Elon Musk’s SpaceX became the most valuable private company in the world earlier this month when it launched its latest share buyback. The company and its investors plan to spend $1.25 billion repurchasing shares from employees at $185 a share, according to Bloomberg.
The price was a staggering 65% jump from the $112 per share paid in September, the last time employees were offered the chance to sell their shares. SpaceX had planned to offer $135 per share, but thanks to a “Trump bump”, it is raising the valuation.
Musk’s relationship with president-elect Donald Trump has paid off handsomely for the world’s richest man, as investors have rushed to back parts of his empire. Shares in Tesla have roared higher by 60% since Trump’s election in November, and Musk’s artificial intelligence start-up, xAI, raised $6 billion earlier this month at a valuation of $50 billion, up 100% in just six months.
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Why are Baillie Gifford’s funds seeing a recovery?
The sudden spike in demand for any Musk-linked companies has delivered a windfall for a handful of Baillie Gifford-managed investment trusts. Edinburgh Worldwide (LSE: EWI), Baillie Gifford US Growth (LSE: USA), Scottish Mortgage (LSE: SMT) and Schiehallion (LSE: MNTN) all have exposure to SpaceX. Scottish Mortgage and US Growth hold Tesla as well.
Edinburgh Worldwide has the largest exposure. Earlier in the year, analysts raised concerns about the size of this position in the portfolio, and the managers reduced the holding from 12.4% to 8.4% of assets, according to Deutsche Numis. However, the new valuation has taken the position back up to 12.1% of net asset value (NAV).
Edinburgh’s reported NAV rose by 5.1% after the latest share sale. The deal also lifted US Growth’s NAV by 5.2%, as it has a large position at 10.6% of assets. Deutsche Numis estimates that Schiehallion was the only other trust in this stable to reduce its position in the previous share sale alongside Edinburgh, but after the latest valuation update, it’s now at 9.7% of the portfolio.
What does this mean for Baillie Gifford?
Baillie Gifford has attracted criticism in the past for its exposure to Musk’s companies and its large allocation to private investments. The last couple of months have vindicated this strategy and those who have stuck with it have been well-rewarded.
US Growth has returned more than 70% over the past 12 months and has gone from trading at a discount at the beginning of the year to a small premium. Edinburgh has also gone from a 15% discount to a premium, and the stock has returned about 35%.
Are private investments risky?
Schiehallion, which has returned 50%, is still trading at a double-digit discount. Scottish Mortgage is continuing to trade at a discount of roughly 12%, despite its substantial exposure to companies like SpaceX (which now amounts to 7.2% of the portfolio), Tesla and Nvidia.
This seems to reflect uncertainty about valuations for private businesses in the market as a whole. Analysts at Stifel made this point in a recent note on Scottish Mortgage. “We are more cautious on the prospects for the investment style as we head into 2025, and wonder if many of these growth company stories are now starting to be priced for a perfect environment,” they said.
The collapse of European battery firm Northvolt has partly confirmed this view. When the company collapsed in November, Scottish Mortgage’s £315 million investment in the business went up in smoke. Still, it looks as if the gain on the SpaceX holding has more than offset this setback.
The lesson is that private market investments are riskier, but Baillie Gifford’s gains show what’s on offer when managers get it right. Scottish Mortgage’s holdings look set for growth next year. It’s not too late to jump on.
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