Scottish Mortgage in 351 private firm revaluations

Baillie Gifford’s £15 billion flagship fund Scottish Mortgage has revealed it carried out 351 revaluations on the private companies it holds in the first half of 2022.

The investment trust can invest up to a maximum of 30% of its assets in companies not listed on a public market.

Scottish Mortgage outlined the process of how these private companies are valued “including details of trigger events that ensures private companies are valued in both a fair and timely manner.”

Scottish Mortgage’s share price almost tripled during 2020 and 2021 from around £5.80 to over £15, but fell to as low as £6.93 in May this year amid the global stock market sell-off.

The fund’s share price has since risen to £8.60, recovering some of its lost ground.

“During H1 2022, 351 revaluations have been performed on the private companies held by Scottish Mortgage …” said the fund.

“We take a proactive approach and regularly update valuations with the aim of holding private companies at ‘fair value’ — i.e. the price that would be paid for them in an open market transaction.

“The valuation process is managed by the Valuations Team and overseen by the Valuations Group, which takes advice from an independent third party, S&P Global (formerly IHS Markit).

“To ensure this process is entirely independent of the portfolio managers, the managers only receive valuation notifications once changes have been applied to any private companies in the portfolio.

“As part of our valuation process, we assess the fair value of the private companies on a rolling three-month cycle.

“That does not mean the entire portfolio is assessed once at a quarter-end, as is the case for some other investment vehicles (not managed by Baillie Gifford).

“Instead, we value a third of the private component of the portfolio each month …

“For all investment trusts, the prices of the private assets are subject to an additional review, twice a year by the respective boards.

“Private asset valuations are subject to the scrutiny of external auditors as part of the annual audit process …

“Given the recent volatility in public markets, the Valuations Team has been closely tracking valuations within the private company portfolio in order to ensure that there is no significant divergence between carrying value and assessed fair value.

“While the valuation reviews have been mindful of the direction of travel evident in public markets, importantly they have avoided applying broad-brush adjustments to the private portfolio.

“While the individual circumstances of each company are assessed within their own individual valuation model, the overall aim is to remain consistent with the valuation approach that has been most recently applied by S&P Global, having been challenged and approved by the Valuations Group …”

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Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.