Page 37 - DIY Investor Magazine | Issue 30

The LPE sector offers a wide range of approaches and slants, so investors can diversify their exposure to managers, sectors and style. This table splits the universe by the way each trust invests.
Direct trusts have a single management group making investments, with concentrated portfolios that expose investors to higher specific risk and potentially higher rewards.
By contrast the highly diversified fund of funds have underlying exposure to many thousands of private companies.
Between these two poles, some trusts have more concentrated portfolios, but relatively little specific risk to individual companies; investors can choose based on risk appetites, sector preferences and premiums/discounts to NAVs.
LISTED PRIVATE EQUITY TRUSTS (NOT IN WIND-UP, OR RETURNING CAPITAL)
Direct
3i
Apax Global Alpha
HgCapital
Oakley Capital Investments
Princess Private Equity Source: Kepler Partners
CO-INVESTMENTS
NB Private Equity Partners
CONCENTRATED FUND OF FUNDS/HYBRID
BMO Private Equity
ICG Enterprise
Standard Life Private Equity
DIVERSIFIED FUND OF FUNDS
HarbourVest Global Private Equity
Pantheon International
LPE sector trusts provide a wide range of different exposures, all in the same broad area of private equity investing. They will be subject to the broad market sentiment driving premiums and discounts; with many complementary attributes, investors can to build diversified exposure. ICG Enterprise (ICGT) offers a hybrid approach to PE investing. 52% of the portfolio is through third party funds and 48% within the ‘high-conviction’ portfolio where ICG has directly selected underlying companies through co-investments and ICG funds. This has delivered consistently strong value for shareholders, with ICGT on track to deliver its 13th consecutive financial year of double- digit portfolio growth.
NB Private Equity Partners (NBPE) has a unique approach within the London LPE sector, focussing on equity co- investments - equity investments made alongside third party private equity sponsors have generated strong returns. NBPE has a wide spread of investments across sectors, companies, and PE managers – including 64 core investment positions (greater than $5m) made alongside 38 different PE sponsors (31/03/2021). Investing directly means NBPE’s investors only pay one layer of management and incentive fees. With the portfolio looking increasingly mature, the momentum behind realisation activity seen over recent months could continue. BMO Private Equity (BPET) offers a distinctive approach to PE, investing with managers at an early stage; its manager believes this means exposure to more motivated teams and to lower mid-market deals where BMO is more likely to be offered co- investment opportunities.
We expect the level of co-investments to remain between a third and a half of NAV, a rise in the number of opportunities that BPET’s managers have observed in this area over the years.
As part of a diversified portfolio, the higher returns generated by directly invested private equity trusts can be attractive, notwithstanding the greater volatility of returns. HgCapital has a well-established track record as a directly invested private equity trust, specialising in software and business services in Europe.
The trust has delivered strong long term returns, perhaps the reason its shares currently trade at a premium.
Many of the same dynamics have benefitted Oakley Capital Investments (OCI), which focuses on companies in the European technology, education and consumer sectors.
Digital disruption and the opportunities it presents is a recurring theme in OCI’s portfolio. This placed OCI well at the beginning of 2020, and portfolio companies have been nimble in adapting to the digital opportunities presented by lockdown. Entrepreneurial founders of businesses represent a key part
of Oakley Capital’s DNA, with a track record of being the first institutional investors in growing companies.
The Oakley network is key in helping the team access compelling investments at attractive valuations at a time when competition is strong. OCI’s strong balance sheet is also a differentiator, having gone into the market sell-off with net cash of 36% of estimated net assets. This put the trust in a strong position, and Oakley Capital has made a number of interesting investments since then. Cash now represents c. 22% of estimated NAV.
This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.
37 DIY Investor Magazine | Sept 2021