Veteran investor Terry Smith has set a new record for the most popular UK investment trust launch with an initial public offering of £822m, far exceeding the initial £250m target and dethroning fellow popular UK investor Neil Woodford.
Mr Smith is one of the UK’s best known investors, having built up assets worth £17bn in his Fundsmith Equity fund, launched in 2010, with his mantra of buying “good companies” and trading infrequently. The fund is now one of Europe’s 20 largest actively managed funds and has returned 273 per cent to investors since launch.
The Smithson investment trust was pitched as the ‘son of’ Fundsmith equity and raised £822.5m in its initial public offering on Wednesday.
The company initially sought £250m but after “very significant demand” from investors, raised that to a £600m target with the ability to increase to £900m. Just over 82m shares were issued at a price of £10 per share with trading due to start on Friday.
Analysts said the unprecedented investor interest was particularly striking given investors’ nervousness in the market and investors’ hesitance towards rival investment trust launches in recent months.
Ewan Lovett-Turner, analyst at Numis said: “We had expected to see strong demand for Smithson, but were still surprised by the amount of capital raised.”
Unlike most investment trust launches, Mr Smith’s company Fundsmith bore all of the costs associated with the launch, meaning investors will receive the full value of their investment on the first day of trading. Mr Smith is also personally investing £25m into the new trust.
Smithson will invest in smaller companies compared to Fundsmith Equity, hoping to gain an edge on the market due to the lower analyst coverage of smaller companies and their greater potential for growth over the long term.
The portfolio will consist of between 20 and 40 small and mid-cap global companies and will not be managed by Mr Smith himself but fund managers Simon Barnard and Will Morgan.
Darius McDermott, managing director at broker Chelsea Financial Services said: “The original, open-ended fund, is now huge, so wouldn’t be able to invest in some ideas, even if the managers wanted it too, so this will enable the team to make good use of ideas further down the cap scale.”
The launch is a stark contrast to recent unsuccessful investment company IPOs. In October 2017 the former chief executive of the UK’s asset management trade body was forced to scrap plans for a new investment trust following a lack of demand.
Gavin Haynes, managing director at broker Whitechurch Securities said: “Given the nervousness amongst investors at present, it is testament to how highly regarded Terry Smith has become with retail investor that his Smithson Investment Trust has raised over £800m.”
Fellow renowned investor Neil Woodford previously held the record for most popular investment trust launch, having raised £800m in 2015 for Woodford Patient Capital Trust to invest in high-growth, early-stage companies in sectors like biotech.