A kerfuffle has broken out in the tea and biscuits world of City investment trusts. Scottish Mortgage has asked one of its non-executive directors, Amar Bhidé, to leave after he disagreed with investment practices at the £13bn FTSE-listed company run by Baillie Gifford.
He is not the only one worried about Scottish Mortgage. Investors have marked its share price down 31 per cent over 12 months, shying away from its large bets on technology which have done poorly since 2021. Its discount to net asset value has widened to 18 per cent, the most in a decade.
A good portion of the tech bets are private companies. Both Northvolt and SpaceX are overall top 10 holdings. Bhidé questioned whether portfolio managers at Baillie Gifford had sufficient time to focus on these private holdings.
The trust upped its limit for such unquoted investments by a fifth to 30 per cent at the end of 2020. Since August 2020 these private positions have doubled as a proportion of its portfolio and returns have gone in reverse. James Anderson, the successful portfolio manager who led the trust’s push into these investments over a decade ago, retired last year. Good timing. More bad news could be coming.
A lagged effect often occurs between late-stage VC investments and listed companies with similar higher growth characteristics, according to analysts at Investec. The trust’s borrowings have touched a 10-year high of 17 per cent.
For Bhidé all this too raises questions of governance at this storied trust, 114 years old on Friday. Chair Fiona McBain, on the board since 2009, may lack independence. She also has three other directorships, including at listed companies Curry’s and Direct Line. Three of the six board members at Scottish Mortgage, including Justin Dowley, have been in place since 2015.
Soaring interest rates make venture capital bets riskier than ever. Scottish Mortgage must rejig its board and change its ways.
Lex: a sum of the pars exercise
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