Scottish Mortgage Investment Trust PLC's (LSE:SMT) has been reported to the UK financial watchdog by departed non-executive director Amar Bhidé, including a paper trail of evidence.
The Tufts University business professor said he presented his "manifold" concerns to the Financial Conduct Authority about governance and other issues, some of which he shares in an interview with the Financial Times.
Saying not all his concerns could be explicated in the FT interview, Bhidé said he hoped the CMA "looks into the concerns carefully" and that -he provided the regulator with "evidentiary back up", ie a paper trail and "will be speaking to them shortly", he said in a LinkedIn post.
The newspaper interview laid bare problems at the boardroom level of the UK’s biggest investment trust, especially over how it monitors unlisted investments such as TikTok owner ByteDance, Swedish battery maker Northvolt and Elon Musk’s SpaceX, and led to the FTSE 100-listed company rejigging its board this week, replacing chair Fiona McBain.
In the LinkedIn post, Bhidé called the interview a “ last resort” after numerous private attempts to convey his concerns about the board’s lack of investment expertise and its communications with shareholders.
He had clashed with McBain over disagreements about new board appointments and its policy of non-listed investments.
Scottish Mortgage, managed by Baillie Gifford, had been one the UK’s most successful trusts over the past decade as bets on technology companies such as Tesla, Amazon and Alibaba have paid off handsomely.
Over the past two years, however, the tide has turned as interest rates have risen and monetary conditions got tighter, with the share price down 55% from the 1,528p high of May 2021 and cutting its market value to £9.6bn.
With £3.4bn in unquoted businesses, the low fees and structure of SMT meant it lacked the “capabilities and governance clout to be able to monitor the illiquid investments on which there is little audited information in the public sphere".
Carrying on he added: “The fact that you’ve pulled it off for the last 10 years has been due to an utterly aberrant period in financial history. Don’t delude yourself that you can keep playing this game”.
It was noted in a further report today that almost 30% of the current portfolio is in unlisted investments, which are difficult to sell and a further market sell-off could see the investment company breach its leverage limit and be forced to sell down listed positions and precipitate a fire sale.