Hydrogen, Cannabis and Space (and a bit on Crypto)

22 JUNE 2021

The first three are very different topics, the point in common is that all three are recent proposed Initial Public Offerings (IPOs) coming to the UK market. One of the advantages of being a UK based investor is that our own market is vibrant and as a fund investor we get to see a lot of interesting, proposed investments. In fact, it can be an embarrassment of riches, so we have to be disciplined when it comes to our filtering of new ideas. As a multi-asset investor our philosophy is very wide when it comes to new ideas, we have an open door policy. We do enter all meetings with an open mind despite our innate scepticism, which is healthy for any investor.  

Current market conditions are buoyant, and confidence is high, which may explain the hoped for launch of what are very specialist investments.  They all have some characteristics in common, early stage with the potential for very attractive levels of return, but with corresponding risk. I will not go through each in detail, but they each benefit from a specialist investment manager. In assessing new investments, we “kiss a lot of frogs” before we meet out our Prince, but a rejection does not mean a bad investment, but rather it is not for us. 

Of the three met recently we will not participate, however the meetings themselves provide a learning opportunity on assets we knew little about beforehand. All three are early stage equity investments with many of them being unlisted, or rather in the Private Equity arena. They are growth areas where the outlook for all is positive; Hydrogen as an alternative fuel source, Cannabis for its medical implications and Space with the substantial reduction in price of placing satellites in orbit and the implications this has for global communications. 

So why do we not invest? A fair question. We do have some Private Equity exposure, but this tends to be more traditional although as one would suspect a bias to growth (they are also usually profitable businesses). At this stage it is too early for us to be involved, however we will keep an eye on these and if the opportunity becomes more mainstream, we expect our generalist equity managers to exploit these situations within their funds.  

One area where we get questions as to our view and why we are not invested is Cryptocurrency. We have recently met a proposed launch that seeks to provide exposure to a basket of crypto currencies whilst managing the volatility. The back tests look sound although to be slightly contentious we have never seen a bad one (our scepticism in action). The returns on a headline level look very attractive however we will not be investing. There are two factors to this but the first trumps the other; our regulator has made it clear that this is not an investment they believe, at this point, is suitable for a retail investor. If clients do wish to have this exposure, unfortunately this is something they will have to assess on their own. 

We welcome all opportunities, and we should note that we have been very active in the IPO market over the past nine months or so. We have invested further in renewable energy, social housing, and royalty investments. There are plenty of opportunities that we find attractive enough to be worthy investments for client portfolios. It has been a very busy time, but the market usually slows through the summer months, which allows for a welcome breather.  

James Calder

Research Director