Investment trust insider on private equity – James Carthew: ‘stale’ private equity trusts are just too cheap
I spoke to the managers of ICG Enterprise (ICGT) last week after the publication of annual results showing the private equity trust made an 11.2% return on net assets in the year to 31 January, beating the FTSE All Share’s 10.7% gain.
Since the year-end this trust, which invests in and alongside other private equity funds, has suffered alongside its rivals in the wake of Covid-19. Although a 46% rally since its low on 19 March has softened the blow, the shares are still down 31% since the middle of February. This leaves it on a discount of about 40%, which is wider than the 32% average in the AIC Private Equity sector, which looks to be deeply out of favour.
My conversation with ICGT centred around the balance of liquidity and borrowing facilities versus its outstanding commitments. I believe that this issue, and an awareness by investors that the net asset values (NAVs) of these trusts are out of date and do not reflect the true situation of the recession the pandemic has provoked, are the main reasons for the apparent unpopularity of the sector.
At the end of January ICGT had cash of £14m and a €176m debt facility matched against commitments to invest of £459m. In the financial year just gone it invested more than it received in distributions. ICGT had also drawn down £40m of the debt facility since the end of the financial year.
At first glance, these numbers look a bit unnerving. Many investors will remember the mess that investment companies such as SVG Capital got themselves into in the financial crisis. Unable to fund commitments, that trust was heavily penalised, hitting the NAV hard and triggering its subsequent wind-up. However, it was by no means the only private equity fund that found that it had overcommitted.
ICGT’s managers are happy though… read more here