Cherry Reynard, PORTFOLIO ADVISER, 02 OCTOBER 2023:
The Bank of England’s change of direction on interest rates has rippled through investment markets. Perhaps one of its most surprising impacts has been felt in the growth capital and private equity sectors, where trusts have seen a considerable bounce over the last three months. After a torrid time for both sectors – and with trusts still on historically high discounts to net asset value – could they finally reverse its weakness?
Private equity trusts have suffered from a reputation problem since 2008. During the global financial crisis some private equity funds ran into problems – it became harder to sell assets but many trusts had made legally binding promises to fund new investments. That meant they were running out of money quickly and were forced to max out their borrowing facilities. It was a difficult and precarious moment for the sector.
Investors have assumed that the same thing will happen again today. James Carthew, head of research at QuotedData, says: “Burnt by this experience, investors seem to sell private equity funds whenever they are worried about markets. However, we should stress that these problems affected only some funds, many of those disappeared and other funds learned a lesson – we do not think there is an overcommitment problem today.”
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