Augmentum’s Tim Levene on the impact of the tech selloff


While the fintech sector has been one of Britain’s biggest success stories in recent years, investment has largely been the preserve of venture capital and private equity.

Augmentum has long heralded itself as the one way retail investors can gain exposure to Britain’s fintechs.

Since its IPO in 2018 it has enjoyed healthy demand from savers looking to invest their cash in pioneering startups. But now, a volatile macroeconomic environment has dampened appetite for higher risk investments such as these.

We speak to fund manager Tim Levene about how he’s managed to weather the tech selloff and why he thinks a subdued IPO market isn’t the end of the world.

Fund manager Tim Levene says Augmentum’s share price has struggled as retail investors turn away from growth and into value 

Tech selloff has been ‘indiscriminate’

Very few asset classes have escaped the volatility of the last 18 months but technology has been particularly badly hit.

Big hitters like Meta, Google owner Alphabet and Netflix have all seen their share prices tumble between 30 and 70 per cent.

Investors have shifted their attention to value stocks, particularly banks and oil majors, as inflation runs hot and central banks raise rates.

Augmentum hasn’t been immune to the rout. Despite NAV staying stable at 155p in the six months to March, Augmentum’s share price performance has been choppy. 

It is currently trading at 103p having reached highs of 173p last year, and is trading at a 33.23 per cent discount to NAV.

Levene says he is ‘frustrated’ with the price volatility given the portfolio’s underlying growth, a view also expressed by chairman Neil England in the fund’s recent results.

‘It’s very hard for us, we can’t control share price, we can only control what we can control. When you’re a smaller cap stock then you seem to be a bit more volatile,’ says Levene.

‘I think I’ve been frustrated at the share price because I think it’s been unfairly maligned if you look at the underlying performance, I think we need to demonstrate that we deserve to have a premium rating.

 I think we need to demonstrate that we deserve to have a premium rating. Hopefully we can do a better job than we’ve done this year

‘Hopefully we can do a better job than we’ve done this year in terms of demonstrating that to investors.’

Most of the volatility in Augmentum’s share price – which is down 35 per cent year-to-date – can be attributed to retail investors turning to value stocks, says Levene, while institutional flows have remained largely stable.

‘I recognise that investors over the last 12 months have moved out of growth and looked to more steady yield inducing stocks and looking for value, I get it. I think the selloff has been pretty indiscriminate across the tech sector.’

But he suggests the tech rout might have a silver lining and push DIY investors into looking more carefully at what’s under the hood of these companies.

‘I think the scrutiny will be far better and detailed on the underlying performance than perhaps we saw 18 months ago.’

Strong underlying growth despite revaluation

Augmentum already stands out from the crowd in being the UK’s only listed fintech fund, but its stability over the past six months has been impressive.

While the share price has certainly been volatile its NAV per share has held firm – falling just 0.1 per cent, or 2p, from March.

Technology has been particularly badly hit by market volatility in the past 18 months. Big hitters like Meta, Google owner Alphabet and Netflix have all seen their share prices tumble

Technology has been particularly badly hit by market volatility in the past 18 months. Big hitters like Meta, Google owner Alphabet and Netflix have all seen their share prices tumble

‘A stable NAV in current environment is pretty good. That’s not because we’re not doing anything and we’re sitting on our hands – there is growth,’ says Levene.

It has had to be prudent in some ways and the fund cut down on its deals when the market was ‘buoyant’ and prices were overinflated.

In March Augmentum valued its top 10 holdings at 5.7 times their forecast revenues, which fell to 4.2 times by September, which it says is favourable compared to high growth listed fintech peers.

‘When you get into the results and you look at underlying growth … had we applied the same valuation methodology and used the same multiples that we used six months ago, then we could have written up north of 20 per cent.

‘You couldn’t take the hit [in the selloff] if you don’t take the benefits on the way up. I think we feel comfortable with how we’ve adopted valuation methodology. 

‘If we look at our top 10 portfolio companies, which account for about 70 per cent of the NAV, they’ve grown on average this year 100 per cent year-on-year which is pretty good. Growth is still strong across the board which is encouraging.’

Long-term holdings Zopa and Tide have performed particularly well as they quietly build their market share.

Zopa, which started as a peer to peer lender before gaining a full banking licence in 2020, now has over 800,000 customers and became cash generative for the first time this year.

Small business bank Tide has grown its market share to eight per cent despite headwinds for SMEs.

‘I’m sure in a thriving economic environment they could be growing even quicker. But still growing revenues 60-65 per cent year on year? I think it’s really encouraging,’ says Levene.

‘Fundamentally, why are they growing? Because the big banking platforms can’t serve these small customers effectively. They don’t have the effective digital solutions that these nimble companies are looking for.’

Why a quiet IPO market isn’t bad news

One of Augmentum’s main selling points is that it offers retail investors exposure to unlisted fintechs which is increasingly important given the subdued IPO market.

The London Stock Exchange raised £565.5million from eight IPOs in the third quarter this year, seven times less than the record £4billion raised from 33 IPOs in the same period last year.

Augmentum’s top 10 holdings

  • Grover
  • Tide 
  • Zopa 
  • Cushon 
  • Onfido 
  • Monese
  • Gemini 
  • Intellis 
  • BullionVault
  • AnyFin 

Levene seems unfazed by the downcast outlook for exits via IPOs.

‘I wouldn’t say there is an IPO market, I think it’s non-existent. If you look at the last five years and you aggregated every fintech exit, 96 per cent have happened through M&A not through IPOs.’

Augmentum has this year been the beneficiary of abrdn’s £1.5billion acquisition of broker Interactive Investor, from which it has retained the bulk of the £42.8million it made from the deal.

‘As much as people like to point to the IP market, when it comes to fintech exits actually it’s one small part of the overall jigsaw.

‘I’m not overly obsessing about the return of the IPO market… I think it’s important for retail investors to be able to get exposure but that makes our proposition even more compelling to investors. 

‘They just simply can’t get exposure in the public market to these assets because they’re rarely coming to market… because the vast majority that get bought before they go public.

‘Even the ones that do go public do so much later so investors are missing out on this all the way up. From our point of view, it really kind of emphasises our unique nature. There aren’t any other listed fintech funds in the UK… that can give investors in particular diversified exposure to fintech.

‘You’ve just got to make sure there are enough winners in the portfolio…’

A bet on crypto? 

Levene prides himself on having taken a prudent approach this year – the fund remains selective, only investing in 0.1 per cent of opportunities assessed.

But he’s not going to miss out on the chance to invest in emerging tech, not least crypto. Augmentum has seven per cent of its portfolio invested in digital assets, including Gemini, the crypto exchange run by the Winklevoss brothers.

‘We’re not going to be giving investors exposure to tokens, directly or indirectly, that’s just not what we’re about.

‘But I think it would be pretty stupid if certain, new kind of aspects of blockchain digital assets move into the mainstream over the coming years, have some very compelling scale use cases and we didn’t have any exposure to it.’

The fund has also invested in crypto lender Tesseract and protocol and liquidity provider Parafi.

The recent FTX scandal has shown Levene the importance of investing in platforms like Gemini who he says are ‘well poisitoned, alongside Coinbase, by being one of the most credible platforms’.

‘I think the important thing to note on FTX was that it wasnt anything to do with crypto or digital assets per se but a dereliction of duty and control that was associated with the running of that business.’

Levene revealed he’d met with the disgraced FTX boss Sam Bankman-Fried, who was looking to raise capital in earlier rounds.

‘He’s very engaging and charming in a very academic way. From our point of view, we felt there were question marks over their approach to regulation which has been proven. It was interesting set of interactions but for us, it just wasn’t the right fit.’

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