by Cherry Reynard from interactive investor, 23rd April 2024:
Private equity investment trusts look like a glaring opportunity. They are trading at or near all-time record discounts after a long period where the sector has been out of favour. Holdings in the trusts have generally continued to perform well, with valuations stable. Yet these trusts continue to be unloved by investors, who mistrust valuations and fret about the risks. Can sentiment turn?
The long-term arguments for private equity are sound. Many companies are staying private for longer, giving private equity investors a broader opportunity set. There are fast-growing companies in private markets that have no equivalent in the public markets. At the same time, private equity has delivered higher returns to investors over the long term..
However, the short-term experience for investors in private equity has been painful. Investors have headed for the door, spooked by a combination of rising interest rates, fears over valuations and a general “risk off” mood in markets..
However, amid all this noise, many private equity fund managers report that the companies in their portfolios have been ticking along nicely..
James Carthew, head of investment company research at QuotedData, says the discounts look increasingly irrational: “The discounts are, for the most part, entirely undeserved.” He points out that (as at mid-April 2024), while some top-performing funds have low discounts – Hg Capital has a -5% discount and its NAV returns over one year are 20.1% and Literacy Capital is on a -4.5% discount and its returns are 47.0%. – this is not universally true.
“Looking at the peer group on this basis, the -33% discount on Oakley Capital Investments, which has outperformed Hg Capital seems odd. Not far behind Hg is HarbourVest Private Equity, up 19.5% per year. Yet it trades on one of the widest discounts (-42%) of the lot.”
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