Charity finds a place in the market: Wellcome Trust's investments in equities over the past two years have proved to be inspired

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The Independent Online
GEORGE SOROS, the billionaire investor, was not the only one to make a killing on sterling's devaluation two years ago. Stand up Sir Roger Gibbs, chairman of Wellcome Trust, one of the world's biggest charities.

The trust, set up by the founder of Wellcome, the pharmaceuticals company, owns assets worth pounds 5.5bn including a 40 per cent stake in the latter.

The charity made almost pounds 1bn of profits from the stock market in the autumn of 1992 - a sum that rivals Mr Soros's gains on currency speculation in the weeks before sterling's withdrawal from the ERM.

Much of the credit for the trust's massive punt should go to Sir Roger, who developed a nose for the markets as a City banker and former chairman of Gerrard & National, the discount house.

His astute financial judgement was put to two crucial tests in 1992 - first when the trust decided, amid a welter of criticism, to sell 270 million shares in Wellcome. The move, aimed at diversifying its assets, raised pounds 2.2bn and reduced its stake in the company from 74 per cent to 39.7 per cent.

In retrospect, the timing of the sale at pounds 8 a share was little short of brilliant. Although Wellcome shares shot up briefly after the successful disposal, they have since fallen steadily because of growing pressure on drug prices in the United States and Europe.

A month after the sale, Sir Roger ploughed the entire proceeds of the sale into other blue-chip equities.

'Throughout August and the first two weeks of September, we were buying on a falling market. But we were able to build a very big portfolio,' he recalled.

It was a brave move to opt for equities, as he and his fellow trustees were bombarded with investment proposals by about 240 would-be advisers chasing a share of the huge cash pile.

However, the decision to bet on equities has paid off handsomely. In September 1992, the Government was forced by the currency markets to abandon the ERM and begin a sustained cut in interest rates.

Overnight, the stock market saw a sea change in sentiment, triggering an 18-month bull run that pushed the UK to record highs earlier this year. Though share prices have fallen sharply since February, the charity is still sporting huge gains.

Excluding its Wellcome stake, the pounds 2.5bn portfolio of other equities has increased in value to about pounds 3.3bn in the past two years.

'We believed that interest rates at 10 per cent were totally unsustainable. Meanwhile, top- class equities yielding around 5 per cent were staring us in the face . . . it was too good an opportunity to miss,' said Sir Roger.

However, the value of the trust's stake in Wellcome has declined from pounds 3.75bn to pounds 2.2bn over the period, though its overall income has more than doubled to about pounds 220m since 1991.

The continuing weakness in Wellcome's shares - the company reported last week a 12 per cent increase in 10-month pretax profits to pounds 546m - has made some institutional investors unhappy with performance. And there is much uncertainty about the trust's remaining stake in the group.

As from last January, when a standstill arrangement expired, it has been free to reduce its stake to 25 per cent. There is also growing speculation that it may be willing to sell its entire stake - subject to court approval - to a bidder at about pounds 9 a share, fuelling rumours that Glaxo, with a pounds 2.2bn cash pile, could be a possible suitor.

All Sir Roger would say is this: 'We are very impressed with the performance of the plc. We are also very comfortable with our present holding.'

But he, like Mr Soros, is keen to widen the trust's investments in property. Since a little- noticed move into the sector about 18 months ago, it has amassed pounds 150m of top-quality properties.

The latest deal, involving two office blocks in Theale, Berkshire, costing pounds 15m, was signed on Friday.

Although property yields have fallen in the wake of a flood of institutional money into the sector, the trust is still interested in adding to its property assets.

However, Sir Roger's biggest bet is still on equities. About 90 per cent of the trust's assets - managed by 10 securities firms - are held in shares, two-thirds in Britain and the rest spread across 35 countries.

''We believe that short- term rates will not go up for some time yet, nor will they go up very fast. We feel that investors won't be much interested in fixed-interest securities. Equities look more attractive over the long term.'

Separately, the trust plans to invest about pounds 200m - about 2 per cent of its funds - in venture capital over several years. The funds will be invested through venture capital firms and directed towards management buy-outs and life science projects in the US and UK.

(Photograph omitted)