Investment Manager’s Commentary

Although the familiar worries have continued, with US economic releases alternating between positive and negative numbers, markets have been fairly resilient.

One interesting feature is the number of takeover bids which are beginning to emerge. We have been pointing out for a while that the value that an acquirer puts on a business is considerably higher than the market price. In the Fund's portfolio, for example, Human Genome, the long-standing biotech investment, has received a bid from GlaxoSmithKline which is at an 80 per cent premium to the undisturbed price. In fact, we see further value in Human Genome shares and have been active in publicising the case for a higher bid.

Other examples of recent takeover bids include the failed Roche bid for Illumina, the Fresenius bid for Rhone Klinikum and GDF's bid for International Power. This confirms to us the low valuation that investors put on public equity.

During the month, we continued to top up the holdings in BNP Paribas and Eurazeo. Further shares were also purchased in GlaxoSmithKline and Transocean. Glaxo was topped up after its bid for Human Genome. We are very positive about the prospects for Human Genome's drugs, which are predominantly partnered with Glaxo. A takeover will allow significant cost savings and will put the full support of a major pharmaceutical company behind the development and marketing of Benlysta, Human Genome's lead drug.

We see much wider potential than the initial indication for Lupus and could well imagine Benlysta becoming a major franchise for Glaxo. Transocean, the offshore oil rig owner, was topped up at a good price following improvements with rig day rates and fleet utilization.

A new investment was made in Banca Monte dei Paschi.

Banca Monte dei Paschi has had a difficult time since it purchased Banca Antonveneta at the beginning of the financial crisis. A combination of goodwill write-downs from this transaction, large holdings in Italian government bonds and the application of higher capital adequacy requirements, has forced the bank into a series of dilutive rights issues which have depressed the share price.

We bought a holding at about 0.3 times book value which would appear to compensate adequately for the uncertainties surrounding the bank. The most prominent issue is the potential capital shortfall which the bank is confident it can overcome. Alessandro Profumo, who built up Unicredit, has been appointed chairman of Banca Monte dei Paschi and he recently confirmed that the bank does not consider it necessary to raise further capital. Importantly, the operating units of the bank are sound, and it has a good quality client base in the prosperous regions of Italy. Any resolution in the Eurozone situation should see the bank's shares perform very well.