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Schroder British Opportunities
Investment trust
The Schroder British Opportunities trust (SBOT) seeks to tap into the unloved status of UK equities by targeting companies which have been in the eye of the storm. The portfolio consists of 30-50 small and medium-sized public and private businesses requiring fresh injections of equity, with the trust aiming to provide a net asset value total return of 10% per annum.
Our opinion
We believe this trust is well-placed to tap into the attractive valuations in UK equities, and can also offer aid to a number of strong UK companies which have had to withstand unprecedented headwinds on their business models. The mix of public and private exposure really does allow the trust to stand out from its peers, aided by a quartet of managers and more than 60 investment professionals. The group also has a huge resource to tackle the unique challenges of private equity investing and has already concluded a number of deals in the short life of the trust.Trust manager
Founded in London in 1804, today Schroders operates in more than 25 countries, employing more than 5,000 people, close to the markets in which they invest. Schroders is listed on the London Stock Exchange and invests in a range of asset classes including equity, fixed income, multi-asset and alternatives. Management of the trust is split, with head of equities Rory Bateman and Uzo Ekwue running the public element, while the private side is run by head of UK and European private equity Tim Creed and Pav Sriharan.
Rory joined Schroders in 2008 as head of European institutional portfolios and became head of UK and European equities in 2014. Previously he worked at Goldman Sachs Asset Management as a research analyst and European portfolio manager. Uzo joined Schroders in 2020 initially as an Equity Research Analyst. In addition to this portfolio, Uzo also manages a fund that invests across the market cap spectrum in small, medium and large sized businesses.
Tim is a member of Schroder Adveq's management committee and the private equity investment committee. He is also on the advisory boards of several European buyout and turnaround fund managers. Prior to joining Schroder Adveq in 2004, Tim worked as a project manager at Aon in London, having previously spent five years at Accenture in strategy and operations consulting. Before joining Schroders Capital Private Equity in January 2022, Pav worked in the Schroders Corporate Development team for six years assisting the Group with M&A and other corporate strategic partnership & alliance projects. Prior to that, he was in a dedicated illiquid asset valuation role within the firm with a principal focus of private equity investments.
Rory BatemanTrust manager
Investment board
The four-strong board is chaired by Neil England. Neil has extensive international business experience in public and private equity companies. During his career he has held numerous leadership roles in manufacturing, sales, marketing and general management across sectors including food, distribution and technology. He was previously vice president of Mars Incorporated, group chief executive at The Albert Fisher Group and group commercial director at Gallagher Group.
Neil has also been chairman of a number of companies in the past three years, these include ITE Group, Blackrock Emerging Europe Plc and four private businesses. Diana Dyer Bartlett and Tim Jenkinson make up the rest of the board.
Investment process
The trust targets two specific businesses, these are ‘high growth’ firms which are set to benefit from the rapid change in corporate and consumer behaviour due to Covid-19; and ‘mispriced-growth’ companies which, despite their current struggles, offer products and services with long-term structural growth drivers.
The managers plan to keep both the private and public segments of the portfolio as diversified as possible from a sector perspective. The trust also has a fixed seven-year life cycle.
The trust initially invested in listed companies worth between £50m and £2bn, before transitioning towards an equal mix of public and private equity investments across 30-50 firms. However, this has now shifted with private equity currently accounting for around two-thirds of the portfolio (figures at 18 August 2023). The private equity allocation will have a prominent focus on growth and buyout opportunities.
The trust has an ongoing charge of 0.6%, but there is also a performance fee of 15% on the private equity element of the portfolio – this is activated if it outperforms by 10% each financial year.
ESG
ESG - Integrated
Both the public and private equity teams have their own dedicated ESG specialists – they will then collaborate to maximise the overall ESG impact across both segments of the portfolio. ESG is present across all three stages of the trust’s investment process. The selection process has both exclusions that go against the firm’s ESG principles (tobacco, gambling and fossil fuels) as well as a positive screen favouring investments which follow the UN’s 17 Sustainable Development Goals (SDGs), which define the biggest challenges facing global societies.
The next stage is assessment criteria, where the team uses tools to provide greater clarity on sustainability features. Examples include SustainEx, which quantifies the positive and negative impacts on the environment and society, while the World-check service conducts contracting third party risk assessment. The final stage is engagement (interacting with portfolio companies to encourage and enforce positive change with regard to SDGs and ESG) as well as enhanced ESG reporting.
Risk
This trust is a pure play on the recovery of UK equities, with returns likely to be tied to market sentiment around the economy following the challenges posed by the likes of Brexit and Covid-19 in recent years. The trust also invests in small and medium-sized companies, both of which tend to be higher risk than larger companies. As with most trusts, this one borrows money to invest (i.e. uses gearing), which also increases risk levels for shareholders.
The trust also invests in private equity companies, which can be difficult to value. Information from underlying investee companies may be delayed, missing or restricted which would lead to valuations being made on incomplete information. It is difficult to accurately time the exit of private equity investments. Exits will take time and the portfolio managers may have very little influence on any decisions around the timing on exits. However, the team have a huge resource in the private equity field with over 45 investment professionals and over £9bn of assets managed in this space.
Risk
This trust is a pure play on the recovery of UK equities, with returns likely to be tied to market sentiment around the economy following the challenges posed by the likes of Brexit and Covid-19 in recent years. The trust also invests in small and medium-sized companies, both of which tend to be higher risk than larger companies. As with most trusts, this one borrows money to invest (i.e. uses gearing), which also increases risk levels for shareholders.
The trust also invests in private equity companies, which can be difficult to value. Information from underlying investee companies may be delayed, missing or restricted which would lead to valuations being made on incomplete information. It is difficult to accurately time the exit of private equity investments. Exits will take time and the portfolio managers may have very little influence on any decisions around the timing on exits. However, the team have a huge resource in the private equity field with over 45 investment professionals and over £9bn of assets managed in this space.
Gearing
The managers are able to gear up to 10% of net asset value, calculated at the time of drawdown.
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