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Self-Invested Personal Pensions (SIPPs) offer several benefits that can make them an attractive option for retirement planning.
First off, unlike traditional pensions, SIPPs give me control over where my retirement savings are invested. This flexibility allows me to tailor my investment strategy to my own risk tolerance.
Additionally, SIPP contributions typically receive tax relief, which means the government essentially tops up my account. I then invest that money too!
Finally, SIPPs tend to foster a long-term investing mindset, given that they can’t be accessed until I’m at or near retirement.
Here, I’ll look at one investment trust I hold in my SIPP, and explain why I’d consider buying shares today if I didn’t already own them.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Mountain-sized unlisted firms
Schiehallion Fund (LSE: MNTN) is a growth-oriented trust named after a mountain in Scotland.
Managed by Baillie Gifford, it invests in late-stage private companies. So we’re talking about sizeable businesses here, not a couple of people with a dog tinkering away on some project in a garage.
In fact, the top two holdings are the world’s most valuable private companies: Elon Musk’s Space Exploration Technologies (SpaceX to me and you) and ByteDance, the Chinese firm that owns TikTok.
SpaceX’s latest valuation was an astronomical $180bn, second only to ByteDance’s mind-boggling $220bn. The pair made up around 13% of the portfolio at the end of April.
Top 10 Holdings
| Fund % | ||
|---|---|---|
| 1 | US Treasury bills | 13.1% |
| 2 | Space Exploration Technologies | 7.3% |
| 3 | ByteDance | 5.6% |
| 4 | Wise | 4.8% |
| 5 | Bending Spoons | 4.8% |
| 6 | Brex | 3.8% |
| 7 | Affirm | 3.4% |
| 8 | Daily Hunt | 3.0% |
| 9 | McMakler | 2.9% |
| 10 | Databricks | 2.8% |
| Total | 51.5% |
Capturing growth in private markets
Over the last decade, there has been a recognisable trend where private companies are choosing to stay private for longer.
Amazon, for example, had a market-cap of around $400m when it hit the public market in 1997. You wouldn’t get that nowadays. Venture capital’s plentiful for the most promising startups, meaning founders don’t need to subject their firms to the intense scrutiny and short-termism of public markets.
According to Bloomberg, SpaceX’s revenue last year likely grew by 95% to $9bn. And growth should continue as both its reusable rockets and satellite internet constellation service (Starlink) progress.
Therefore, Schiehallion Fund gives small investors like me a chance to capture some of this rapid growth being generated by private firms outside of public markets.
High-rate headwinds
As we can see in the chart above, the share price is well off its late 2021 peak of $2.93. Today, the stock’s trading for just $0.92 (72p).
This is because higher interest rates aren’t great for growth stocks, especially unlisted ones. They increase the cost of borrowing, provide safer returns elsewhere, and reduce the present value of future cash flows.
One private holding called Convoy went bust in October as funding dried up. That dragged on last year’s performance slightly. So higher rates remain a headwind, for sure.
Looking ahead though, the Bank of England has hinted it may soon start cutting rates, so the shares may rise. Especially as they’re trading at a huge 21% discount to the fund’s estimated net asset value.
Last year, the portfolio’s top 20 companies generated an average of around 40% revenue growth, with 40% gross margins. Therefore, the fund’s holdings remain in very good nick.
Long term, I reckon the stock will prove to be a bargain at $0.92.
