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'Dysfunctional' markets prompted launch of Merian trust

'Dysfunctional' markets prompted launch of Merian trust

The increasingly "dysfunctional" nature of the UK stock market was behind the decision to launch the Merian Chrysalis Investment trust, according to its joint manager Richard Watts.

Mr Watts (pictured) runs the £3bn Merian UK Mid Cap fund, which launched in November, and jointly manages the trust with Nick Williamson, a smaller companies fund manager at the firm.

Mr Watts said that he and Mr Williamson have separately and over many years invested in the initial public offerings of companies listing on the UK stock exchange.

He said they have made mostly successful investments in IPOs, but noticed that the gains made by shareholders after a company goes public are less than those made before the IPO.

He said: "The stock market now is very dysfunctional, it judges companies based on one or two quarters of earnings, whereas investors not on the stock exchange take a longer-term view, and make more money as a  result, so we launched the trust to capitalise on that.

"That dysfunctionality means companies are more reluctant to join the stock market, so leave it much later to do so, meaning even fewer of the returns are available to stock market investors by the time the business eventually comes to the market."

The £198m Merian Chrysalis investment trust has returned 14 per cent in the six months since launch, according to data from FE Analytics.

Richard Parfect, multi-asset fund manager at Seneca, was an early investor in the trust. He said: "The 'private for longer' theme the Merian team is seeking to capture plays to the strengths of supporting exciting later-stage private companies.

"The fee structure of the trust gives strong alignment with the management team.

"Furthermore, we are confident that, as value investors and cognisant of the importance of 'contrarian' investing, supporting such a unique trust launch in testing conditions will reap our investors attractive medium to long term returns."

david.thorpe@ft.com