By Mark McSherry
The board of Baillie Gifford’s $1.2 billion Schiehallion Fund Limited gave its backing on Friday to the fund’s chair Linda Yueh after a “significant number of votes” had been cast against her re-appointment at the fund’s AGM in May.
The fund said a shareholder had expressed concern about the number of simultaneous directorships held by Yueh — but said its board is “satisfied that Dr Yueh is capable of devoting sufficient time to the company.”
According to Schiehallion, Yueh’s commitments include: executive chair of the Royal Commonwealth Society; Adjunct Professor of Economics at London Business School; Fellow in Economics at St Edmund Hall, University of Oxford; Trustee of the UK Fidelity Foundation and Fidelity International Foundations; non-executive director of Rentokil plc; non-executive director of SEGRO plc; and non-executive director of Standard Chartered plc.
Yueh lists her other commitments on her website
The news on Yueh came as the fund reported that its NAV (net asset value) total return was down 3.2% in the six months to July 31, 2024.
However, the fund’s share price increased by 44.1% over the period, causing Schiehallion’s discount to narrow to 10.1%.
Schiehallion Fund’s biggest holdings include Elon Musk’s SpaceX, Chinese social media and news aggregation firm ByteDance, Italian mobile application software developer Bending Spoons, British money transfer firm Wise, US startup credit card firm Brex, US buy-now pay-later provider Affirm, Indian tech and media firm Daily Hunt (VerSe), US oncological records aggregatorTempus AI, and UK-based autonomous driving software provider Wayve Technologies.
On Yueh, Schiehallion said: “During the period, the board engaged with the relevant shareholder following the significant number of votes against the re-appointment of Dr Yueh at the Annual General Meeting on 10 May 2024.
“The shareholder’s concerns related to the number of simultaneous directorships.
“A review of the chair’s and other directors’ commitments was carried out and the Nomination Committee remains satisfied that Dr Yueh is capable of devoting sufficient time to the company.
“There have been no significant changes to Dr Yueh’s other commitments since 31 January 2024. Her total number of mandates from her directorships continues to comply with the UK Corporate Governance Code.
“The directors continue to believe that the board has a balance of skills and experience which enable it to provide effective strategic leadership and proper governance of the company.”
On the fund’s performance, Schiehallion’s managers Peter Singlehurst and Robert Natzler wrote in their interim management report: “Both private and public holdings contributed to the NAV decrease.
“On the public side, key negative contributors were buy-now pay-later provider Affirm and foreign exchange platform Wise. Affirm’s share price dropped 42% and Wise’s dropped 17%.
“Underlying operational performance at both companies was still strong. Affirm saw 51% revenue growth and achieving over one million users of its Affirm Card product, whilst Wise grew revenues 23% and more than tripled profits.
“Over the life of the fund, both stocks remain strong net contributors to performance. On the private side, German real estate broker McMakler was the main negative contributor, as it continues to battle macroeconomic headwinds in the domestic property market.
“Positive contributors included Italian consumer digital application company Bending Spoons and American expense management and credit card company Brex.
“Bending Spoons has continued to deliver strong operational performance and show signs of having successfully integrated its recent acquisitions. We added more to our position reflecting growing conviction in the investment case.
“Brex has posted stronger operational results and improved margins as it gains efficiency following a difficult workforce reduction exercise.
“Across the portfolio, operating performance remains broadly strong. Portfolio-weighted revenue growth was 41% over the period, with 39% of the companies by portfolio weighting being EBITDA-positive, and nearly 50% of companies in total being cash generative.
“The vast majority of the companies within the portfolio have cash balances greater than a year, with just under 5% having less than 12 months cash runway.”
The Schiehallion Fund seeks to generate capital growth for investors with long-term minority investments in later stage private businesses that the company considers to have “transformational growth potential and to have the potential to become publicly traded.”
On private company valuations, Singlehurst and Natzler wrote: “Over the reporting period, there were 170 revaluation events, with ~45% of the portfolio being revalued three times or more. The average movement at the private company level was -6.3%.
“The gradual uptick in private markets activity over the past twelve months have given us opportunities to compare our carrying valuations with external price discovery moments.
“Over the last year, we have seen eleven such price discovery events. On nine occasions we needed to revalue our holdings up, with a median upwards revaluation of 18%. On two occasions we needed to revalue our holdings down, with a median downwards revaluation of 2%.
“As a reminder of our valuation process, we aim for a targeted +/- 20% range to the new valuation, with some balance of being over and under – neither consistently conservative nor consistently bullish. The overall median movement over the twelve months has been an increase of 16%, giving us comfort over the fair value positions and their proximity to eventual transaction events.”
In their “Looking forward” section the managers wrote: “We continue to see causes for optimism in the underlying holdings. The companies within the fund have reacted well to a tough couple of years in private markets, and we believe are well positioned to continue to take advantage of their competitive positions in the years ahead.
“We have been continuing to invest in our capability at Baillie Gifford, with four more investors joining our team during the period.
“More and more excellent companies are coming back to the market to organise rounds – if not for their own primary capital needs, then to facilitate liquidity for their early venture backers, who are coming under pressure for liquidity from their own clients.
“The result is a much healthier crop of interesting companies raising capital than we have seen for the last couple of years. We believe the share price appreciation over the last six months hints at an improved sentiment in general towards growth equity in the markets. If so, it is a sentiment we share.”