Investment trusts for pre-IPO opportunities

​​​I recently noted that interactive investor, whether or not it goes ahead with a stock market flotation, can already be held via the Unicorn AIM VCT (UAV)​​​​​​. But it’s worth adding that other companies tipped for “hot” initial public offerings (IPO) are also available via trusts – some of which are better-known than others. To start with some of the more obvious names, the managers at Chrysalis Investments (CHRY)​​​​​​ look to buy late-stage private companies and hold them through flotation and have so far generated strong returns by doing so. Their approach results in a mixed portfolio of recently floated stocks such as Wise (WISE) and private names that are frequently subject to IPO speculation, from Klarna to Starling Bank.

Elsewhere, a trust that has been in for a bumpy ride but has some interesting holdings is Schroder UK Public Private Trust (SUPP), better-known to some as the former Woodford Patient Capital trust. As Schroders’ Tim Creed discussed on an Investors’ Chronicle podcast from late July, the Schroders team has largely tried to improve prospects for the holdings they inherited from Neil Woodford. Yet the portfolio does include some promising names. One is DNA sequencing specialist Oxford Nanopore, which made up around a fifth of the portfolio at the end of March and is expected to IPO in the near future.

The dedicated private equity trusts tend to benefit from successes in the unlisted space, although there is no guarantee they will keep an investment up to the point of IPO. Elsewhere, some of the Baillie Gifford-managed trusts are well-known for dipping a toe into private markets. Scottish Mortgage Investment Trust (SMT), the most prominent name to do so, had stakes in 51 private companies at the end of July, accounting for 21.5 per cent of its assets.

Of course, the Baillie Gifford teams are not alone. Many trusts are delving into unlisteds, sometimes resulting in exposure to upcoming (or expected) IPOs. Over in Asia, the FT recently reported that TikTok owner ByteDance would go ahead with an IPO on the Hong Kong market despite challenges posed by the recent crackdown on Chinese tech. Scottish Mortgage has been a well-known investor in the likes of ByteDance and other names such as Ant International, but it is not alone when it comes to the former. Fidelity China Special Situations (FCSS) has also had a ByteDance position as part of a small allocation to a handful of unlisted companies.

More generally, it is worth remembering that others have notable allocations to private companies. Caledonia Investments (CLDN) had 27 per cent of its assets in private capital at the end of July, with unlisted wealth firm Seven Investment Management as its top holding. RIT Capital Partners (RCP), one of the wealth preservation trusts, had 29 per cent of its portfolio in private assets at the end of June. A more niche example is Vietnam Opportunity (VOF), which had around a fifth of assets in private companies at the end of July, partly because of limits on foreign ownership of listed companies in the country.

The options to jump into the unlisted equity space are certainly there, and investment trusts are increasingly turning their eye to the space. This means more ways to access growth before an IPO, and any uplift that follows – if with potentially heightened risk.

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