The Scottish Mortgage Investment Trust has said it will cap unlisted and private equity holdings at 25 per cent of the fund as its managers venture further into the space.
Baillie Gifford managers James Anderson and Tom Slater said in September last year they had invested 10 per cent of the fund in unlisted firms, as the structure of corporate financing was moving away from public to private markets.
At the time the board said investment in unlisted firms was likely to increase given this changing nature of fund raising.
The £3.5bn trust’s board will now commit to capping the managers’ exposure at 25 per cent of total assets - around 28 per cent of net assets at current gearing levels - in order to “provide clarity for shareholders”.
This compares with a current informal limit imposed by the board of 15 per cent of net assets, according to broker Numis.
Scottish Mortgage’s board said the trust continued to view unlisted investments as important because of “the shift in the balance within the capital markets between the providers and consumers of capital.”
It added: “Given the rising level of these investments within the Scottish Mortgage portfolio and the changing nature of the investment opportunities being seen by the managers, the board is of the view that this is an appropriate moment to provide clarity for shareholders on the maximum level such investments might reach.”
The cap will be voted on at the trust’s annual general meeting on June 30.
Marvin Evans, principal of Old Bank Wealth Management, said this move could calm fears the trust might become heavily invested in unlisted holdings.
However, he suggested “existing holders of the trust might still be concerned their investment will become exposed to greater risk in the future compared to when they entered the trust, on the basis that unlisted stocks and private equity holdings are inherently more risky”.
Alan Solomons, director of Alpha Investments and Financial planning, said: “I am surprised that Scottish Mortgage is prepared to put such a high cap on unlisted investments.
“It is inherent in the nature of unlisted companies that dealing in those companies’ shares can be difficult because there is not a market for them.
“As they are unlisted there is a lower requirement on disclosure, and they tend to be run for the benefit of a small group of shareholders not for the general investing public.
“I fear that this raises the risk profile of Scottish Mortgage maybe too far. While I was considering putting this into some clients portfolio now I would most definitely not.”
