Theresa May may have belittled Jeremy Corbyn’s ‘money tree’ during the general election campaign but Baillie Gifford Shin Nippon (BGS) is taking it more seriously after making the investment trust's first unquoted position in a banking app provider of the same name.
In its interim results this week, Praveen Kumar, manager of the top-performing Japanese smaller companies fund, revealed he had ‘taken a small position in an unlisted financial technology company called Moneytree which has exciting growth potential’.
The Moneytree app, which has over a million users, was launched in 2012 by Australian Paul Chapman. It allows users to aggregate and categorise personal spending, income, debts, and home loans so they can track their financial information.
Earlier this year the company raised $9 million (£6.7 million) in a funding round with investors, in which Baillie Gifford, the management company behind Shin Nippon, took part.
The stake in Moneytree is the first time Shin Nippon has invested in a private company before it reaches the stock market. The holding represents 0.5% of the trust's £284 million of net assets.
Shin Nippon’s unquoted investment follows in the footsteps of Baillie Gifford flagship Scottish Mortgage Trust (SMT), which has 12.5% of its £5.9 billion net assets in a wide range of 'unicorns', or businesses that have used technology to grow quickly and reach valuations of more than $1 billion (£740 million).
In the six months to 31 July Shin Nippon, which means New Japan, grew net asset value (NAV) by 16%, beating the 7.5% rise in the MSCI Japan Small Cap index.
This leaves the portfolio up 249% over five years, with shareholders enjoying a total return of nearly 282% as the shares have advanced at a faster pace. The shares currently trade at a 8.5% premium over NAV.
The fund benefited from a rebound in smaller companies in the first half of the year, which was particularly favourable for the fast-growing, disruptive online businesses in which Kumar, who took over the portfolio at the end of 2015, likes to invest.
Kumar said investors were buoyed by positive economic data and strong corporate results and ‘we are seeing broad-based strength across corporate Japan, with companies from a number of sectors continuing to generate impressive rates of growth’.
The growth in domestic consumption is likely to increase as Japan has reported six consecutive quarters of positive growth, the longest streak in over 10 years, and a tight labour market means wages will be forced to rise.
In contrast to his first off-market investment in Moneytree, Kumar said he had seen a number of interesting companies float on Japan's stock market.
‘We have taken part in IPOs [initial public offers] and there is nothing stopping us but it depends on the company, what it is trying to do, and where in its life cycle it is,’ he said.
However, he said he hadn’t invested much in flotations as meeting company managers was key to his investment process and during IPOs ‘they are trying to push [the company]’ so you do not get a true representation. Kumar added that the other problem with IPOs is there is ‘little window for investors step back and assess it’.
Kumar said the range of investment opportunities was broadening.
‘The IPO market remains in good health and so far this year, 46 companies have gone public.The total for the full year is expected to reach 80 to 90, which would be the highest tally in a decade.’
He added that the operating environment for smaller businesses ‘has improved immensely in recent years and are seeing a newfound confidence among young entrepreneurs’.