“We hit a bit of a crossroads really,” he explained. “For the first several quarters of our existence, our NAV [net asset value] growth was relatively modest.
“It was growing, but we added a lot of companies and there is inherently a bit of cost drag as you add lots of assets and it takes a bit of time for the underlying performance of those assets to show through in valuation terms.
“As the pace of new investment additions slowed, we began to see the benefits in terms of growth in NAV from the performance of the underlying assets and that cemented the proposition.”
That proposition sees the trust invest in companies in the pre-IPO stage in order to maximise the growth opportunity of a firm in a market that sees businesses stay private longer than ever.
“In 2011, the average age of a company taking finance privately before it exited either by IPO or by M&A was about five-and-a-half years. That is now over ten years,” Williamson said.
“Companies are staying private for longer and, we thought, if we are not able to invest in these companies until IPO we are missing out on all that growth.
“So, we decided to move our point of investment to pre-IPO and target late-stage private businesses which are two-to-five years out from IPO, and therefore regain or recapture the alpha that we would have got had they [listed] at an earlier point.”
At the end of 2020, Chrysalis held 12 companies in its portfolio, of which only three were added that year. The trust then had to choose either organic growth or a new injection of capital to continue building the portfolio.
“The organic route says we can wait for these businesses to IPO and, once listed, we can continue to hold them to maximise the investment case.
“In the fullness of time, you can realise those investments, take that money and reinvest it in private companies, or even return it to shareholders.
“That is a very credible path, but having built up the platform and the proposition, and seeing the amount of interest that has been growing in terms of what we are doing, it sounds a waste.”
Instead, Chrysalis opted for the second route of raising money and deploying it in a method which aids the growth of the assets it currently owns, while simultaneously funding an investment pipeline.
This fundraise exceeded its £240m target, reaching the maximum £300m through the issuance of 146.3m new ordinary shares at the 205p target price.
In the process, the trust’s premium has closed significantly from 41% in February to 9.8% on 31 March, according to AIC data.