Investment returns for the Wellcome Trust – the UK’s largest charity – soared to 34.5% for the year to end-September 2021, the highest for 25 years, and almost three times the 12.3% return of the previous year.
The result took annualised five-year returns to 16.4% and 10-year returns to 15.25%.
Wellcome’s chair, Julia Gillard – Australia’s former prime minister – said: “This growth has enabled a step change in our ability to fund our mission, giving us momentum as we move to our new strategy and scope to further raise our ambitions.”
Wellcome funds health research and supports initiatives to tackle global health challenges. Its new strategy is built around the three issues of infectious disease, mental health and climate and health.
It is now planning to triple its charitable spend of £5bn over the past decade to £16bn over the next decade.
The charity said the “exceptional” performance for 2020/21 came largely from its private assets, which now account for 32.2% of its £36.3bn portfolio and returned 72.6%, compared with 12.7% the previous year.
Venture capital (VC) – the lion’s share of private assets, making up 18.2% of the total portfolio – continued to benefit from rapid technological innovation and a structural shift to the digital economy.
Wellcome’s annual report said: “There continues to be strong demand for high-quality initial public offerings (IPOs) of VC-backed companies. Our managers have taken full advantage of this, with many of their companies listing on public markets, often at large valuation uplifts.”
But direct private and co-investment portfolios achieved 370.6% and 182.4% returns, respectively.
The main reason was a series of liquidity events, the two largest gains coming from the sale of Kymab (an innovative life sciences company seeded by Wellcome in 2010) to Sanofi, and the IPO of DoorDash, the US meal delivery company, in which Wellcome had first co-invested in 2016.
By contrast, Wellcome’s public equities (41.9% of assets) returned 16.5% for the year, compared with a 22.7% sterling return for global equity markets.
The report said: “Our public portfolio has relatively little exposure to cyclical value stocks, which led the market, while our public stocks in China, held both directly and through outsourced managers, had a bad year.”
However, its UK small-cap value manager returned 107.2%, as the style and geographical characteristics of these equities came firmly back into favour.
“Low levels of inflation are typically positive for risk assets, but historically, higher rates of inflation have been damaging to real returns”
Meanwhile, Wellcome’s property portfolio returned 16.1%, as the UK economy recovered from the COVID-19 slump and property values appeared to have bottomed out.
The biggest single driver was obtaining outline planning permission for expanding the charity’s genome campus at Hinxton in Cambridgeshire, which led to a significant uplift in its agricultural asset values.
The increase in size of the overall property portfolio – now 7% of total assets, from 6% last year – is also because of the £500m acquisition of Urban&Civic, the UK’s leading strategic land development company; this is the first time that Wellcome has taken a public company private.
Meanwhile, in May 2020, Wellcome repaid the £275m 4.75% sterling-denominated bond issued in 2009, the first bond to mature since the charity started issuing bonds in 2006.
That summer, Wellcome also took advantage of a decline in interest rates to issue £750m of AAA/Aaa rated 50-year sterling debt at 1.50%, leading to a total outstanding nominal face value of debt of £2.8bn at end-September 2021.
Reviewing the overall results, the annual report commented that financial assets had been supported by ultra-low interest rates, quantitative easing, expansionary fiscal policy and a revival in sentiment as economies re-opened.
However, it said that the market focus has now shifted to the path of inflation: “Low levels of inflation are typically positive for risk assets, but historically, higher rates of inflation have been damaging to real returns,” it warned.
For the first time, Wellcome has revealed the progress made during the year towards achieving net zero for its portfolio by 2050.
At 30 September 2021, 23% of the portfolio represented companies with a net zero commitment, compared with 21% the previous year.