abrdn Private Equity Opportunities Trust (APEO) announced its annual report for the period ended 30 September 2023. NAV total return for the year was 5.4% while share price total return was 11.5%, trailing the benchmark FTSE all-share index return of 13.8%. Commenting on the results, chair Alan Devine noted:
“The past 12 months have been eventful, for both APEO and the wider market. Whilst the investment trust sector and APEO remain challenged by stubbornly wide share price discounts to NAV, I am heartened that the APEO portfolio has continued to deliver a resilient annual NAV total return during the period of 5.4%, despite a currency FX headwind of -2.8%, and that the company continues to regularly return capital to shareholders through its enhanced quarterly dividend, delivering a yield of 3.6% as at 30 September 2023.”
Regarding the outlook, he continued:
“The current private equity market is proving to be tough, with the sharp rise in interest rates impacting pricing expectations, availability and cost of financing, and ultimately causing a material decrease in private equity activity during 2023.
“Whilst I currently hear rumblings in the market about sentiment starting to improve gradually, with more sale processes initiated in the second half of 2023 than in the first half of 2023, both the board and the manager are not anticipating a sharp rebound and we suspect a return to “normal” private equity activity levels might be some way off yet.
“However, those that have read my previous chair statements will note that I have consistently said that private equity is an asset class that should viewed over the long term, where new investment decisions are often made with a five-year time horizon in mind. The immediate road ahead remains uncertain, but the governance model of private equity has proved many times in the past, most notably during the global financial crisis of 2008-09, that it facilitates nimble and active ownership and allows underlying businesses to adapt more quickly to changing market circumstances.
“Periods of uncertainty also tend to offer up new and different opportunities for investment, which private equity firms have proved adept at generating and completing. This is why I believe that private equity should be particularly attractive to investors at times like these, in order to capture the upside that usually follows.
“As we look ahead, I want to underline that the board will continue to prioritise the interests of APEO shareholders. I remain convinced by the strategy of APEO, which is centred on investment selection conviction and focused principally on the European mid-market buyout segment of private equity, where there is a plentiful supply of private companies that are highly resilient niche market leaders or fast-growing disruptive businesses of the future.
“On behalf of our investors, the manager will continue to grow direct investment as a proportion of APEO’s portfolio. This brings a number of advantages, not least lowering the fees APEO pays to underlying third- party managers and therefore enhancing the company’s NAV growth potential. The board remains committed to maintaining the value of the quarterly dividend in real terms, returning capital regularly to shareholders at NAV. Furthermore, we will stay alive to opportunities to create further NAV for shareholders through opportunistic buybacks.
“Lastly, in terms of the transaction relating to APEO’s manager, shareholders can be assured that the Board will remain closely involved and act in their best interests throughout our review. I hope that the Board will, in the very near future, be able to give a formal update and provide more clarity to shareholders on this matter.”