Company Overview

The Schiehallion Fund Ltd (LSE:MNTN) is a UK-listed closed-end Investment trust managed by Baillie Gifford that invests in later-stage private technology companies — typically companies that are post-revenue, often approaching profitability, and are potential near-term IPO candidates. The trust provides investors with access to a portfolio of private technology businesses at the stage just before they reach public markets, enabling participation in the value creation that occurs in this critical phase of company development.

Schiehallion is priced in US dollars, reflecting the predominantly US dollar-denominated nature of the global technology Private Equity market in which it invests. The trust's portfolio is characterised by high-growth technology businesses across sectors including enterprise software, fintech, digital health, consumer internet, and other technology-enabled industries, with a global geographic scope that includes US, European, Asian, and other technology companies.

The trust is managed by Baillie Gifford's private company investment team, drawing on the same fundamental research and Long-term Growth company investment philosophy that underpins Baillie Gifford's well-known public equity strategies including Scottish Mortgage Investment Trust. This approach seeks to identify exceptional businesses with the potential to become global category leaders over multi-year investment horizons.

Share Price Performance

Schiehallion Fund shares fell 0.46% to USD 2.16, reflecting the ongoing challenges facing late-stage private technology investment trusts in the current market environment. Private technology valuations — which reached historic highs in 2021 during the peak of the technology investment boom — have undergone a significant correction as higher interest rates increased discount rates and reduced the present value of long-duration growth company cash flows.

The transition from a zero-interest-rate world — in which investors were willing to pay very high multiples for future Earnings growth — to a higher-rate environment has fundamentally changed the valuation framework for growth companies, particularly those that are pre-profit or in the early stages of monetising their technology platforms. This recalibration of private technology valuations has affected the NAV of late-stage venture and growth equity investment trusts.

Late-Stage Technology: The Investment Rationale

Late-stage private technology companies occupy a distinctive position in the investment landscape — they have de-risked their Business models through proven product-market fit and substantial revenue, but have not yet undergone the valuation reset and increased public scrutiny that accompanies an IPO. This stage of company development has historically offered attractive returns for investors able to access it, as companies are typically valued at discounts to their eventual public market valuations in the period before going public.

Baillie Gifford's long-term approach and existing relationships with high-growth technology companies — built through Scottish Mortgage and other public equity strategies — provide access to late-stage investment opportunities that might otherwise be unavailable to public market investors. These relationships allow the team to participate in funding rounds alongside other institutional investors and company founders who value Baillie Gifford's long-term, supportive approach to investment.

Portfolio: Global Technology Leaders in Waiting

The portfolio encompasses a diverse range of private technology companies across multiple geographies and sectors, with a focus on businesses that have the potential to become global technology leaders over multi-year horizons. The common thread across portfolio companies is a combination of large addressable markets, differentiated technology or business model, strong team quality, and evidence of rapid and scalable growth.

NAV and Discount to NAV

As with other late-stage technology investment trusts, Schiehallion has experienced significant widening of its discount to NAV as the private technology market has re-rated and investor confidence in private technology valuations has been tested. The share price discount to reported NAV reflects both uncertainty about the accuracy of private company valuations in a rapidly changing market environment and reduced Demand from investors for the asset class.

Outlook

Baillie Gifford's management remains committed to the long-term investment philosophy and confident in the quality of the portfolio companies. Any recovery in public technology market valuations — which tend to lead private market valuations — would be expected to support NAV recovery and potentially a narrowing of the discount to NAV, while successful IPOs or acquisitions from within the portfolio would validate carrying values and return capital.

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