Schroder Ventures has sold Schroder Ventures London Ltd and Schroder Ventures North America to Schroder Ventures International Investment Trust (SVIIT). SVIIT is 12.8% owned by Schroders plc. The sale of Schroder Ventures North America is relatively straightforward in that the sale of this broker dealer operation was necessitated by regulatory requirements. The sale of Schroder Ventures London Ltd to Schroder plc was motivated by a conflict of interest.
This conflict arose when the 10-strong team at Schroder Ventures London Ltd, led by Nick Ferguson and Andrew Williams, made a business decision to expand its activities into the fund-of-funds business, which was eventually resolved to be done via a fund-of-funds joint venture with Schroders plc. For Schroder Ventures the potential conflict of interest arose given the support that its funds have received from the fund-of-funds market. Consequently, with Schroder Ventures London Ltd sitting in the same office, Schroder Ventures could be accused of competing with its own fund investors.
In actual fact, as Charles Sherwood, director at Schroder Ventures, points out that Schroder Ventures London Ltd, although based in the same London offices as Schroder Ventures, is a separate business unit. Schroder Ventures London Ltd is a resource that is shared by the whole of the Schroder Ventures network and this resource is paid for via a levy charged to all of the Schroder Ventures network partners. It handles administration issues such as management of offshore funds, legal requirements in running the fund management business, investor relations, and investor reporting.
Going forward under the Schroder plc umbrella, Schroder Ventures London Ltd will continue to look after the management of the investment trust and provide some services to different partners of Schroder Ventures around the world for which it will be paid as a subcontractor. (Given that Schroder Ventures is a network of individual businesses with each business owned by the managers in the business this subcontractor relationship while anticipated to continue for the present may evolve or disappear across certain parts of the Schroder Ventures network over time.) In addition, Schroder Ventures London Ltd, going forward, will develop new fund-of-funds products as part of a joint venture with Schroder plc. This fund-of-funds business is likely to invest to a small degree in Schroder Ventures funds going forward. It will be a $500 million fund-of-funds tailored for and marketed to small institutions and high network individuals to provide these investors with diversity and perhaps even tradability if the vehicle is listed. It is not clear whether a decision has been taken on that front to date. This fund-of-funds will be a global product.
SVIIT already has experience in the fund-of-funds business via a vehicle listed on the London Stock Exchange.
Because Schroders plc is developing its own private equity activities outside of Schroder Ventures, the relationship between the two operations will change, the extent of which is still under review. As things currently stand SVIIT, (which, as mentioned earlier, is 12.8% owned by Schroders plc,) is a sizeable investor in Schroder Ventures funds to which it typically contributes between 20% to 30% of funds raised.
Sherwood notes that things under review by all parties mentioned include; the co-investment scheme (this is managed by a vehicle that is jointly owned by Schroder Ventures and Schroder plc); whether Schroders plc will cease to get an automatic interest in Schroder Ventures funds that are raised after June 30, 2002 (existing rights to carried interest will cease in 2010); and the branding architecture.