Fund Review: F&C Private Equity Trust

The original objective of the vehicle, to deliver long-term capital growth through investment in private equity assets, has been in place since the trust was launched in 1999.

Hamish Mair, manager of the company, explains the dividend level was introduced last year at the AGM following changes to The Companies Act legislation. He says: “We decided it was a good idea to get some of the proceeds of realisations into the hands of our shareholders and introduce a new dividend policy, we are able to do that because the Companies Act changed, which allowed investment trusts to distribute some of their realised capital profits as dividends. We were in fact the first investment trust to take advantage of that change.”

The vehicle is a private equity fund-of-funds portfolio with most of the money invested through specialist private equity funds, where they buy into funds that already exist. However, a third of the portfolio can go into co-investments, which are investments directly into private companies.

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Mr Mair explains: “Essentially what we’re doing is we’re taking a position directly in these companies in deals led by experienced private equity fund managers but we get a concentrated slug of the company. So if it does well, it will definitely move the needle in terms of our performance, if it goes badly, and occasionally it does, it is not the end of the world. It is a hit, but not a major hit.”

The manager also describes the process behind the portfolio as very much a “returns driven process”. He adds: “We don’t have pre-determined allocations to various sectors or geographies, the primary aim is to try and find funds and co-investments that can deliver strong private equity type returns, and a subordinate consideration is how it’s distributed across the geographies and sectors etcetera. The nature of the fund-of-funds model is that it is inevitably very well diversified, and the approach here is to try and deliver very high private equity returns but to do so at only moderate levels of risk and the main means of reducing that risk is through diversification.”

There are approximately 90 different funds in the portfolio, with roughly 400 underlying companies. The trust also has an emphasis on the European mid-market and within that the team has a preference for “emerging managers, relatively new, hungry, well motivated managers”.

On a five-year cumulative basis, the trust has produced a share price total return of 22.71 per cent to September 17 2013, slightly underperforming the AIC Private Equity sector average of 25.11 per cent, according to Morningstar.

In the short to medium term, however, the performance has been much more impressive with the three-year return of 87 per cent more than double the sector average of 38.38, while the 12-month return of the trust is 40 per cent compared with the sector average of 12.01 per cent.

Mr Mair attributes the strong performance to the trust’s emphasis on the European mid market “which is a very broad market and a very inefficient markets so it is possible for experienced private equity investors to buy well”.