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Smith beats Woodford with record £822m Smithson IPO

(Update) Terry Smith has raised a record £822.5 million for his new Smithson investment trust, beating the previous peak for an investment company flotation, or initial public offer (IPO), set by Neil Woodford’s Patient Capital trust three years ago.

Smith beats Woodford with record £822m Smithson IPO

Terry Smith has raised a record £822.5 million for his new Smithson investment trust, beating the previous peak of £800 million set by Neil Woodford’s Patient Capital (WPCT) trust three years ago.

Notwithstanding the star manager’s popularity, the response to the initial public offer (IPO) is impressive given it took place during recent stock market uncertainty.

It far exceeds the revised £600 million target that the global smaller companies trust announced last week when it reported seeing ‘very significant’ investor demand. Its original target set last month was £250 million.

All investor subscriptions will be met in full, the company said. Just over 82 million shares will be issued at £10 with trading starting on Friday.

Unusually, Smith's firm, fund manager Fundsmith, paid for all the launch costs, which are typically around 2%. This means investors will start with a net asset value per share of £10 rather than £9.80. 

The portfolio will be managed by Simon Barnard and Will Morgan, with Smith, a Citywire AAA-rated fund manager, acting as chief investment officer. 

Smith said he looked forward to working with the managers on investing the money raised in the ‘compelling growth companies we have identified’.

He added: ‘Our thesis that many of the existing small and mid-cap funds in the market are anachronistic by being overly home-biased and that there was a gap for a quality small and mid-cap global equity fund appears to have been borne out by a wide range of investors subscribing for the Smithson offer.’

Ian Sayers, chief executive of the Association of Investment Companies, said Smithson’s success showed the appeal of investment trusts. ‘Clearly, the closed-ended structure allows managers to pursue long-term focussed strategies without having to worry about redemptions.’

The support for Smithson surprised analysts at Numis Securities. Although Smith’s top-performing Fundsmith Equity Fund has attracted £1.7 billion this year, his £288 million Fundsmith Emerging Equity (FEET) investment trust has lagged its benchmark since launch.

‘However, investors may well believe that the group’s investment approach is perhaps better-suited to moving down the market capitalisation range, rather than moving into different geographies,’ commented Numis’ Ewan Lovett-Turner.

Smithson’s achievement underlines the pulling power of a high profile fund manager with a good track record. However, as our columnist Ian Cowie wrote last month, it could represent a peak for Smith. It also invites an ominous comparison with Woodford whose record-breaking Patient Capital launch was soon followed by a downturn in investment performance and criticism from investors.

Mega investment-company launches are not always long-lasting, Numis pointed out. While Fidelity China Special Situations (FCSS), which raised £460 million in 2010, went on to do well after a difficult start, previous blockbuster launches in the dot com era such as the £400 million Amerindo Internet and £380 million 3i European Technology no longer exist.

Investec Bank acted as corporate broker for the issue. The successful launch lifts assets under management at Fundsmith to nearly £19 billion, the bulk of which is held in the £17 billion Fundsmith Equity Fund.  

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