ValueAct, the San Francisco-based activist investing fund, is nearly doubling its 5 per cent stake in Horizon Discovery, a British gene editing company, by buying shares from the high-profile UK fund manager Neil Woodford.

The stake will help the US activist in its efforts to lobby for a board seat — a plan that Mr Woodford supports.

ValueAct disclosed the 5 per cent stake at the beginning of the month. After completing the deal with Woodford Investment Management, it will hold just under 10 per cent of the Cambridge-based company, while the two funds will own a combined 28 per cent.

The fund has been increasingly targeting the UK, with stakes in theme park operator Merlin Entertainments and Rolls-Royce, where its partner Bradley Singer is on the board.

ValueAct is one of the larger activist funds with roughly $14bn in assets under management. The fund has stakes in financial companies including KKR, Citigroup and Morgan Stanley; Japanese medical device and camera maker Olympus, and Bausch Health (formerly known as Valeant Pharmaceuticals).

The fund, founded by Jeff Ubben and now run by Mason Morfit, has built a reputation as one of the friendlier activists, opting for behind-the-scenes manoeuvres and influence over public battles.

Horizon Discovery, with a market capitalisation of about £329m, is the smallest company in ValueAct’s portfolio, which is usually limited to less than 20 companies.

Activists are increasingly targeting small- and mid-cap companies in the UK on the basis that they are under-researched and under-valued.

Regulatory changes, notably Mifid II which limits the costs that fund managers can pass on to clients, have resulted in funds cutting back on the research they pay for, banks trimming the research they offer and fewer analysts covering smaller companies.

ValueAct is said to be particularly interested in Horizon’s Crispr gene-editing technique — which stands for clustered regularly interspaced short palindromic repeats — a cut-and-paste procedure that can be used to snip out pieces of DNA.

Horizon’s shares have been volatile since it floated on London’s Alternative Investment Market in 2014 at 180p a share. Abcam, a life science ecommerce company, proposed buying Horizon in May for 181p per share, valuing it at about £270m, but it was rejected by the company for being too low. The shares rose to above 250p during the summer but have since fallen back to 220p.

ValueAct sees the investment in Horizon Discovery as in line with its commitment to environmental, social and governance criteria because the company is focused on improving healthcare.

Known as ESG, the factors are becoming an increased focus for activist funds which are seeking to appeal to investors such as public pensions, foundations and endowments that are mandating that larger percentages of their portfolio comply.

Horizon genetically modifies cells on behalf of pharmaceutical companies and academic researchers in an effort to discover and develop new drugs and treatments.



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