Fund Focus: Investment trusts and strategic reviews

Posted on 4th July 2025 | By David Stevenson

In this month’s funds overview, we examine two out-of-favour UK-listed investment trusts in a state of flux.

Investment trusts and strategic reviews: Syncona and SDCL, funds in transition

The investment trust industry has been very busy in the last few months, inspired in part by US hedge fund Saba’s attempts to narrow chronic fund discounts. More generally, the investment company/trust sector has realised that there are too many small or underperforming funds, and that there’s a need for a strategic rethink. Sometimes that rethink ends up with a merger with another big fund or, in many cases, in a managed wind-down and return of capital. There have been so many strategic reviews, deals, and wind-downs that it’s sometimes easy to miss some interesting opportunities. I’ll concentrate on two in particular: Syncona, a listed venture capital life sciences fund, and SDCL Energy Efficiency Income Trust. Both have been trading at huge discounts, and both have decided to think more strategically about the future.

Let’s start with Syncona. This started off as a listed fund of hedge funds called BACITs that also raised money for research into cancer. Over time, the relationship with the Wellcome Foundation and its cancer research specialists blossomed, and BACITs decided to refocus. It was transformed into a UK-based, first-tier biotech venture capital firm with its own life sciences portfolio of early-stage assets, courtesy of the Wellcome Foundation. After an initial string of successful IPOs, the shares in the VC started to drift and have spent the last three years going nowhere, well, actually down to be more accurate. Some of this can be attributed to a persistent bear market in Biotech stocks, but a larger factor is that investors lost faith in its early-stage investment approach in private businesses, and frankly, some of its portfolio businesses underperformed. For more years than I can remember, Syncona kept pushing on with a strategy that was clearly not working with investors – the discount on the shares kept widening. Change was needed!

It took many months, but we finally have some resolution, not surprisingly, as the shares traded at a colossal discount of over 50% and have declined by 52% over the last three years. Last week, Syncona announced its full-year numbers and a strategy update. Here are some high/low lights, courtesy of the funds’ research team at Peel Hunt :

– a NAV decline of c.9.5% to £1,053m (vs. £1,239m in March 2023), or 170.9p per share (vs. 188.7p in FY24), with the decline in Autolus’ share price being the key driver

– Syncona reported a maturing portfolio of 14 companies, with 78.5% of strategic portfolio value now concentrated in eight clinical-stage and commercial companies, including two late-stage clinical and one with a marketed product

– An orderly realisation of portfolio assets, aiming to balance timely cash returns to shareholders with value maximisation. Syncona reiterated its confidence in the long-term opportunity of its strategy to “create and build companies leveraging world-class research.” The company is working closely with the board to explore the launch of a new fund for interested existing shareholders and prospective new investors. Syncona intends to continue to update the market on portfolio progress and stakeholder engagement outcomes in due course.

Peel Hunt analysts observe that the current discount “ significantly undervalues the portfolio (e.g. the current market cap is c.53% covered by cash alone)” while Numis analysts add that the

“proposed approach should give some comfort to listed fund investors that they will see cash come back as realisations occur, although this may take some years…. The board is also exploring accelerated realisations, which it notes “may include a sale of a small portion of its interests in certain of its portfolio companies at a modest implied premium to the current share price and at a discount to NAV”. If achieved, it would return the net proceeds and cash allocated to support further investment on the assets. The company is seeking to sell the assets to the new fund if it can raise additional capital.”

I suspect that the path to cash returns will be long and winding, but I think there might well be value in the shares, especially given the cash position and the chunky discount.

Next up, we have one of my favourite income ideas – SDCL Energy Efficiency. This invests in a range of energy efficiency and renewable assets, which are frankly rather dull, like CHP (community heat and power). The fund trades at a 42% discount with a covered yield of 12.3%. The fund has done many things right: it has sold assets at book value, bought shares (as has the manager), focused on reducing its debt (which is relatively high for many investors), and attempted to reach out to income-hungry private investors via different comms channels.

The fund also issued its annual update last week, and yet again, plenty of boxes were ticked. The managers released improved performance metrics, and the results were slightly better than I expected. Additionally, the management fee was reduced. That said, I’m still a little nervous about the high level of debt on the balance sheet and would prefer to see this brought down more aggressively. I’m also wary that the dividend is ‘only’ 1.0 to 1.1 times covered – I would feel a lot more confident if that was closer to 1.3 times covered.

Nevertheless, the big development came from the chair’s (Tony Roper) statement, which announced that it is “considering all strategic options to deliver value for all shareholders effectively and efficiently”, whilst also noting that it is “both in the context of the Company’s longer-term plan to drive value for shareholders and in a more wholesale and strategic manner”. The board plans to gather opinions of shareholders on possible outcomes over the coming weeks.

This is excellent news and could result in several outcomes, including a trade sale (possibly involving strategic investor General Atlantic), a take-private approach, or a more focused approach on reducing debt and selling assets. I stick with my long-term buy on the shares, and in the meantime, that generous dividend yield should help!