The analyst is concerned about the “state of the balance sheet”, with unquoted assets abounding, and the valuations those assets may have if they were sold relative to the valuation those assets have in the accounts of the trust.
The analyst says: “The other thing I would question is the fundamental investment thesis. Scottish Mortgage produced brilliant returns when interest rates were near zero, but we have to see whether they can do the job when rates are above that.”
Unwritten rules?
At present, the trust has 26 per cent of its capital deployed in unquoted assets,
The level of unquoted assets is a concern for Ben Yearsley, who notes that the £1bn buy back will be funded partly by selling some of the quoted assets, and therefore increasing the level of the unquoted.
The analyst also does not believe the buyback will make much difference to shareholders. They say that while £1bn is a “big number – it's a very big trust, and buying back 9 per cent of the shares is really just in line with what others are doing”.
“A cynic might remark that the buyback is being done for Elliott,” they add.
Elliott Advisors partner Nabeel Bhanji tells FT Adviser: “We are grateful for the dialogue we have had with the board and management of Scottish Mortgage in recent months. We strongly support the company’s recently announced £1bn buyback – the largest buyback programme ever announced by a UK closed-end fund – and look forward to continuing our engagement.”
Tom Slater, Anderson's replacement at Baillie Gifford, says the plan to buy back shares is part of the long-standing commitment to that policy. Speaking on a webinar for clients, he said: “We have a long-standing commitment to keep the discount between the share price and the net asset value low. [But] over the past two years we have had other calls on our available capital.
“We have paid back about £400mn of debt as we wanted to maintain a strong balance sheet at a time when the value of our listed holdings was falling. We also used some of the capital we have to make follow-on investments in some of the unquoted stocks. But then we felt that the balance sheet was strong enough,” he continued.
“It’s the board’s decision to do a buyback and their responsibility is to all shareholders. We engaged with Elliott and with all other significant shareholders.”
