James Carthew: Erratic PE valuations sent tremors through trusts
The rapidly changing estimates on private assets has been volatile, for better or worse.
Valuing private assets is as much art as science, but we have had some savage moves – up and down – in the values of some assets recently.
At Aquila European Renewables (AERI), which is in the throes of a managed wind down, a row has broken out between the board and the manager. The manager arranged to buy a portfolio of assets from the company and then tried to slash the price it would pay late in the negotiations.
The board has posed a very valid question – how could the manager support one valuation for use in calculating its fee and in preparing the report & accounts, then turn around and claim that valuation was overstated? The board wants answers and things look set to get litigious.
Scottish Mortgage (SMT) looks to be trading on a double-digit discount. The net asset value (NAV) has been rising sharply on the back of the SpaceX IPO.
Ahead of the IPO, we reckoned that its stake in the company was being valued on about $5bn, based on a valuation for SpaceX of $1.6trn (roughly $121 per share). At one point on Tuesday 16 June, the look-through value might have been as high as $9bn. As I write (with a share price of $185) it would be closer to $7.6bn. For reference, SMT invested a total of £151m in the company.
However, the board will be applying a haircut to this to reflect SMT’s inability to sell shares ahead of the expiry of the lock up. There is considerable uncertainty about how long that lock up is as it depends on metrics such as when SpaceX publishes its first post-IPO earnings statement and what the premium is to the IPO price at that point. The backstop date for lifting selling restrictions is 180 days after the IPO (8 December 2026)…. read more here