- Trust fundraising has fallen off a cliff so far this year
- Can new entrants capitalise on a stronger equity market?
Two new investment trusts will attempt to come to market in the coming weeks, providing a fresh test of the frosty investor sentiment that has killed every mooted initial public offering (IPO) in the sector so far this year.
Conviction Life Sciences is hoping to raise £100mn via an ongoing issue that closes on 13 December. It will target life sciences companies in the UK, Europe and Australia that fund manager Andrew Craig called "structurally undervalued" in this biotech bear market. Valuations for companies in the medical sector soared almost indiscriminately during the pandemic, only to come crashing down to earth once the virus was under control.
IPO activity in biotech has been muted all year – and UK investor enthusiasm has been further dented by a volatile few months in economic policy. However, Craig sees a logic to launching a life sciences fund around the bottom of a valuation trough. “It’s these periods of maximum dislocation that afford the best valuation opportunities to constitute a portfolio,” he said.
Although market optimism might be in short supply, near-market medical advances will drive Conviction Life Sciences. “We’re teetering on the brink of an explosion in value creation, just because of the exponential nature of the science," Craig said. He cited liquid biopsies – blood tests that detect cancerous tumours – as an example of an emerging technology that could soon become a routine medical procedure.
Craig isn’t ultimately concerned about whether Conviction reaches the £100mn fundraising target set out in its prospectus, acknowledging that the retail investors and family offices might sit on the sidelines in the current climate. He simply hopes to bring some of the UK’s under-appreciated biotech upstarts to the attention of capital markets and investors. “I'm immensely frustrated by all these challenges for these fabulous British companies, and we'd love to be able to make a difference,” he said.
Craig has an equity sales background and worked at life sciences-focused investment firm WG Partners from 2015 to 2021. His existing fund, VT PEF Global Multi-Asset Fund, is a diversified long-term option that holds indices, ETFs and cash.
Bricks and mortar
Meanwhile, another upcoming IPO will test appetites for transport and logistics assets. The AT85 Global Mid-Market Infrastructure Income trust, which announced an intention to target £300mn via an IPO and was still due to outline its fundraising timetable at the time of writing, will look to focus on an “innovative, adjacent-space strategy in some of the most sought-after spaces in infrastructure”. The investment team wants to invest in assets in three key sectors of transport and logistics infrastructure, utility-related infrastructure and digital infrastructure, and to focus on “core-plus” infrastructure assets, defined by the team as those that have potential to generate both growth and income.
The team has access to an initial portfolio of assets of £98.5mn, and a "total pipeline" of assets of £539.8mn. Like some other new offerings in the alternatives space it has a punchy target net asset value (NAV) return, amounting to between 8 and 10 per cent a year over the medium term once the net initial proceeds from the IPO are fully invested.
With the FTSE All-Share ticking upward over recent weeks, the trusts will hope to capitalise on recovering investor sentiment by offering something compelling. And yet it may still struggle: Conviction Life Sciences is looking to target a sector that has endured a severe sell-off in the last year and investors may still hesitate to back a new fund.
The AT85 fund taps into strong demand for infrastructure funds, but is looking to IPO at a time when many more established names in the sector are still on offer at relatively low prices. The average fund in the Association of Investment Companies Infrastructure saw its shares trade at a 3.1 per cent discount to NAV on 2 December, with the two digital infrastructure trusts in particular on steep discounts. Stalwarts of the sector are faring better, but it’s still notable that HICL Infrastructure (HICL) traded on small discount, while BBGI Global Infrastructure (BBGI) traded on a 5.6 per cent premium that stands in stark contrast to its double-digit premium of around a year earlier.
Trust IPO efforts can be extremely vulnerable to turns in market sentiment and that’s something we’ve witnessed this year. Independent Living Reit, the Sustainable Farmland Trust and Welkin China Private Equity all announced IPO plans in September, only for these to falter in the face of challenging market conditions.
We’ve previously reported the fact that 2022 has seen investment trust secondary fundraising fall sharply from the elevated levels of last year: secondary fundraising efforts amounted to around £5bn for the first 10 months of this year, down from the record £11.4bn taken in the same period for 2021. Recent uncertainty also culminated in Pantheon Infrastructure (PINT) announcing on 30 September that it had abandoned plans to raise £250mn via a C share issue.
