Investments  

Fund Review: F&C Private Equity Trust

He also points out the importance of distinguishing between the macro situation and what is happening at company level, as those backed by private equity go through a rigorous selection process and are not a proxy for what is occurring in the wider economy.

He adds: “It’s been a popular segment of the private equity market for a number of years and probably its significance in recent years has increased. It has not been affected by the excesses of private equity, in other words, the debt levels in companies generally are not excessive and pricing has been quite modest. There are also a lot of niche companies that are small enough to grow quite rapidly but are big enough to be of interest to larger acquirers once private equity has done its bit.”

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In addition, he highlights the decision to focus on emerging managers and backing ‘rising stars’ has “generally paid off for us”. The co-investment portion of the portfolio, which the manager suggests is higher than most of its peers, has also performed well although the component is currently at the lower end of its range at approximately 12 per cent of the portfolio.

EXPERT VIEW

Innes Urquhart, investment trust research analyst, Winterflood Securities:

This product is differentiated from its peers by its policy of paying two semi-annual dividends, each equivalent to 2 per cent of the average NAV for the past four quarters. While we are generally cautious on converting capital profits to dividends, the fund’s 4.8 per cent yield will appeal to a number of investors and may also explain why the shares currently trade at 16 per cent discount to NAV, which is tighter than its peers. Given the structural gearing provided by the fund’s Zero Dividend Preference shares and its emphasis on emerging managers, we regard F&C Private Equity as a higher risk proposition. Consequently, one might hope for returns in excess of those of its peers that emphasise more mainstream managers and lower levels of gearing. That has not necessarily been the case over the last three years in NAV terms, although share price performance has been impressive.