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SVG takes strategic approach

SVG Investment Management, a subsidiary of FTSE 250 listed private equity business SVG Capital, has established the strategic equity capital investment trust.

This trust aims for growth on an absolute returns basis by investing in quoted UK companies that are seen as undervalued or which could benefit from improvements in business strategy, operation or management. In this respect, it will apply the techniques used for assessing private equity, trying to improve the companies in some way to add value.

The focus will be on small and mid cap companies as these are relatively under researched compared with larger companies. SVG sees its approach as a way of attaining the benefits of private equity investing without facing the problems such as boards being unwilling to open their books and the limited scope for hostile takeover bids.

SVG uses a three stage investment process based on private equity investing. The management team will look at valuation by focusing on cash flow and asset backing and will draw on a team of industry experts on a strategic advisory board and independent advice from industrialists. These include Ken Minton, who helped turn around companies such as Laporte and Mowlem, William Nabarro, former vice chairman of KPMG Corporate Finance and Sir Clive Thompson, former chairman of Rentokil and former president of the Confederation of British Industry.

The fund will contain 10-15 companies once fully invested, and will follow a time horizon of two to five years for each investment. It has a flexible gearing policy of up to 25 per cent of net assets.

The investment approach and selection process could provide an interesting angle on small and mid caps, but the concentrated portfolio means that every holding will count and means the fund has higher than average risk despite the maximum level of gearing remaining relatively low.

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