Scottish Mortgage Seeks Increased Investment in Unlisted Companies Following SpaceX Valuation Surge

Scottish Mortgage Investment Trust is requesting shareholder approval to increase its investment capacity in unlisted companies by £250 million. This move comes on the heels of significant growth in the valuation of Elon Musk’s SpaceX, which recently almost doubled.

The proposed capacity increase would raise the trust’s exposure to private companies beyond the current limit of 30 per cent. This amount represents approximately 1.7 per cent of Scottish Mortgage’s total assets, which currently stand at £15.2 billion. Shareholders will vote on this proposal at a general meeting scheduled for April 10.

If approved, the additional £250 million investment cap will require annual shareholder approval starting from the 2027 annual meeting. Although the cap does not mandate the rebalancing of the portfolio, it restricts fund managers from making further investments in private firms.

The cap was exceeded last December when SpaceX’s valuation soared to £800 billion, nearly twice its previous level. This surge allowed SpaceX employees to sell shares through a tender offer, leading Scottish Mortgage’s exposure to the company to rise from 8.2 per cent to 15.1 per cent of its total assets within a month. As of now, that stake has grown to 15.4 per cent, valued at approximately £2.2 billion, up from £508 million in September.

According to Scottish Mortgage’s latest fact sheet, private companies accounted for 37 per cent of the firm’s total assets as of last month. SpaceX, ByteDance, and Stripe stand as the three largest private company stakes in the portfolio, making up 4.1 per cent and 3.9 per cent respectively.

The increase in unquoted firm investments has been partly driven by a share buyback programme conducted last year, which was financed through the sale of shares in listed companies. There are expectations that SpaceX may pursue a stock market flotation this year, following its merger with xAI in February. Should this occur, it would allow the trust’s exposure to private companies to drop back below the 30 per cent cap.

Tom Slater, fund manager at Scottish Mortgage, expressed the importance of being patient and long-term partners with outstanding private companies as they grow. He indicated that market dynamics can hinder the ability to make further investments. This proposal aims to provide the board with greater flexibility to act in the long-term interests of shareholders while remaining discerning about new opportunities.

Matthew Read, a senior analyst at QuotedData, described the proposal as a pragmatic solution for Scottish Mortgage. He noted that there are situations where an inability to support further funding rounds could negatively impact value-accretive follow-on investments or lead to dilution of stakes in successful firms.