‘Information gap’ prompts 20% discount on private equity investment trusts


Private equity investment trusts are trading at discounts above 20 per cent despite strong performance in the last five years, research from Edison reveals.

The report, Listed private equity: The opportunities and challenges for investors, argues better engagement with the investor community could help the sector move into the mainstream.

It reckons an information gap exists regarding the riskiness and returns of the space.

Five-year compound returns have averaged around 10 per cent over the last five years, up from 5 per cent over the last 10 years that covers the global financial crisis.

This is lower that a traditional private equity fund, where net internal rate of return has totalled 14.9 per cent over the last 10 years, compared to 7.6 per cent for the FTSE All Share.

But the report argues lower returns should be expected in return for liquidity and accessibility that investment trust provide.

The Edison report says there is “untapped potential” to grow the sector. It says the investor appeal can be seen in a number of investment companies with significant allocation to private equity, including Scottish Mortgage, which recently announced it was increasing allocation to unquoted equities from 10 per cent to 25 per cent.

Edison warns that while the average investment company has around 25 per cent of its share register represented by platforms and a similar amount held with private client brokers, these investors are “very much in the minority” when it comes to private equity investment trusts.