InvestmentsAug 20 2014

Oriel sees private equity boost after selloff

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Oriel Securities has forecast a strong reporting season for listed private equity investment trusts following an up-and-down year.

The sector was hit by the general shift out of smaller companies earlier this year, as well as the sharp sell-off in riskier, high-growth stocks in March and April.

Most private equity trusts invest in small companies or start-ups, an area of the market that suffered in March when investors realised they had inflated smaller company valuations to unsustainable levels.

The sector has since rallied and was last week trading on a discount to its net asset value similar to that at the start of the year. The discount is the percentage by which the shares trade below the net value of a trust’s assets. The figure also excludes listed infrastructure company 3i Group – something most analysts do.

However, data from Winterflood Securities shows that the private equity sector has the second-largest average discount in the investment trust universe, behind only the European property sector.

In a recent note, Iain Scouller, head of investment funds at Oriel Securities, tipped the sector to have a strong reporting season.

He said: “We expect further positive net asset value returns in [the first half of 2014], typically in a range of +3 per cent to +8 per cent. Key positive influences on returns are continued earnings growth at underlying portfolio companies and some realisations at decent uplifts to previous valuations.”

Mr Scouller said the first half of the year had seen “some good exits” for private equity trusts, including a number of initial public offerings (IPOs) in which companies list on a stock exchange and become public-traded entities.

He added: “We expect to continue to see some good realisations over the second half of 2014 and believe that the vintage year maturity of many of these private equity portfolios suggests that investments continue to be ripe for harvest.”