This autumn has seen boom times return to the investment company sector, with a number of highly successful launches.
This latest offer from Merian Global Investors, formerly Old Mutual Global Investors, is called Merian Chrysalis and is one of the more interesting launches. It is managed by Richard Watts, Merian’s mid-cap manager and Nick Williamson, manager of one of their smaller company funds.
Chrysalis will invest in a focused portfolio of later stage unquoted businesses; typically they will be within a couple of years of a flotation and need a cornerstone investor.
Companies have to be able to generate growth rates substantially faster than average UK plc companies, with an ability to protect growth rates and be able to scale up with minimal new investment.
They will also have to be capable of generating significant capital returns over time. Merian analysis shows that companies grow their revenue far more quickly in the two years prior to listing compared to the two years following a float.
Merian has a long history of backing newly floated businesses, but has not had the investment vehicle previously for investing in earlier stage private companies. One of the key drivers behind the launch is that companies are staying private for longer to allow their founders to realise more value, thereby depriving new investors of interesting high-growth opportunities.
Merian dipped a toe in the water with three private investments during the past year that will form part of this portfolio and think their IPO experience and contacts will be invaluable. The charging structure is competitive. Merian’s annual fee is 0.5 per cent – until 90 per cent of the funds raised are invested the cash held does not attract a fee. There is also a performance fee of 20 per cent of returns in excess of 8 per cent a year.
I do not have an issue with performance fees as long as the overall fee structure is fair. In this instance I think it is fair. Despite all the positives, I am not investing at launch for the simple reason there is no rush.
Although there are some companies to add in on day one, it will still take a while to get fully invested. In the meantime, private companies typically are not revalued unless something meaningful happens – such as a new investor at a higher price.
Therefore why rush to invest immediately? You can assess over the next six months or so before pulling the trigger. I will have it in my portfolio at some point, just not at launch. I will give it four out of five.
Ben Yearsley is a director of Shore Financial Planning