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One big trend in the stock market over the past decade has been private companies choosing to stay unlisted for longer. Before that, less mature firms would list on the London Stock Exchange or in New York to raise the necessary capital to scale up.
However, there’s now an abundance of venture capital, private equity, and sovereign wealth fund investment. Consequently, top growth firms can raise billions privately without dealing with the regulatory hassle and short-termism of public markets.
Some unlisted companies that have grown enormously in recent years include SpaceX and TikTok owner ByteDance. When they were most recently valued, these enterprises were both worth about $350bn! That would make either of them the largest company in the FTSE 100 by some distance!
One sad outcome of this trend is that everyday investors are missing out on the eye-popping growth of such exciting businesses. I’ve been wanting to invest in SpaceX directly for years, but haven’t been able to.
Assuming SpaceX would now command a similar public valuation, I’ve missed out on 10 times my money. That’s how much its valuation’s gone up by in the past eight years.
Taking a different route
One way investors can gain exposure to the ongoing growth of these two firms is through Schiehallion Fund (LSE: MNTN). This strangely named investment trust — named after a Scottish mountain — has large positions in both SpaceX and China’s ByteDance.
Schiehallion seeks to generate capital growth through investments in later-stage private businesses it thinks have transformational growth potential. It then tends to hold onto these growth firms even after they become publicly traded.
The shares are up around 19% over the past year, but still trade 60% below the price they reached in late 2021.
Strong portfolio
At the end of May, SpaceX and ByteDance made up 9.1% and 8.3% of the portfolio respectively. But an Italian app developer called Bending Spoons is actually the largest holding today, at 10.9% of assets.
Looking elsewhere in the portfolio, there are some top growth stocks in there. Ones that stand out to me are digital payments processor Stripe and Databricks, a global data analytics and artificial intelligence (AI) company.
British autonomous driving company Wayve is also interesting, as it’s due to start trials of self-driving cars in London with Uber next year. It could have a long runway of growth ahead as robotaxis go mainstream over the next decade.
As mentioned, Schiehallion also looks to keep holding shares when its investments enter public markets. Some that have done so include Tempus AI and fintechs Affirm and Wise. These have done really well recently, especially Tempus, whose shares have doubled in six months.
Attractive discount
Naturally, some of the firms in the portfolio aren’t guaranteed to do well. One of its holdings — Sweden’s Northvolt — even went bust recently. The fund’s also denominated in US dollars, so there’s potential currency risk.
Meanwhile, there’s uncertainty with TikTok in the US, where ByteDance might have to sell it. Some fear SpaceX could miss out on government contracts due to founder Elon Musk’s rift with President Trump.
Despite these risks, I think Schiehallion shares are worth considering. At $1.17 each, they’re trading at a sizeable 16.4% discount to the underlying net asset value of the fund.
