coincidence but three times is a trend.

Ian Cowie is a shareholder in Schroder UK Public Private (SUPP) as part of a globally diversified portfolio of investment trusts and other shares.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.