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Chrysalis contagion: Analysts warn PE trusts’ perception may suffer

Biotech trusts top performance charts in February

Kathleen Gallagher, Investment Week, 19 July 2022:

The £1.2bn Chrysalis investment trust has come under fire repeatedly over the past number of months, first for its performance fee payout, then for poor performance and last weekend (17 July), it was compared to the Woodford debacle.

All this negative press could weigh on its peers in the private equity trust space, which are already suffering from perception issues, according to analysts.

And while many experts that Investment Week spoke to felt the Woodford comparison was limited, they did think the performance fee issue was a stark reminder to peers to get their house in order.

PE perception

Private equity trusts have been struggling with their perception for some time and it is something that has weighed on their discounts.

Across the Association of Investment Companies’ Growth Capital and Private Equity sectors, just one trust sits on a premium – Literacy Capital – and only two are on single-digit discounts, with the remainder running double digit discounts.

“There is already the ‘corporate raider’ image to contend with, and now there a considerable amount of scepticism that it is a kind of go-go space where valuations get marked up only to be marked down as the cycle turns,” explained Rob Morgan, analyst at Charles Stanley.

James Carthew, head of investment companies at QuotedData, added there is also an “odd perception” that these funds are “both investing in speculative, unproven business models and overleveraging businesses and running them for cash rather than for their long-term health”.

He went on to say they are “mutually exclusive” and “neither are true”.

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