The trust was set up with duel goals of delivering low risk returns, whilst also raising funds for charity, but is now intent on morphing in to a life sciences fund, working alongside The Welcome Trust, and Cancer Research UK, in an ambitious transformation.
Fast Facts
BACIT is a regular investment trust that donates 1% to charity but charges no fees
Name is pronounced Back-it and stands for Battle against cancer investment trust
Operated as a multi-manager, whereby several external managers are chosen to manage the portfolio
External mangers work for free
Has a conservative investment approach which has meant it takes less risk than the overall market
Proposed change
Management propose buying a specialist medical asset manager from the UK’s biggest charity
The charity, Wellcome Trust, will become the largest shareholder as part of the deal
Management also propose to take control of Cancer Research UK’s stake in a separate life science business
The new model means investing in to & developing pharma businesses for several years or more
The trust will progressively move to this new model over several years
The aim is to build standalone companies capable of achieving valuations in excess of £1 billion.
Management hope to top up investment from the above charities to become a circa £1 billion fund
New shares will be offered to all investors existing and new
Existing shareholders will have the option of exiting at NAV plus fees
It will target a return of 15% per annum within the underlying fund, not including fees/costs
Annual charity donation will be cut to 0.3% but on double the assets
At least 25 per cent of its assets will be committed to oncology projects and businesses.
Management team have personally invested heavily in the trust
BACIT (LON:BACT), or Battle against cancer investment trust, but pronounced as Back-it, was already a highly unusual investment trust; it was established four years ago by City philanthropists, and charges no fees, to end investors, but instead, donates 1% of its NAV (net asset value) to charity each year. All of the investment managers it employs, are from outside firms and work for free, and it has attracted, an impressive group of asset managers, with terrific long term track records from both within and outwith the UK.
To date it has donated around £14 million to charitable causes.
Its portfolio is managed on a fund-of-funds basis, meaning, its near £500 million of assets is spread over a number of different asset management firms as opposed to being managed by a single team.
The BACIT management team now wish to dispense with this model, though over time, and instead morph in to a life sciences fund, committed to funding life sciences businesses to the tune of £1 billion over coming years.
To achieve this goal it is acquiring a business called Syncona from Wellcome Trust. Wellcome are the UK’s wealthiest charity, and were set up by Sir Henry Wellcome, the founder of the Wellcome Foundation drug company. The charity inherited his shareholding in a business, which in time grew to become one of the worlds largest drug companies, before merging into what is now Glaxo SmithKline.
For existing shareholders the change of investment remit is dramatic, and might not be welcome (no pun intended) to all.
BACIT’s investment portfolio is managed fairly cautiously, some might save very cautiously. Since launch, at the NAV level (net asset value), which measures the performance of the underlying portfolio, striping out share price volatility that is outwith the managers control, the performance is up 36.1%, or 8.0% per annum. Including dividends, which is described as ‘total return’ in the industry, it has produced 38.2% or 8.4% per annum.
The returns are less than the FTSE All Share index however, or the MSCI World index (total return in Sterling) which has produced returns of 81.6% over the same period, or 16.0% per annum.
However, it has delivered returns whilst taking less risk and displaying less volatility, and, additionally, has tended to outperform in falling stock markets. Many investors will have no doubt been attracted to BACIT because of this low risk profile, so the switch to a model whereby it will invest in unlisted medical businesses, which it will own for several years or more, is an a la private equity model, is very different from the multi asset fund of funds model from whence it has come.
What do you think? Join the conversation in our forums and see what others are saying about BACIT here.
The proposed deal
There are several significant aspects of this deal that investors need to familiarise themselves with. Briefly, BACIT is proposing to acquire two businesses, one of which Syncona, this is the most significant part of the deal, and is currently owned by the Wellcome Trust charitable foundation. The Syncona deal will bring with it a team of asset managers who will join the business.
Syncona LLP, was founded in 2012 by the Wellcome charity, and owns an existing portfolio of life science investments. Syncona has a current portfolio of seven investments spanning areas such as gene therapy, cell therapy and patient stratification technologies (scroll right down the page for details of Syncona’s existing investments).
BACIT is also seeking to raise several hundred million pounds, to become a £1 billion trust (double its current asset value). The portfolio will transition to the new model over time, with the current portfolio of funds being held and gradually sold off over the next few years, as and when the money is required by the Syncona business. The expectation is that around £100m per year will be invested in new investments, and upon completion of the deal BACIT will change its name to Syncona.
The following is how BACIT described it in an analyst circular: ” To capture the significant value opportunity in UK life science and medical innovation, BACIT intends to hold and finance its life science investments until they reach commercialisation, and beyond, with a view to building standalone companies capable of achieving valuations in excess of £1 billion”.
In another deal, BACIT will also acquire either all or a majority of Cancer Research UK’s 35.5 per cent stake in the ‘CRT Pioneer Fund’. BACIT currently has a £20 million commitment to the CRT Pioneer Fund, therefore its equity holding in the CRT Pioneer Fund will increase to a controlling 64.3 per cent.
The CRT Pioneer Fund is a £70 million venture life sciences fund established by Cancer Research UK and Cancer Research Technology in 2012. The fund’s objective is to bridge the investment gap between cancer drug discovery and early development by taking potential cancer drugs from discovery through to their entry into Phase II clinical trials.
Once the CRT Pioneer Fund is fully committed or at the end of its investment period, BACIT and Cancer Research UK intend to enter into a pipeline agreement, on terms materially identical to Cancer Research UK’s existing agreement in respect of The Pioneer Fund, under which Cancer Research UK would make life science investments available to BACIT on a “first look” basis, and it is expected that the investment managers of the CRT Pioneer Fund will join the Syncona Investment Team.
Costs, fees and charitable donations
The charitable donations will continue but at the rate of 0.3% of NAV per year, on £1b of assets, as opposed to 1% on circa £500m of assets.
New fund raising and exit opportunity for existing shareholders
BACIT is seeking to substantially grow the trust by raising new money at a 1.35% premium to NAV (net asset value), which is the value of the underlying portfolio of investments. The new fund raising will seek to raise around £500 million, as opposed to the current assets of slightly less the this amount, to produce a circa £1 billion trust.
Whilst the new fund raising will be open to all investors, Wellcome has agreed to invest circa £319m, which equals BACIT’s purchase price for Syncona of £166m plus the value of Wellcome’s uncalled commitment to fund Syncona’s underlying portfolio of investments. This will result in Wellcome owning over 30% of the BACIT’s share capital.
Provided the company acquires a majority of the interest in the CRT Pioneer Fund, Cancer Research UK has agreed to invest £17m in BACIT through the Firm Placing, of which £7m is represented by the value of its interest in the CRT Pioneer Fund, and the remainder is the value of its uncalled commitment.
To placate existing shareholders, many of whom will be disadvantaged by the change of investment remit, BACIT will also offer a share sale facility to permit existing shareholders who do not wish to remain invested in the company to sell their shares at the Offer Price less dealing costs.
The BACIT founders view – Tom Henderson
Tom Henderson, who is a member of the Henderson family who founded what is now Henderson Global Investors and Witan Investment Trust, founded BACIT, backing it with his own money. He said: “We began BACIT in order to boost drug discoveries in the fight against cancer, both as a donor and as an investor and we have enjoyed a special relationship with The Institute of Cancer Research from the outset. That aim evolved into our investment, alongside Cancer Research UK, in the CRT Pioneer Fund. The same logic has given rise to this transaction, which will create a national champion of life science investing and accelerate the achievement of our aim: to win the battle against cancer and to create great returns for our investors at the same time.”
WhichInvestmentTrust.com View
This is both a surprising and dramatic evolution of BACIT. The trust was founded not only to donate a rough equivalent of a management fee to charity each year, that is outwith the dual aim of delivering low volatility returns to investors. The founder Tom Henderson, also hoped to spur on wealthy individuals, and encourage them to become philanthropists within the field of oncology, in to order to achieve the nirvana of a cure to cancer.
We do not doubt his ongoing commitment and reason for this move, which will create a focused life sciences fund, organised a little bit like a private equity fund, that, because, of its close relationship with both Wellcome and Cancer research UK, will gain early stage access to some of the most promising treatments for cancer and other ailments.
For many existing shareholders though, the dramatic change will come as a bit of a blow, because an investment here will likely require a long term commitment, in what will become a much higher risk and perhaps more volatile trust. They have the option however of exiting on reasonable financial terms, if they consider the new investment remit isn’t suited to them.
For those with a long term investment horizon, perhaps if held within a SIPP, the new BACIT, or Syncona, proffers the prospect of investing in the most cutting edge and exciting research emanating from two of our leading research charities.
This represents a major change in strategy for BACIT. The challenge for them will be to attract new investors, likely institutional, attracted by the investment prospects for Syncona and its investment team, via the link up with Wellcome Trust, and Cancer Research UK. Though we can’t help thinking, it is a shame they are ditching the wonderful BACIT name.
You can find out more by visiting the BACIT website here (opens ina new tab/window).
What do you think? Join the conversation in our forums and see what others are saying about BACIT here.
BACIT (LON:BACT) Investment Trust Metrics
Share Price
127 pence
Dividend Yield / Dividend reserves
1.75%
5 year dividend growth p.a. = N/A
Total Assets/Market Cap (Million)
£490m / £490m
Gearing
0%
Managed by/since: Tom Henderson since 26/10/12
Managers direct holding: Owns 3.04%
AIC Sector/Date Founded
Flexible Investment / 26/10/2012
On-going charge & how much of the charge is the managers fee
1.27% / No management fee
Investment Objective: To deliver superior returns from investments in leading long-only and alternative investment funds across multiple asset classes.
Discount to NAV
-0.2%
12 Month Average Premium
+4.35%
Financial year end: 31/03/17
Domicile: Guernsey
Share price Total Return 1, 3, 5 & 10 years
+10%
+11%
N/A
N/A
NAV Total Return 1, 3, 5 & 10 years
+10.5%
+11.5%
N/A
N/A
Flexible Investment Sector Total Return 1, 3, 5 & 10 years
+11%
13%
+14.5%
N/A
FTSE World Total Return 1, 3, 5 & 10 years
+12.5%
+14%
+17.5%
N/A