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Schroder UK Public Private Trust plc

Announcement of Net Asset Value as of 30 September 2022

Schroder UK Public Private Trust plc (the "Company") today announces its net asset value ("NAV") as of 30 September 2022.

Summary

· NAV of 30.88p per share as of 30 September 2022, a decrease of 5.9% relative to the NAV per share as of 30 June 2022 (32.80p).

· The largest detractor from performance was BenevolentAI, the listed AI drug discovery and development company, which saw a share price decline of 54% on thin trading volumes.

· During the quarter, the Company completed two new private life sciences investments - antibody-drug conjugates development company, Araris Biotech AG ("Araris"), and clinical stage oncology company, iOnctura SA ("iOnctura").

· After the period end, the Company completed another new private life sciences investment in the T-cell development company, A2 Biotherapeutics ("A2 Bio"). All these new investments were made in line with the private equity sub-strategy for backing innovative life sciences businesses at the clinical or near-clinical stage, with high quality science and a strong financing position, alongside high-quality co-investors.

· As of 30 September 2022, the Company is well placed to benefit from the depressed valuation environment when making new investments - with more than £5.4m in cash, an unutilised loan facility, £107.9m in public equity investments and a healthy pipeline of global venture/growth stage companies.

· From 1 October 2022, Schroder Unit Trusts Limited replaced Link Fund Solutions Limited as Company's Alternative Investment Fund Manager ("AIFM") and HSBC Bank plc replaced Northern Trust1 as the Company's Administrator, Custodian and Depositary.

1 Northern Trust Global Services SE, The Northern Trust Company and Northern Trust Investor Services Limited.

Introduction

Economic backdrop

After a rally in July, major public equity markets turned lower and registered negative returns for Q3. Looking at key equity indices on a constant currency (USD) basis, the MSCI World fell 6.2%, the S&P500 fell 4.9% and the FTSE All-Share fell 11.3% (total returns (net) in USD). Hopes of a peak in interest rates were dashed as central banks reaffirmed their commitment to fighting inflation. The Federal Reserve, European Central Bank and Bank of England all raised interest rates in the quarter.

In private equity markets, market volatility and expectations of a global recession have meant that deal activity has slowed. Gone are the days of free capital and growth at all costs. Later stage (series B+) companies are being advised to focus on capital efficiency, profitability and extend their cash runway, in some cases completing funding rounds with existing investors only to ensure sufficient additional time for growth into earlier, inflated valuations. Meanwhile, the early stage (Seed and Series A) funding market has been relatively less impacted with deal activity continuing. For those companies that have been required to raise external capital, the fall in public equity markets has started to flow through into valuations, however at times there remains a large gap between the valuations that investors are willing to pay, and that entrepreneurs are willing to accept.

There has been a significant reduction in the number of mega funding rounds (greater than $100m) due to the retreat of cash rich, non-specialist, private equity investors - hedge funds and other non-traditional investors that had rushed into VC over the past few years - in light of heightened stock market volatility, rising interest rates and faltering IPO markets.

The Company's Portfolio Manager, Schroders, remains focused on backing the highest quality companies but with strong pricing discipline underpinned by their 25 years' experience investing in private equity. Indeed, the investment team has considered several investments in private companies over the last 12 months which have ultimately been declined due to unreasonable valuations.

Portfolio composition and valuation reviews

As of 30 June 2022, the Company had 34 portfolio holdings1 including 11 public equity holdings and 23 private equity holdings. During the period, the number and composition of holdings was impacted by the following events:

· New investment in Araris.

· New investment in iOnctura.

· Mafic was revalued to zero.

· RM2 International S.A. completed its business combination with ARC Group Worldwide Inc., a U.S. OTC-listed company.

· Sale of Plenti Group.

As of 30 September 2022, the Company ended the period with 34 holdings1 including 11 public equity holdings and 23 private equity holdings. All the Company's quoted holdings were valued using unadjusted quoted prices. For the unquoted holdings, the Alternative Investment Fund Manager (Schroder Unit Trusts Limited) considered any material 'triggering' events since the last valuation assessment as of 30 June 2022.

1. Excluding holdings with no value.

Recent developments

There have been no material developments since the quarter end. Further details regarding the new investment completed in A2 Bio can be found in the Investment Activity section of this announcement.

Financial Performance

Source: AIFM as of 30 September 2022.

The NAV as of 30 September 2022 was £279.9 million reflecting a decrease of 6.0%1 compared with the NAV as of 30 June 2022 (£297.8 million).

The quarterly NAV per share return of -5.9%1 comprised:

· Public equity holdings: -7.1%

· Private equity holdings: -0.7%

· Foreign exchange: +2.3%

· Costs and other movements: -0.4%

1 Performance of NAV per share return differs to NAV return due to the impact of share buybacks.

Portfolio

The Company's public equity holdings saw a decline in value of 16.5% contributing -7.1% to the quarterly change in NAV per share. The largest detractor to performance was BenevolentAI, whose share price declined by 54.0%. BenevolentAI listed in April via a SPAC rather than a full price discovery process and the majority of shareholders were locked up until mid-October. This has resulted in thin trading volumes and price movements that are not necessarily reflective of the operational performance of the business.

Meanwhile, holdings in Oxford Nanopore and IDEX Biometrics also displayed share price weakness over the period declining by 3.6% and 42.6%. Oxford Nanopore continues to deliver against commercial milestones, however it remains some way from cash breakeven and the stock price remains volatile. Meanwhile, shares in IDEX were weak due to continued slow revenue generation, which meant the market anticipated that an additional capital raise would be required to fund the business through to breakeven. This raise was carried out in November. 

On the positive side, shares in global commercial-stage biotech company Immunocore performed well increasing 25.7%. The company has continue to proceed with developing its platform and raised c.$140 million in private placement in July 2022, extending its cash runway by over a year.

The Company's private equity holdings saw a decrease in value of 1.3% contributing -0.7% to the quarterly change in NAV. No individual holding fair value changed by more than £1.5m during the period.

Foreign Exchange

During the quarter, the fair value of investments denominated in the United States Dollar (USD), Euro (EUD) and Swiss Franc (CHF) benefited from the depreciation in the value of the British pound sterling (GBP). Whereas the investment in IDEX Biometrics, denominated in Norwegian Krone (NOK), was marginally negatively impacted by the appreciation of GBP.

Cash, debt, and net current assets

As of 30 September 2022, the Company held £5.4 million in cash with no funds drawn from the loan facility.

Investment Activity

Realisations

During the quarter, the Company made one partial and one full realisation totalling £1.7 million.

The Company made a partial realisation of its holding in Nexeon, the manufacturer of silicon-based anode materials for rechargeable lithium-ion batteries, generating proceeds of £1.6 million. In January 2022, the company announced a $80m fundraising led by SKC, one of Korea's leading advanced materials companies, with participation from private equity firm SJL Partners. In August 2022, Nexeon completed a second close raising a further $90m from investors including Ingevity Corporation (NYSE:NGVT), GLY Mobility Fund and Korean private equity investors Daishin Private Equity and Shinhan Investments. The sale was completed in conjunction with the second close, taking advantage of the liquidity available in the round to trim the position at an uplifted valuation.

The Company also sold its small remaining public equity position in consumer lending company Plenti Group following the expiry of its lock-up period.

New Investments

During the quarter, the Company made two new private equity investments totalling £1.9 million. These included antibody-drug conjugates development company, Araris, and clinical stage oncology company, iOnctura.

After the period end, the Company also completed an investment in T-cell development company, A2 Bio.

All three of these investments are in line with the private equity sub-strategy for backing innovative life sciences businesses at the clinical or near-clinical stage, with high-quality science, a strong financing position, alongside high-quality co-investors.

Further details on each company and transaction are outlined below.

Araris

In October 2022, the Company announced it had made a commitment of CHF 3.0 million (£2.7 million) to Araris, as part of its CHF 23.5 million (£21.4 million) financing round. New investors Wille Finance (CH) and the Institute for Follicular Lymphoma Innovation (US) as well as existing investors in the company's blue chip syndicate, participated in this financing, including Pureos Bioventures, 4BIO Capital, VI Partners, btov Partners and Redalpine.

Araris is pioneering the development of a novel antibody-drug conjugate (ADC)-linker technology to enable efficient and precise production of ADCs. Its linker platform enables the attachment of any drug payload to 'off the shelf' antibodies, without the need for prior antibody engineering. The resulting ADCs have shown very high activity at low doses and an improved therapeutic index compared to FDA-approved ADCs. Araris is a spin-off company from the Paul Scherrer Institute (PSI) and ETH Zurich.

On completion of the transaction, the Company invested c.£1.3 million of its total commitment with the balance expected to be invested at the milestone closing at some point in the second quarter of 2023.

iOnctura

In November 2022, the Company announced it had made a €1.3 million (£1.1 million) investment in iOnctura, as part of a convertible loan. All the existing blue chip investor syndicate, including M Ventures, INKEF Capital, VI Partners, and 3B Future Health, participated in this financing.

iOnctura is a clinical-stage biotech with a portfolio of programs that each target multiple core mechanisms involved in cancer resistance and survival. iOnctura's pioneering programs target core mechanisms of resistance and relapse which could lead to significant clinical benefits. iOnctura has progressed two therapeutic candidates into mid-stage clinical development: IOA-244, a highly selective allosteric inhibitor of PI3Kδ to treat Treg-driven tumours; and IOA-289, a highly selective, non-competitive autotaxin (ATX) inhibitor to treat cancer associated fibroblast (CAF) driven tumours.

On completion of the transaction, the Company invested c.£0.7 million of its total commitment with the balance expected to be invested in the first quarter of 2023.

A2 Bio

In November 2022, the Company completed an investment of $1.17 million (£0.99 million) to A2 Bio, as part of its $50 million (£42 million) financing round. The total amount was invested upfront. A2 Bio is backed by investors that include The Column Group, Vida Ventures, Samsara BioCapital, Nextech Invest, Casdin Capital, Euclidean Capital, UC Investments (Office of the Chief Investment Officer of the Regents), Hartford HealthCare Endowment, StepStone Group, Section 32 and Merck.

A2 Bio is using its next-generation cell therapy Tmod platform to engineer T-cells that target the loss of genetic material in tumours, enabling the selective killing of tumour cells while leaving normal cells unharmed.

Top 10

The Company's top 10 holdings as of 30 September 2022 compared with the respective holding as of 30 June 2022.

Source: AIFM as of 30 September 2022.

Outlook

Operationally, the transfers of the Company's AIFM to Schroder Unit Trusts Limited, and the Company's Administrator, Custodian and Depositary to HSBC Bank plc are now complete. Despite the challenging backdrop of rising interest rates, inflation, expected recessions and volatile markets, we believe the Company continues to be well placed to capitalise on new investments in the private markets with its new global strategy. Indeed, the extended geographical focus allows us to leverage our network and invest in the best opportunities, when viewed on a risk return basis, no matter where they are in the world.

Several stock specific situations remain from the inherited portfolio and we continue to focus on maximising return potential from these for shareholders. We have capital available to continue to make investments as we continue to rebalance the portfolio, and have a healthy pipeline of global venture/growth stage companies from which to consider potential investment.

Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. The securities shown above are for illustrative purposes only and are not to be considered a recommendation to buy or sell.

Enquiries:

Schroder Investment Management Limited