Interactive Investor

Scottish Mortgage and Chrysalis reap rewards of investing in Wise

8th July 2021 11:06

Kyle Caldwell from interactive investor

Both trusts more than doubled their money after Wise became the largest tech firm to list on the London market. 

Two investment trusts that backed money transfer firm Wise (LSE:WISE) ahead of its IPO have more than doubled their money.

Scottish Mortgage (LSE: SMT) and Chrysalis Investments (LSE:CHRY) have benefited from Wise being crowned the largest tech firm to list on the London Stock Exchange, with a value of more than £8 billion. This is more than double the £3.6 billion valuation of the business in a fundraising last July.

Scottish Mortgage, the global trust that favours companies with disruptive technology, has held Wise for several years. At the end of May, it had a 0.9% position. The trust has £18.8 billion of assets.

Chrysalis Investments, an investment trust that takes stakes in privately owned businesses potentially headed for an IPO, has been a bigger beneficiary of Wise’s stock market listing. It holds an 8% stake, which had been higher.

In a stock exchange announcement yesterday, the trust said “in order to make sufficient liquidity available to enable the process to proceed, along with other principal shareholders, Chrysalis agreed to sell a small part of its pre-IPO position at the auction clearing price. The rest of the company's position is unencumbered by any selling restrictions.”

Wise, founded by Kristo Käärmann and Taavet Hinrikus, took the far less common direct listing route to IPO, which involves no new capital being raised. This means its valuation was based on investor demand rather being set by banks. It was a move that paid off as it achieved a valuation at the top end of analyst expectations.

Richard Watts and Nick Williamson, co-portfolio managers of Chrysalis, said its engagement with Wise dates back to 2017 when the firm was just breaking into profitability. Chrysalis was launched in November 2018, with Wise forming part of Chrysalis’ initial portfolio at IPO.

The duo added: “As such, we have observed the significant growth in both revenues and profits delivered by Wise for our investors. This has resulted in a rising valuation for Wise and we wish Kristo, Taavet and the team much success in the listed environment as they continue their mission of increasing access to significantly cheaper foreign exchange channels."

Wise serves 10 million customers worldwide and sends over £5 billion across borders each month.

Investing indirectly in IPOs through investment trusts

An IPO can excite investors and even catch the attention of those who’ve never thought of putting money in the market before, if it is a company that they are familiar with. The risk, however, is that the IPO’s valuation is overhyped, which the market can take a dim view of once the shares make their debut.

For investors tempted by IPOs but put off by the risk, investment trusts that invest in unlisted companies, some of which will look to IPO when the time is right, are worth considering.  

This not only gives investors the opportunity to potentially benefit from the success of the company prior to listing, it also offers reduced risk as investors will be gaining exposure to a large number of potential new issues. Not all will perform well, but diversification is always a benefit for investors.

Check out our recent feature to find out which other collective funds offer exposure to IPOs.

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