AIC: Private equity trusts outperform as discounts narrow to pre-crisis levels


Discounts on private equity investment trusts have eased to levels not seen since before the credit crunch as the sector outperforms the average investment company so far in 2013.

According to the Association of Investment Companies, the average private equity trust’s share price is up 25 per cent on average over one year, which is 9 per cent higher than the average investment company.

During 2013, discounts in the private equity sector have also narrowed to levels not seen since before the credit crunch in 2008.

The end of February 2013 saw the sector reach its narrowest average discount level of 13.8 per cent, a significant change from the sector’s widest average discount of 61 per cent in February 2009. The current average discount for the sector stood at 18.4 per cent, as at the end of June 2013.

Pantheon International Participations manager Andrew Lebus believes that even after the improvements in private equity discounts, the sector still provides “excellent opportunities for long-term investors”.

He says: “By investing in private companies, private equity investors can gain access to a much larger universe of opportunities worldwide than can be obtained through public markets.

“In today’s more stable economic environment the component drivers of outperformance remain in place. Investment activity has increased whilst the exit environment remains healthy, driven by trade sales as cash balances on corporate balance sheets remain high.”

Aberdeen Private Equity Trust manager Alex Barr adds that going forwards, private equity managers now need to avoid the “pitfalls” and ensure they do not over pay for and over leverage assets.

Lebus looks to opportunities following the reforms in the financial sector which he believes “will continue to stimulate the secondary market for private equity fund interests.”

Barr also sees opportunity within private equity in both the technology sector and distressed debt, as well as south-east Asia which he continues to find attractive “irrespective of current public equity market wobbles.”