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Home > Investments > Investment Trusts

By Eleanor Lawrie | Published Sep 20, 2012

Numis analysts tip private equity investment trusts

Private equity trusts are trading at attractive discounts to the value of their investments, in view of strong growth in revenue and earnings among many of the portfolios, according to Numis Securities.

George Crowe, investment trust analyst at Numis Securities, said: “These wide discounts are due to investor concerns about valuations and the ability of companies to refinance their debts, but many of their portfolios are mature and the outlook for realisations is positive.”

The analyst tipped Princess Private Equity and Pantheon International Participations as the trusts that offered the best value to investors. He also tipped Advance Frontier Markets, which invests partly in private equity funds.

Princess Private Equity is managed by Partners Group. It invests in primary and secondary fund investments, direct investments and listed private equity.

“Partners Group control more than €26bn (£21bn) of assets in private markets globally, so Princess Private Equity benefits from their deal flow, giving the trust access to attractive investment opportunities globally,” said Mr Crowe.

He noted the portfolio was being repositioned from investing in funds to focusing on direct investments, which currently make up 25 per cent of its net assets. He added the trust recently announced it was considering selling a portion of its funds portfolio in the secondary market to accelerate the shift to direct investments.

The trust’s discount has narrowed to 25 per cent, but Numis said there was potential for a further re-rating driven by a changing stance towards paying out dividends.

“Princess have introduced a dividend policy to distribute 5-8 per cent of opening net asset value which equates to an attractive yield of 7.1 per cent,” the analyst said.

Mr Crowe also tipped Pantheon International Participations, a private equity fund-of-funds investment trust.

“Pantheon is generating significant amounts of net cash from realisations from its mature portfolio, which gives it firepower to repurchase its own shares as well as take advantage of attractive investment opportunities,” he said. “Their balance sheet is in good shape, and the portfolio has relatively low leverage.”

Pantheon is trading on a discount of 36 per cent, compared with an average discount of 26 per cent for the sector, and Numis said there was potential for the discount to narrow.

The analyst firm also tipped Advance Frontier Markets, an Aim-traded fund that invests in riskier emerging markets. The fund trades both in private equity funds and in funds that invest in listed equities, according to its annual results.

“Advanced Frontier Markets provide access to experienced managers, many of them based locally, which allows clients to benefit from their specialist knowledge,”he said.

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