Private equity bargains abound
Listed private equity funds continue to offer investors good value, according to the latest report from Winterflood Securities.
As a number of funds continue to report interim results for the first half of the year, Winterflood notes that, although discounts remain wide by historic standards, the majority of listed private equity funds have outperformed so far this year.
Simon Elliott, head of research at Winterflood Securities, says: “The strongest performers were those that were looking to realise their portfolios and return capital to shareholders such as Henderson Private Equity and Northern Investors.
“The best performer year to date is SVG Capital, followed by Aberdeen Private Equity and 3i Group. Six funds have underperformed the FTSE All-Share so far this year, including two that have delivered negative returns. Candover is the worst performer while JPM Private Equity has also struggled,” he adds.
Candover has seen a 10 per cent fall in the net asset value (NAV) of its investments to 642p since the start of the year to the end of June 2012, which the management claims was “a result of valuation falls in the investment portfolio and adverse currency movements”.
In August 2010, the trust announced that it would no longer make new investments but look to return cash to shareholders over time.
Mr Elliott says, however, that the continued underperformance owes partly to the uncertainty around how the money will be handed back.
“Candover Investments continues to be one of the worst-performing listed private equity funds with a discount of nearly 50 per cent to its latest NAV. This discount reflects a disappointing NAV performance but also the lack of certainty over the timing of any return of cash to shareholders,” he explains.
“The portfolio is very concentrated, with the top three investments accounting for 77 per cent of net assets. In spite of trying to sell Parques Reunidos last year, a potential disposal of any of these key investments looks unlikely at present. In addition, there is significant degree of economic sensitivity in each of these businesses and any prolonged downturn is likely to impair valuations. In the meantime, although the fund’s cash balance largely offsets its outstanding loan notes, there is still considerable drag from the interest payments. These amounted to £5m in the first half of the year, equivalent to 3.6 per cent of the closing NAV.”
By contrast, the Winterflood report recommends the Electra Private Equity trust, which has had strong share price performance in the past three years and is one of the more liquid listed private equity vehicles.
Its interim statement indicated it now trades at a lower 29 per cent discount to its NAV, which Winterflood suggests could narrow further this year.