In focus
“From the latest set of company results, it is clear that
investment activity levels are down on previous years in
general, while pricing of new deals remains high”
result of the level of ‘dry powder’ that
exists across the industry, supported by
Dry powder
accommodative debt markets.”
Winterflood’s preferred trusts in the
As a result, Elliott believes the listed
sector are Standard Life Private Equity private equity sector offers considerable
and Pantheon International.
value given current discount levels.
“We wondered at the start of the year
whether the high levels of investment
activity over the last few years, which
led to strong returns and a wave of
fund raising, would be sustainable,
particularly given evidence of the
global economy slowing,” says Elliott.
“From the latest set of company
results, it is clear that investment
activity levels are down on previous
years in general, while pricing of new
deals remains high. We suspect that this
will not change in the near future as a
The tech play:
HgCapital
More than 80 per cent
of HgCapital’s portfolio
is invested in companies
focused on software and
technology, with a bias to
secular growth themes.
“We believe the long-term
prospects for HgCapital
remain strong due to its
FE TRUSTNET
[ SECTOR PROFILE ]
42 / 43
expertise and focus on
market clusters,” says Elliott.
However, Winterflood
removed the trust from its
recommended list after a
strong run and re-rating.
HgCapital has made 254.67
per cent over the past 10
years and is on a discount of
5 per cent. NOTE: HgCapital
is the owner of FE.
The discount play:
Princess Private Equity
Despite recording share price
gains of 125.11 per cent and
372.51 per cent respectively
over five and 10 years,
Princess Private Equity’s
discount has widened to
16 per cent. Elliott says the
trust, managed by Partners
Group, is differentiated from
PERFORMANCE OF TRUSTS VS SECTOR AND INDEX
Name 1yr (%)
3yr (%)
5yr (%)
10yr (%)
Pantheon International 7.41 45.91 94.14 488.83
Princess Private Equity -2.18 42.61 125.11 372.51
HgCapital 18.15 72.47 157.15 254.67
IT Private Equity 2.75 31.55 55.82 175.1
FTSE All Share 2.68 21.69 38.89 121.04
Source: FE Analytics
“After a number of years of
contraction through corporate activity,
the remaining ongoing funds are
in good shape, with strong balance
sheets, low or non-existent gearing and
modest commitment levels,” he says.
“In most cases, they have something to
commend them, be it the strength of
their investment team, the prospects
for their portfolio or, in an increasing
number of cases, their dividend yield.”
Rather than reducing his current 10
per cent exposure to the asset class,
its direct equity peers by a
focus on global mid- and
small-cap buy-outs, as well as
a dividend policy that aims to
pay out between 5 and 8 per
cent of NAV every year. As
a result, he says the current
discount represents an
attractive entry point, adding
that its long-term prospects
remain strong.
Curling says he is more inclined to
increase his weighting given the
current stretched valuations in
broader equity markets at present.
“If you buy something on a 20 per
cent discount, you are giving yourself
a big cushion to protect against
downside risk,” he says. “You are also
getting exposure to vehicles such as
Apax Global Alpha which gives you
access to Apax’s private equity team,
something normal investors cannot
hold because of liquidity constraints.”
The long termer:
Pantheon International
Topping the sector rankings
over 10 years with gains of
488.83 per cent is Pantheon
International, a trust of global
private equity funds. Despite
this performance, the trust
is sitting on a 21.3 per cent
discount. Winterflood says
this gap is hard to justify
given the trust is well placed
to weather any economic
downturn and named it on
its recommended list at the
start of the year. As at the
end of August, Pantheon
International had 55 per cent
of its portfolio in the US and
27 per cent in Europe. It has
ongoing charges of 1.22 per
cent.
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