Schroders Capital Semi-Liquid Global Innovation Private Plus

The Schroders Capital Semi-Liquid Global Innovation Private Plus (E Acc GBP Share Class) is an opportunity to invest alongside some of the world’s leading VC funds all in one place, from Andreessen Horowitz and Sequoia Capital to Index Ventures and Lightspeed. 

These VCs are normally out of individual investors’ reach and only accessible to university endowments, charitable foundations, and other large institutions. They are the VCs behind global success stories such as Airbnb, Zoom, Dropbox and Stripe, to name but a few.

Now experienced individual investors can access the fund through Wealth Club via an “early bird” share class, offering a saving of 0.25% on the annual investment charge. This is the same saving available through the institutional ID share class, which has a $5 million minimum investment. 

This early-bird E share class is only available until the total fund reaches $100 million – at which point the share class will close.

The Schroders Capital Semi-Liquid Global Innovation Private Plus fund has a semi-liquid structure. Investors can make a lump sum investment and get exposure to the whole existing portfolio from the start; they can also request redemptions once a quarter – although a long-term investment horizon is still encouraged.

• Monthly opportunity for subscriptions and quarterly opportunities for redemptions
  
• Minimum investment: £36,000 – you can apply online
• Next subscription deadline: 14 August 2024 (5pm, cleared funds)
  

The manager

Schroders Plc is a global asset management business founded in 1804. It manages £750.6 billion within its wealth management, mutual funds, institutional funds, asset management solutions, and private assets divisions (December 2023). Schroders Plc is listed in London and has a market capitalisation of £6.1 billion (March 2024). Its private market business, Schroders Capital, has $94 billion under management (December 2023) and over 400 investment professionals. 

The Schroders Capital Private Equity Global Innovation team includes 10 investment professionals. It is supported by the wider Schroders Capital Private Equity Team of more than 60 investment professionals located in five offices across the globe: New York, Zurich, London, Beijing, Singapore and Shanghai. The team believes local investment professionals should manage local investment strategies. 

The investment committee is made up of five senior members of Schroders Capital including Chief Investment Officer, Nils Rode, Global Head of Private Equity, Rainer Ender, Head of Private Equity Investments, Tim Creed, Head of Private Equity North America, Lee Gardella, and Benjamin Alt, Head of Global Private Equity Portfolios. Each investment recommendation must receive unanimous approval from the investment committee to make it into the portfolio. 

Portfolio allocations and risk management are overseen by Michael McLean, Head of Global Private Equity Technology Investments. Michael joined Schroders in 2017 as a senior member of the private equity team, based in New York. 

Investment strategy

The Schroders Capital Semi-Liquid Global Innovation Private Plus fund aims to provide investors with a broad portfolio of venture capital and growth investments across the US, Europe and Asia. It uses Schroders Capital’s existing relationships to invest in and alongside world-leading venture capital funds.

Since 2007, Schroders Capital has built relationships with more than 50 venture capital firms. These include US based firms such as Andreessen Horowitz, Sequoia Capital, Accel, and Lightspeed, and European and Asian firms such as Index Ventures, Earlybird, IDG Capital, and Legend. 

The manager has identified eight long-term investment themes: Artificial Intelligence, Cybersecurity, Fintech/Payments, Consumer, Infrastructure Software, Vertical SaaS, Oncology, and Biotech discovery platforms.

Types of investment

To gain exposure to these areas, the fund will make three types of investment:

• Direct co-investments (40-60% of portfolio) – transactions where the fund invests directly in a company alongside a private equity or venture capital fund. These transactions have the advantage of not incurring additional annual management fees. 
• Primary and Secondary funds (15-25% of portfolio) – Primary funds are newly created funds which invest capital over a period of typically 3-4 years. Secondaries are transactions where the fund acquires a stake in an existing private equity fund or portfolio from an existing investor. Secondary transactions allow the fund to deploy capital faster. 
• Listed Equities (20% of portfolio) – The fund will invest in listed equities with disruption potential for liquidity purposes.

Investors should expect actual portfolio allocations to differ from those shown above whilst the fund has less than $200 million in assets.

Allocations may be modified as the manager deems appropriate to achieve the objectives of the fund. No strategy can guarantee future results.

Portfolio

The fund size is currently $51.3 million. The cash balance is currently 47.0% (March 2024), down from 64% in January 2023 – and is expected to fall to 33% once currently approved deals are completed. Over the long term, the team expects to maintain a cash balance of 5-10% of net assets. 

The existing portfolio contains fourteen co-investments in companies backed by venture investors such as Andreessen Horowitz, Index Ventures, and Lightspeed, as well as one secondary investment, Project Lakefront, which acquired interests in four venture funds managed by the world's top venture capital investor (Dealroom, 2023).

Co-investments account for 87.0% of the investment portfolio (excluding cash), the secondary Project Lakefront investment accounts for the remainder. 

68.6% of the investment portfolio is invested in venture capital and 31.4% is in growth capital. Regionally, the largest position is in North America (61.3%), with a smaller proportion invested in Asia (18.2%), and Europe (20.4%).

The top five co-investments account for 51.6% of the investment portfolio. The four funds held within the Project Lakefront transaction account for 13.0%. 

Examples of portfolio holdings

Eikon Therapeutics – Co-investment, venture capital

Co-founded by Nobel Prize winner Eric Betzig, Eikon Therapeutics (“Eikon”) uses pioneering technology to visualise cellular biology in real-time. 

Traditionally, scientific research has relied on static images, often of fixed or frozen samples, to understand biological interactions. However, given the complexity and speed of cellular behaviour, these ‘snapshots’ mean a large proportion of valuable data goes unobserved. Eikon aims to address this using Dr Betzig’s Nobel prize-winning technology: super-resolution fluorescence microscopy (SRFM).

SRFM means cellular activity can be viewed as it happens, the biological equivalent of a real-time video compared to a photograph. The technology enables researchers to characterise and track individual molecules, giving them unprecedented detail and information on cellular dynamics. In its view, this leaves Eikon in a unique position to discover novel drug targets and optimise existing therapeutics.

Since launching in 2019, Eikon has raised over $770 million in total, including a $106 million Series C funding round in June 2023. So far the proceeds have been used to acquire three early- to mid- stage assets, leveraging its internal drug-discovery programs. 

Schroders Capital invested in the company’s $517.8 million Series B round in 2021. The holding currently accounts for 13.4% of the investment portfolio. Past performance is not a guide to the future and may not be repeated.

Starburst – Co-investment, growth capital

Today, every company is a data company. By 2025, individuals and companies around the world will produce an estimated 463 exabytes of data each day, 154 times more than a decade ago. This increasing and ever more complex data is often siloed across several platforms and in different formats, making it challenging to extract value for fast access and analysis. 

Starburst, an open-source data analytics platform, was set up to address this. It’s “Google-like,” real-time, query engine can access data no matter where it resides, or what form it appears in. It allows companies to analyse decentralised data at speed, without the need for a data warehouse. 

The business was founded in 2018 by Justin Borgman, Kamil Bajda-Pawlikowski and Matt Fuller. Justin and Kamil were cofounders of data analytics platform Hadapt, where Matt was Principal Software Engineer, and which was sold to Terradata for a reported $50 million. The trio is joined by former Facebook engineers Dain Sundstrom, Martin Traverso, and Dave Phillips who previously designed big data query tool Presto. 

Today Starburst has customers across the US and Europe, including blue-chip organisations such as Zalando, Sky and others. 

The fund invested $2.4 million as part of a 2022 round that raised $250 million to support the company’s accelerated growth and expansion into Asia Pacific. The round included new and existing investors, such as Alkeon Capital, Andreessen Horowitz and Salesforce Ventures, and valued the business at $3.35 billion. 

Project Lakefront – proprietary secondary investment

Project Lakefront is a secondary transaction to purchase an interest in four high-quality restricted-access funds managed by a leading VC. The seller was a fully funded pension plan needing to de-risk its portfolio and Schroders Capital was one of only three approved institutional buyers (and 10 approved buyers in total).

The combined portfolio of high-growth technology companies contained several market leaders within their respective sectors, with the largest holding, Stripe, the global payments business, representing 34% of the portfolio. The second largest holding, Figma, was subject to a takeover attempt by Adobe in 2023, valuing it at $20 billion. However this deal subsequently fell through after pressure from regulators.

Schroders Capital invested $49 million in December 2022 ($3.6 million from the fund). The four funds currently account for 13.0% of the investment portfolio.

Exit track record

Carmot Therapeutics – recent exit 

Carmot Therapeutics is a clinical-stage biotechnology company dedicated to developing life-changing therapeutics for people living with metabolic diseases, including obesity and diabetes. 

The Schroders Capital Semi-Liquid Global Innovation Private Plus fund backed the company in May 2023. At the time, in Schroders’s view, the business had promising Type-II diabetes and weight loss drug in the FDA approval process. Schroders invested alongside The Column Group and 5am Ventures as part of a $150 million funding round. 

On 4th December 2023, Roche announced that it planned to acquire Carmot Therapeutics for $2.7 billion initial consideration, plus up to an additional $400 million in future consideration if certain milestones are achieved. The transaction delivered a return of 3.2x on the fund’s initial May 2023 investment. Past performance is not a guide to the future. 

Airware – example of previous failure

As is to be expected, not all investments work out. Airware is one such example. 

Airware offered enterprise drone services combining hardware, on-aircraft and mobile software, and cloud services for industries like mining, insurance, and construction.

Schroders Capital initially invested in the business in 2016 as part of their Series C financing round to fund future growth initiatives. The company had been growing nicely leading up to the Series C round and had strong technology. 

However, in the years after the financing round, the company’s growth rate slowed, and new customer adoption was harder than expected. The sales cycle lengthened, gross margins were compressed, and customers in trials didn’t convert to paying customers as originally intended. The company tried to raise subsequent rounds of financing but was unsuccessful. In late 2018, the business filed for bankruptcy, resulting in the loss of Schroders Capital’s entire investment. Past performance is not a guide to the future and may not be repeated. 

Performance

The fund launched in October 2021. Its track record to date is shown below. Since inception, the fund has generated a total return of 9.0% (in sterling, March 2024), equivalent to an annualised return of 3.6%. Past performance is not a guide to the future and may not be repeated. 

Schroders Capital Semi-Liquid Global Innovation Private Plus IE Acc USD – Performance since inception in sterling

The longer-term track record of the private Schroders Capital Global Innovation funds since the formation of the existing investment committee is shown below to December 2022.

Since making its first direct co-investments focused on growth and venture deals, the team has invested $1.2 billion and achieved an average net IRR of 23%. Of these, 20 investments have been realised, generating a 23% IRR (December 2023). Performance is net of underlying fees and carry and gross of Schroders Capital fees and carry. Overall performance as of December 2023 in $. Realised IRR is based on realisations, partial realisations, announced acquisitions, and IPOs as of 31 December 2023 (IPOs valued at quarter end date). 

Past performance is not a guide to the future and may not be repeated.

Track record of Schroders Capital’s private Global Innovation funds by vintage year (per £100 invested)

Tax treatment

There are no tax reliefs associated with this investment. 

Schroders intend to generate the bulk of any returns from the fund via capital growth. For UK taxpayers, any realised gains from the fund should be subject to Capital Gains Tax. Any income generated by the fund (whether distributed or not) should, however, be subject to income tax. Schroders will publish the amount of income earned within the fund within 10 months of its annual reporting period. Investors should report this on their self-assessment return. 

Remember, tax rules can change and tax benefits depend on circumstances.

Risks – important

This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice. 

Private equity investments are high-risk so should only form part of a balanced portfolio and you should not invest money you cannot afford to lose. 

Investments in private equity are sensitive to changes in the global economic outlook. An economic slowdown or a drop in investor confidence is likely to have an impact on the value of private market investments. 

Private equity investments are long-term and should not be considered as readily realisable. The fund invests in companies or instruments which are denominated in currencies other than the fund’s respective currency – such investments are exposed to currency fluctuations.

Unlisted investments can be difficult to price and value. Certain investments are valued based on estimated prices and therefore subject to potentially greater pricing uncertainties than listed securities.

Redemptions are available on a quarterly basis, however, these may be limited to 5% of NAV, to manage liquidity in the fund. The manager reserves the right to charge a 5% redemption fee in periods of market stress and may suspend all redemptions for up to 12 months. 

Before investing, you must be an elective professional client of Wealth Club. You must be able to understand the fund’s strategy, characteristics and liquidity profile. You must also be comfortable with the potential for periods of illiquidity.

Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks. 

Charges 

A summary of the main charges for the fund is shown below. Please note, any underlying investments may have additional charges, which will not be paid directly by you but will have an impact on returns. Wealth Club investors will invest using a nominee structure. This service is provided by Wealth Club’s subsidiary companies Wealth Club Asset Management Limited (authorised and regulated by the FCA) and Wealth Club Nominees Limited and is governed by the Terms and Conditions of the Wealth Club Services. Please refer to the schedule of Wealth Club charges for more detail on fees paid by investors to Wealth Club, and the Prospectus and Key Information Document (KID) for more details on the charges. 

Deadlines and dealing process 

The fund accepts investor subscriptions once per month and withdrawal requests once per quarter. 

Subscriptions

The next subscription deadline is 14 August 2024 (5pm, cleared funds). Settlement, as outlined in the offer documents, will take place 22 business days after the dealing date.

Redemptions 

Investors can request redemptions once per quarter. Redemptions are processed on the last dealing day in the quarter and settled 22 business days later. Redemption instructions must be submitted by the end of the preceding quarter. 

For instance, an investor who wished to redeem units in Q4 (dealing day 31 December) would need to submit an instruction by the end of Q3 (30 September). 

Investors will be able to submit redemption instructions by using the Wealth Club secure message portal 

5% of NAV net redemption cap 

Net redemptions (redemption requests received for a given quarter minus subscriptions received over that same quarter) on any one dealing day will be limited to 5% of the fund’s Net Asset Value as at the relevant calculation day at the end of the preceding quarter. 

If redemptions are above 5% on any dealing day, these will be processed on a pro-rata basis. Investors will be informed of any redemption amount not processed on the relevant settlement date. Any redemption amount not processed on any dealing day will be deferred until the next dealing day unless cancelled by the Investor.

Our view

The fund offers investors exposure to a global portfolio of venture and growth capital investments alongside many of the world’s top venture investors. 

Having maintained a large cash balance through 2022, protecting early investors from market turbulence, the fund increased investment activity in 2023 as investor confidence has returned. Recent investments include early stage biotech businesses looking at treatments for cancer and neurological disorders, while the fund has also reported an early exit after weight loss drug developer Carmot Therapeutics was acquired by pharmaceutical giant Roche at a 3.2x uplift in December 2023. 

The fund may appeal to investors who wish to gain exposure to venture and growth investments alongside some of the world’s top venture investors, an asset class that has historically proved challenging for private investors to access. Equally, the fund’s prudent use of cash to date means the fund is well placed to take advantage of new opportunities.

An early-bird annual management charge saving of 0.25% could be a significant benefit over the years. 

Please note, the fund offers a quarterly redemption facility, with redemptions capped at 5% of net assets per quarter. Investors should be prepared to hold the fund for the long term.

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.