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Nick Train, one of the UK’s best-known fund managers, has branded the sale of British chip designer Arm “a mistake” that potentially dissuaded other technology companies from listing in London.
The fund manager said Arm would now be a “top five company” on the London Stock Exchange had it remained listed in Britain rather than sold to Japanese investment group SoftBank.
“[Selling] Arm in 2016, that objectively was a mistake,” he told the Financial Times. “It’s difficult to blame people but SoftBank bought Arm for £24bn. It’s now listed on Nasdaq and valued at £110bn. So that’s a huge miss.
“I imagine that tech entrepreneurs saw that institutions [shareholders] were willing to sell and maybe that was a disincentive,” said Train, who did not own shares in Arm.
Train’s comments come as London continues to grapple with companies leaving the London market in favour of New York to access a deeper pool of investors. British policymakers are trying to make London a more attractive place for tech companies to float through listing and regulatory reforms.
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Train co-founded £16bn investment firm Lindsell Train in 2000 and runs the Lindsell Train UK Equity fund and Finsbury Growth and Income Trust. He backs a small number of UK companies — between 20 and 35 — for long periods of time.
But Train believes online property group Rightmove’s recent rejection of takeover approaches might be a sign that “lessons have been learned from the premature sale of Arm.”
REA, the Australian property platform controlled by Rupert Murdoch’s News Corp, made three offers in September but Rightmove’s board rejected the approaches, which valued the business at as much as £6.1bn.
“Institutions including us weren’t interested, despite the fact that the bid was 30 per cent above Rightmove’s price at the time,” said Train. “We don’t mind that the shares are 20 per cent below where the bid was because we think this company could double, treble or quadruple in years to come and why would we let that opportunity go?
“When you’ve got a digital platform business of the calibre of Rightmove, you don’t sell that cheaply.”
In contrast, other holdings in Train’s portfolio, such as investment site Hargreaves Lansdown, have succumbed to takeovers. “The reality is there’s been not one day since the bid was confirmed where the share price has been above the value of the bid,” he said.
A consortium of private equity firms including CVC Capital Partners bought the company for £11.40 a share in August, valuing Hargreaves Lansdown at £5.4bn. “Whatever I feel about that, I just have to accept objectively that is a value marker,” he added.
Football club Manchester United has also come into focus over the past year as billionaire Sir Jim Ratcliffe bought a 25 per cent stake from the Glazer family. Train used this as an opportunity to sell a quarter of his portfolio’s investment “at the highest valuation I think ever recorded to a football club.”
“We’ve been left with the 75 per cent of our shares that we couldn’t tender, and we’re in a position I guess where we remain aligned with the Glazers . . . I expect one day a single entity will own 100 per cent of Manchester United, but who knows when.”
Train admits that his portfolio has suffered from a “rolling period of underperformance, which is disappointing for our clients”.
The UK Equity fund delivered 4.6 per cent last year, compared with the FTSE All-Share index’s 7.9 per cent on a total return basis. Over the long-term, the fund has returned 9.3 per cent a year on average since launch, compared with the benchmark’s 5.9 per cent.
“I’ve had shocking returns from three luxury or premium goods companies: Burberry, Diageo, and to a lesser extent . . . Fever-Tree,” he lamented.
Train has over the past year increased holdings in digitally focused companies in an attempt to buoy performance. “We’ve got well over 50 per cent of the portfolio in tech-related businesses . . . I think it might grow a bit more,” he said.
One of Train’s largest investments is Newcastle-based software company Sage.
“What could attract tech companies to list on the London market? If Sage, as the leading British software company, were to do really well over the next five years, and people could believe that a British tech company could attain a Nasdaq-type rating, that would be helpful.”
Among Train’s biggest successes is consumer goods group Unilever, which he said has outperformed the Nasdaq exchange on a total return basis since 2000. Train has backed the stock since 2006.
The FT revealed last month that Unilever was planning to float its ice cream business.
Train warned against hiving off other parts of the business. “I would say we should be careful [about] forcing Unilever to break itself apart, because that could create diseconomies of scale for a business that’s objectively done pretty well over decades.”
