Private assets drive 6.1% return at Wellcome Trust

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The Wellcome Trust, the UK’s biggest charity, has reported a 6.1% investment return for the year to 30 September despite what it calls a “difficult” market, with its portfolio increasing in value to £18.3bn (€25.2bn) by end-September.

The results take the trust’s annualised returns to 9.8% for the seven years since the start of the global financial crisis in September 2008, and 8.6% over 10 years.

Private equity, venture capital and property all made double-digit returns over 2014-15, with each major element of the trust’s portfolio – public equities, private equity, venture capital, hedge funds and property – performing strongly over three, five and 10 years, the trust said.

The principal source of returns was private assets, with the private equity pool returning 18%, led by the 49% return from venture funds.

Private equity makes up 23.9% of the portfolio.

However, the trust’s investment report said it found it increasingly difficult to find new private direct company investments in a world of excess capital.

But returns over the past three years have accelerated, and its immature funds – those raised in or after 2010 – are already performing more strongly than its mature funds (raised before 2010).

The net multiple on invested capital (MOIC) is 1.64 times for immature, compared with 1.59 times for mature, funds.

Technology venture funds, with an MOIC of 2.12 times, now represent almost 40% of the trust’s private fund exposure.

The trust said its partners had largely realised the most successful investments made in the last phase of technology disruption, including US-founded social networking companies such as Facebook and LinkedIn, and China-based e-commerce companies such as Alibaba.

It continued: “Their next challenge will be to continue to build and then release value in companies in the next stage of disruption, especially in the ‘decacorns’ – the likes of Uber, Airbnb, Palantir and Didi Kuaidi, where strong demand from investors has allowed valuations to expand and permitted these companies to raise new money while remaining private.”

However, Eliza Manningham-Buller, the trust’s chair, said global public equity markets struggled in the run-up to a likely interest rate rise in the US.

Overall, 48% of the portfolio is invested in public equities.

The lion’s share – 34.6% of the overall portfolio – is invested globally.

This segment returned only 0.3% over the 12-month period.

Meanwhile, gains of 5.4% from developed market equities were offset by negative returns of 6.8% from growth market equities.

Property and property-backed assets have now reached a record 12.9% of the portfolio.

The trust avoids investing in traditional institutional property assets such as funds, commercial and retail, preferring assets where control can add greater value.

This means that, unlike the rest of the portfolio, property assets are dominated by UK interests.

Double-digit returns were again recorded in the directly owned property portfolio, as they have been over three, five and 10 years.

Investments are evenly divided between residential, which returned 11.1%, and non-residential, returning 12.1%.

Meanwhile, hedge funds – 11.8% of the overall portfolio – had a mixed year, with equity long/short funds (which returned 2.7%) outperforming weak stock markets by more than 9%, while distressed debt funds made a 16.3% negative return.

Looking ahead, the trust said it expected volatility to rise from multi-year lows in many markets because of the tightening of monetary policy.

“Our focus,” it said, “remains on the generation of long-term cash flows in the core of our portfolio, supplemented by optionality in our higher-risk investments rather than on market values.”

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