How SJP launch pushes private equity into the mainstream

How SJP launch pushes private equity into the mainstream

Private equity funds are hitting the mainstream in client portfolios in the hunt for returns, fund managers have said, as advice giant St James's Place plans a launch into the market.

John Bilton, head of multi-asset investing at JP Morgan Asset Management, said returns from traditional asset classes such as equities are likely to be much lower in the years ahead.

This is because policies such as quantitative easing have effectively brought future investment returns forward to the present, meaning future returns from traditional asset classes will be less.

One alternative in which he is interested is private equity and unquoted companies.

He said investors who want returns similar to those achieved in the past may have to "consider alternatives, such as hedge funds, and unquoted companies such as those in private equity funds." 

Mr Bilton's comments come as David Bellamy, chief executive of St. James’s Place, announced his firm intends to launch a private equity offering for clients.

Mr Bellamy said onerous levels of regulation are prompting companies to avoid, or delay, listing on public markets, with the result that there are more opportunities in public markets in the private equity sector.

James Anderson, joint fund manager of the £6.3bn Scottish Mortgage Investment Trust, recently sought permission from the trust’s board to be allowed to invest up to 15 per cent of the trust’s capital into unquoted companies.

Mr Anderson said he believes there are greater opportunities than ever before in unquoted companies partly because of technological advances.

His view is that companies, particularly in the technology sector, can expand rapidly in a way that requires less capital than is historically the case.

For example, when a traditional manufacturing company wishes to expand, it may need to acquire more plant or machinery, or a new premises, all of which requires significant capital, sourcing that capital may require a listing on a stock market.

But technology companies can expand rapidly in a way that requires less investment in physical infrastructure and so have less requirement to list on stock markets and raise new capital.

Neil Woodford, who set up the £913m Patient Capital investment trust with the aim of investing in unquoted companies, has said the opportunity comes from company boards wishing to avoid the short-termism of both the stock market and the traditional venture capital community.

SJP's Mr Bellamy said he believes private equity can be a part of “most” investors portfolios. At present, the only way an investor can get such exposure is via private equity investment trusts and venture capital investment trusts.

The AIC Private Equity sector has returned 18 per cent over the past year.

Adrian Lowcock, investment director at Architas said: "As a multi-manager we don’t use private equity trusts but they would have a place in a person’s portfolio."

He said such trusts are risky, due to the underlying lack of liquidity of companies not listed on any market.