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Fund Review: Private Equity

Introduction

Recent global volatility in markets may easily encourage a trend that has already started to develop in Europe in the past few years.

Figures from the European Venture Capital Association (EVCA) show that in 2014 the total amount raised across the various types of private equity investments reached €44.6bn (£32.6bn). This is the second highest level for the region in the past five years.

The EVCA also notes total private equity investments into European companies last year increased by 14 per cent to €41.5bn, though the combined total of private equity investments in the region still only accounted for approximately 0.3 per cent of European GDP.

For UK retail investors, access to private equity is mostly to be found in the investment trust space, with the AIC Private Equity sector comprising 24 constituents, including 15 with a track record of at least 10 years.

But the gap between the best and worst performing funds can be huge, perhaps more so than in other asset classes. For the 10 years to September 3 2015 the Northern Investors Company delivered a whopping 276.4 per cent, while Candover Investments recorded a loss of 84.3 per cent, according to data from FE Analytics.

Annabel Brodie-Smith, communications director at the AIC, explains: “Private equity investment companies are one of the few ways advisers can access the diverse and rich world of unquoted companies for their clients’ portfolios. Unquoted companies are illiquid assets, which makes them particularly suited to the closed-ended structure.

“Private equity has experienced its share of ups and downs over the last 10 years, and the sector suffered during the financial crisis, with the average discount widening dramatically to 51 per cent. However, the sector has bounced back and has performed well over the medium term, up 139 per cent over five years, in line with the average investment company.”

Meanwhile, the British Venture Capital Association (BVCA) revealed in its annual Performance Measurement Survey that the combined 10-year internal rate of return for private equity and venture capital funds reached 14.9 per cent for 2014.

The research, which was produced in association with PricewaterhouseCoopers (PwC) and Capital Dynamics, also noted that 2014 marked the highest performance figure for all venture funds since the financial crisis.

The survey of approximately 557 UK-managed funds, which focuses on ‘independent’ UK private equity funds but excludes listed private equity firms, highlights the resilience of an asset class that is sometimes seen as too alternative.

Following publication of the research, John Dwyer, PwC’s UK and global deals leader, explained: “Returns from different years tell their different stories. Taking the decade as a whole though, private equity has shown real resilience. More recently, post-crisis vintages have performed well, and successful exits over the past few years have shown how the industry can respond to a downturn, which is encouraging for investors.”

THE PICKS

F&C Private Equity Trust

Managed by Hamish Mair, this trust was launched in 2001 with the aim of delivering long-term capital growth through a diversified portfolio of private equity assets. The trust’s 10-year return of 150.9 per cent to September 3 places it in the top three in the sector, but recent performance has seen it just slip into the second quartile, with a one-year return of 6.4 per cent, although this is ahead of the sector average of 4 per cent, according to FE Analytics. Its top-10 holdings account for roughly 35 per cent of the portfolio, with its largest geographical weighting to the UK at 50.7 per cent of the trust.

Pantheon International Participations

Launched in 1987, Pantheon International Participations is a fund-of-funds vehicle that seeks to actively manage risk by selecting and purchasing high-quality private equity funds in a diversified and balanced portfolio. The product divides its exposure across buyout, venture, growth and special situations funds. The former IA 100 Club member has a net asset value of just over £1bn and has delivered a steady performance, with its five-year return of 133.3 per cent pushing it into the top five of its peer group.

EDITOR’S PICK

NB Private Equity Partners

The trust’s five-year return of 122.9 per cent is middle of the road compared to its peers, but its performance has improved across one and three years, pushing it into the top quartile. This includes a one-year return of 14.5 per cent to September 3, compared with the sector average of 4 per cent. Based in Guernsey, the portfolio aims to produce attractive returns on capital by looking at investments that focus on capital-efficient strategies. Its largest geographical weighting is to the US at roughly 90 per cent of the portfolio.

In this special report

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