Venture Capital – Murray Johnstone trust refocuses

Investor demand for technology and telecommunications stocks, combined with a languishing share price and wide discount, have prompted the board of Murray Ventures Investment Trust (MVIT) to recast the vehicle’s investment objectives to transform it into a technology trust focusing on global technology, media and telecommunications stocks. Management of the

GBP64 million ($101 million) trust, to be renamed Murray tmt, will pass from Murray Johnstone Private Equity to Murray Johnstone’s smaller companies and technology team, headed by John Johnston. The same team manages technology stocks for another quoted trust, Murray Enterprise, which has produced a 354 per cent net asset value total return over the five years to February 2000.

The transformation of the trust looks assured, although the final go-ahead will not be obtained until an Extraordinary General Meeting in mid-May.

MVIT’s board has reached agreement to sell the

trust’s entire unquoted portfolio to Pantheon Ventures for GBP38.6 million – a six per cent discount to net asset value – and shareholders will then have the option of exiting 42 per cent of their holdings for cash at 99 per cent of net asset value.

Going forward, Murray tmt will initially invest a minimum of 50 per cent of assets in UK-based technology-related stocks and the balance in similar non-UK-based companies, and the trust will adopt a composite benchmark index based 50:50 on the FTSE techMARK 100 Index and the NASDAQ composite Index.

The announcement of the proposed strategy revision resulted in an immediate 11 per cent increase in MVIT’s share price to 82p, reducing the net asset value discount to around 9 per cent.

Murray Johnstone remains unperturbed by recent market volatility in the technology sector, as Geoff Burns of the smaller companies team explains. “It is possible that we will soon have some GBP40 million looking for a home in technology stocks. Either we will be investing the cash in a sector that is temporarily unfavoured or, on the other hand, if the market has re-corrected, Murray tmt stands to benefit from a very tight rating”. In this context, it is worth noting that, despite April’s sharp falls in technology share prices, trusts comparable to Murray tmt such as the Henderson and Finsbury vehicles continued to trade close to asset value.

MVIT, which originally focused on smaller investments, underwent a formal restructuring in 1998, when it became apparent that, given the trust’s increased size, the average size of its investments was insufficient to keep it fully invested. As a result, MVIT’s discount to net asset value widened, reflecting the proportion of cash in the portfolio. The restructuring returned surplus cash to shareholders and reoriented MVIT towards mid-market deals. However, a slow rate of investment in 1999 resulting from mid-market conditions the manager perceived as unattractive, meant that MVIT’s discount widened once again. Faced with this seemingly entrenched problem, the board has opted for a radical transformation to maximise shareholder value.

Pantheon Ventures’ acquisition of the GBP41 million MVIT portfolio is its 29th secondary portfolio purchase in 12 years. The group, which is in the process of

raising a $500 million (a54 million) Global Secondary Fund, will fund the acquisition through a number of its client funds.