The discount at Majedie Investments, a once-ailing trust, has nearly vanished under the new management of Marylebone Partners
In search of a new manager, the directors of Majedie Investments (LSE: MAJE), a family-controlled company in trouble, sought out an alternative. They discovered it in Marylebone Partners, a tiny store established in 2013.
According to Majedies' lead manager, Dan Higgins, "As an investment trust, you need to give investors something they couldn't get elsewhere." This is accomplished by what Marylebone refers to as its "liquid endowment model," which avoids private equity and real estate in favor of a combination of direct investments, special circumstances, and niche funds in particular industries.
The net asset value (NAV) increased by 18 percent between March 1, 2023, and the end of 2024, demonstrating the success thus far. Once over 30%, the discount to net asset value has decreased to less than 5%, providing investors with a 30% return. Nevertheless, Majedie is a small trust with only £150 million in net assets, so neither big wealth managers nor private investors have taken notice.
According to Higgins, "the investment landscape has changed,". 2020 marked the end of the 40-year period of declining interest rates. As a result, investors must choose the right securities more carefully and can no longer rely on a market tailwind.
Since 1970, the US has dominated international markets to a greater degree. For the first time in 60 years, the SandP 500 is concentrated in the top ten stocks at a 36 percent level. Higgins states, "It is uncommon for the largest companies to outperform by so much." Additionally, the dollar "looks stretched," the profit margins of the biggest, now capital-light US companies are at record highs, and the US's outperformance over the last 25 years differs from that of the previous 20. Because of this, Majedies' portfolio does not include any of the top 50 stocks in the MSCI World index.
Although the overall market returns will be drab, Marylebone Partners thinks that returns outside of the megacaps will be significantly better. Therefore, 60% of the portfolio is externally invested in "world-class active managers in specialist areas," with half of the investment focused on equity and the other half on absolute return. Several of these funds are closed to new investors and are sourced from a network "built over three decades" and managed by specialized boutiques.
These comprise a number of specialized credit funds, a Japanese small-cap activist fund, and a mid-cap biotech fund. A Chinese value fund reflects Marylebone's view that China is a "highly inefficient market" and that "markets are underestimating the resolve of the authorities to stimulate the economy, but incrementally."
Furthermore, "co-investments and thematic opportunities" originating from "trusted sources who must have something to lose in the stock" account for another 20% of the trust. These include two listed US restaurant groups that have new management and uranium miners on the list.
Four of the listed stocks that make up the remaining 20% are located in the United Kingdom. According to Higgins, "there are some great companies here, but it's hard to get bullish about the UK from an economic, cultural, or political point of view." Among these is Weir Group, which "is now focused on mining equipment and consumables, but the market still thinks of it as an oil services company." Marylebone is optimistic about mining, particularly copper, and bullish on China.
Keep and develop.
"Capital preservation is our first priority," Higgins declares. The portfolio is composed of only 55% stocks, 31% absolute return funds, and 6% other assets. Pending the repayment of a debenture, the remaining 9% is in cash.
Once the shares are trading at a premium, Higgins believes that performance and equity issuance could grow the fund to at least £500 million. They are not yet there; the discount to January's estimated NAV is currently 3 to 5 percent, but they should be there shortly based on their strong performance and highly unique strategy.
Leave a comment on: Under Marylebone, Majedie experiences a remarkable transformation