Page 42 - DIY Investor Magazine | Issue 31

QD VIEW – 7% YIELD OPPORTUNITY, BUT READ THE SMALL PRINT As we have discussed before, many investors struggle to buy shares in funds that are listed on the Specialist Fund Segment – writes James Carthew. There are also a few platforms that have a problem with funds that are listed in London but whose quote is in a currency other than sterling. One fund that fell foul of both until recently was Biopharma Credit. Biopharma Credit’s shares are now traded on the Premium Segment of London Stock Exchange’s Main Market. It has also created a sterling line of stock – ticker BPCP – which will be identical to the existing US dollar shares – ticker BPCR – except for the currency that they trade in. A BIG FUND IN A NICHE AREA With a market cap of $1.3bn, Biopharma Credit is big fund. It does what it says on the tin – makes loans to biotech and pharmaceutical companies. This is a niche area of the lending market and that means that there is less competition, which in turn means higher returns are available. Everything is being done in US dollars and, generally, revenues/capital will not be hedged back into sterling; investors should remember that they are buying a US dollar exposure, even if they buy the BPCP line of stock. Biopharma Credit’s shares are trading at a 4% discount to NAV. The NAV isn’t much changed since the fund was launched – it is fractionally above the issue price – all the shareholder return is coming from the dividend. The dividend yield is a chunky 7.3%, which is bound to attract investors. FOCUSED PORTFOLIO The portfolio is very concentrated – of $1,378m of portfolio assets at the end of August, $350m (25.4%) was accounted for by a loan to Sarepta, $150m was a loan to LumiraDx, $149m was a loan to Bristol Myers Squibb, $113m was a loan to Collegium and $110m a loan to Epizyme. That’s 63% in the top five investments. The cash balance at that date was $211m – the fund often has cash on its balance sheet as the managers look for new investments. ‘PHARMAKON LOOKED AT 243 POTENTIAL OPPORTUNITIES BEFORE SELECTING JUST THREE NEW INVESTMENTS FOR THE FUND’ This is a drag on returns, although the balance sheet is potentially more efficient than it once was as the managers have a revolving credit facility that they can use to make new investments in anticipation of funds flowing back from existing investments. CONSIDERABLE RELIANCE ON SKILL OF THE MANAGER The success of the fund is heavily dependent on the skill of the management team at Pharmakon Advisers. Fortunately, they have considerable experience and a good track record, with over $5bn invested in more than 40 transactions to date. 27 of those loans have been repaid in full and only one (back in 2012) lost money. In 2020, Pharmakon looked at 243 potential opportunities before selecting just three new investments for the fund. DIY Investor Magazine · Nov 2021 42