Private Equity Investment Trusts

Private Equity Closed End Funds.

The positive about Investment Trusts (Closed End Funds) listed on the Stock Exchange is that the Company capital is fixed. Unit Trusts (open ended Funds) are not and so if holders sell units the fund managers has to sell shares to repay investors. That can cause issues when a large numbers want to sell.

Investments Trusts will always have the same capital- but if investors keep selling the discount to the Net Asset Value(NAV) of the company will fall.

But as these investments on the whole tend not to be listed the valuation of those assets can cause concern as to the methodology of valuation.
Given some of the large discounts the industry, I feel, need to do some-thing to encourage shareholders to buy these funds. The new chairman of Pantheon International (PIP) has said as much- see the end of this blog.

I recall a time when general Investment Trusts traded at 25-25% discounts- back in the 1980's. Over the following decades some were taken over, others changed investment strategy to become specialist and offer a sector or geographic specialism.
I feel that the same could happen in the PE sector. They do invest in good companies, there are obviously some duds, but across the funds covered here most performance have been reasonable.

A few are winding up and I would expect more boards to be looking at options- as PIP has done to see what can be done to narrow the discount and improve returns to shareholders.

The sector need to convince shareholders of the methods of valuation and look at performance fees. Kicking it at 8% seems generous to managers, not so to shareholders.

Potentially interesting times for this sector.

The below was compiled from research as I looked through the sector to get a better understanding of the opportunities. All views are my own and should be taken as that.

Any data errors please let me know.

Listed on the Stock Exchange according to the Association of Investment Companies the following listed funds invest in private equity.

3i (LON:III) 3i Group

abrdn Private Equity Opportunities Trust (LON:APEO) abrdn Private Equity Opportunities

Apax Global Alpha (LON:APAX) Apax Global Alpha

CT Private Equity Trust (LON:CTPE) CT Private Equity Trust

Dunedin Enterprise Investment Trust (LON:DNE) Dunedin Enterprise

Harbourvest Global Private Equity (LON:HVPD) HarbourVest Global Private Equity

HgCapital Trust (LON:HGT) HgCapital Trust

ICG Enterprise Trust (LON:ICGT) ICG Enterprise Trust

JPEL Private Equity (LON:JPEL) JPEL Private Equity

JZ Capital Partners (LON:JZCP) JZ Capital Partnership

Literacy Capital (LON:BOOK) Literacy Capital

LMS Capital (LON:LMS) LMS Capital

NB Private Equity Partners (LON:NBPU) NB Private Equity Partners

Oakley Capital Investments (LON:OCI) Oakley Capital Investments

Pantheon International (LON:PIN) Pantheon International

Princess Private Equity Holding (LON:PEYS) Princess Private Equity Holdings

Symphony International Holdings (LON:SIHL) Symphony International Holding.

Please note fees and performance figures are what I have found. Please do your own research. I cannot be held responsible for any errors or omissions.

3i (LON:III) 3iGroup

I hold

Total NAV: £18590m

Yield: 2.60

Fees: ? Self managed so NAV is net of fees.

Carried Interest: 12% if performance +8% p.a.( Hard to calculate but I think this is the figure having spoken to the IR officer at 3i)

10 Year Return: 24.45% annualised.

Discount to NAV: +11.0% (Premium to NAV)

The largest fund by a long way is 3i . I do hold this, took me a while to invest as the largest part of their assets is invested in Action. But Action looks sound and growing and 3i are looking at other investments to become equally long term compounders for the company. The Investment executives have motivation- bonuses kick in after 8% growth . Hard to work out fee structure as they are self managed, but their PR told me every quarter Asset value reflects the fees and possible bonuses (they call it GIR). So the Executives do well if things work out- and they have over time.

The companies figures were announced 9/11/2023. Performance was good, Action continues to grow. Concerns over some investments in consumer orientated products and realisations may take longer to achieve. The company has a strong balance sheet and is under no pressure to realise investments for less that is considered the fair value.

Simon Borrows, 3i's Chief Executive, commented:

"Against a tough macroeconomic environment, we delivered another good result in the period for 3i. Action continues to perform very well. Its LFL sales growth, continued new store expansion and significant free cash flow from operations have once again underlined what an exceptional business it is. The strong performance of a number of our other investments in the value-for-money, private label and healthcare sectors underpins our confidence that a number of these investments will also become longer-term compounders over time.

We remain cautious about the investment and realisation market given the macroeconomic environment in general, the breadth of geopolitical risk and our belief that the full implications of the global recalibration of interest rates are still yet to work fully through the system. We will continue to look for opportunities to deploy capital into this uncertainty, but we will not change our patient and disciplined approach. We have a strong balance sheet and are under no pressure to sell companies if the price or terms do not properly reflect the prospects of the business."

Top 20 Holdings Sept 2023

Action General, merchandise discount retailer 12,862,
3i Infrastructure plc Quoted investment company, investing in infrastructure 818,
Cirtec Medical Outsourced medical device manufacturing 579,
Scandlines Ferry operator between Denmark and Germany 547 ,
Royal Sanders Private label and contract manufacturing producer of personal care products 486 ,
AES Engineering Manufacturer of mechanical seals and provision of reliability services 396 ,
nexeye Value-for-money optical retailer 390 ,
SaniSure Manufacturer, distributor and integrator of single use bioprocessing systems and components 375 ,
Tato Manufacturer and seller of specialty chemicals 330 ,
Smarte Carte Provider of self-serve vended luggage carts, electronic lockers and concession carts 316 ,
Evernex Provider of third-party maintenance services for data centre infrastructure 315,
WP Global manufacturer of innovative plastic packaging solutions 273,
Luqom Online lighting specialist retailer 225 ,
European Bakery Group Industrial bakery group specialised in home bake-off bread and snack products 207 ,
MPM An international branded, premium and natural pet food company 198 ,
Audley Travel Provider of experiential tailor-made travel 173,
WilsonHCG Global provider of recruitment process outsourcing and other talent solutions 156
BoConcept Urban living designer 155 
ten23 health Biologics focused CDMO 149 
Q Holding Manufacturer of catheter products serving the medical device market 145

I will continue to hold this fund as it is the leader in the sector.

There are couple of funds in the process of winding down and returning assets to shareholders. Always a risk buying these as obviously the best assets are easier to sell .

Dunedin Enterprise Investment Trust (LON:DNE) Dundein Enterprises

I hold

Total NAV: £34m

Yield: 11.13 (winding down)

Fees: 1.4%

Carried Interest: 4.05% past 10%of realised gains if performance +8% p.a.

10 Year Return: 10.7% annualised.

Discount to NAV: 16%

I have bought Dunedin Enterprises as the Company’s investment objective is to conduct an orderly realisation of its assets, to be effected in a manner that seeks to achieve a balance between maximising the value of the Company’s investments and progressively returning cash to shareholders.

They invest in companies between £20-100m

“The Board is committed to returning proceeds of asset sales to shareholders and doing so efficiently. While the portfolio realisation process continues, the Board will look at opportunities to combine the proceeds of more than one sale before conducting a further tender in order to achieve economies in the process. Outlook Following discussions with the Manager and the Company’s advisers, the Board does not currently anticipate putting formal proposals to Shareholders for a members’ voluntary liquidation of the Company in the short to medium term while the orderly realisation continues.”

Main holdings:(% of NAV)

Weldex 14%

Premier Hytemp 12.8%

FRA 8.5%

Realza 7.9%

Hawksford 2.4%

Having looked at current portfolio and recent realisations it seems could be an upside of 10%. What the time scale will be I have no feel for though.

JPEL Private Equity (LON:JPEL) Jpel private equity

Total NAV: £40m

Yield: 0

Fees: 2.5%

Carried Interest: 4.05% past 10% of realised gains if performance +8% p.a.

10 Year Return: 6.3% annualised

Discount to NAV: 37%

This fund is also winding down. I have looked through the companies announcements but in my opinion so vague I cannot get a feel if there is any upside.

This gave little confidence.

“As JPEL continues to run-off its portfolio organically, the Board would like to remind shareholders that it will revisit a variety of options once JPEL's NAV approaches approximately . As global markets continue to be affected by well documented macroeconomic factors, the JPEL portfolio may be impacted, similar to other private equity funds, in timing, valuation, or amounts of realisation activity. As a result, distributions in 2024 are likely to be unpredictable. “

Not an investment for me.

JZ Capital Partners (LON:JZCP) JZ Capital Partnership

Total NAV: £254m

Yield: 0.0

Fees: 5.15%

Carried Interest: In Fees of 5.15%

10 Year Return: -5.8% annualised.

Discount to NAV: 50%

Quote from a recent company release.

“In August 2020, the Company’s shareholders approved changes to the Company’s investment policy. Under the new policy, the Company will make no further investments except in respect of which it has existing obligations or to continue selectively to support the existing portfolio. The intention is to realise the maximum value of the Company’s investments and, after repayment of all debt, to return capital to shareholders.

Outlook Our view of the outlook for the Company remains substantially unchanged to that reported in the Interim Report. The Company is committed to delivering on the New Investment Policy. For the reasons mentioned above, it will probably take more time than might have been expected a year ago. The Company is well-positioned to weather potential financial pressures from an economic downturn or period of volatility in the financial markets, which should allow the Investment Adviser the time needed to maximise the value of the portfolio and implement the New Investment Policy in an orderly manner. The Board expects that in due course a significant amount of capital will be returned to shareholders.

Looks like the wind up is taking longer than expected. One to monitor , it is on a 50% discount. They seem to be scarce with press releases so would need to be cautious in my opinion.

Funds review

Symphony International Holdings (LON:SIHL) Symphony International Holdings.

Total NAV: £397m

Yield: 5.1%

Fees: 2.45%

Carried Interest: NIL

10 Year Return: 1.8% annualised

Discount to NAV:37%

Poor performance over 5 and 10 years.

They focus on particular sectors – healthcare, hospitality, lifestyle, branded real estate, and new economy ventures – that we believe will continue to profit from the increasing disposable incomes of Asia’s growing middle class. Anil Thadani the manager has increased stake from 15% to 20%.

I will avoid- a risk too far for me much as I like investing in Asia through funds.

LMS Capital (LON:LMS) LMS Capital

Total NAV: £42m

Yield: 4.1 %

Fees: 4.77%

Carried Interest: 0.12% if outperform benchmark

10 Year Return: -3.79% annualised.

Discount to NAV:57%

A poor performing fund with only £42.7m of assets. Running costs exceeded income by £0.3m for Q3 2023.

They state “We seek to achieve a balance between preserving and growing wealth. We expect to deliver an overall total return, net of costs, over the longer term of 12%-15% per annum, of which an element will include an annual distribution.

We invest in areas where we have demonstrable success over some 40+ years of investing:

• Real estate

• Energy

Late-stage private equity

Unless the performance figures I am seeing are incorrect they have lost 3.79% over 10 years.

The company seem to realise this and are doing some major changes to the strategy. But I will not be part of that journey. To me the 58% discount seems justified.

It seems the new strategy is to focus on retirement home space and through Dacian the oil and gas industry.

I feel if I wanted to invest in these areas there are clearer ways to do it.

Literacy Capital (LON:BOOK) Literacy Capital

Total NAV: £296m

Yield: 0%

Fees: 2.35%

Carried Interest: NIL

10 Year Return: N/A. New fund 1 Year performance 21.6%

Discount to NAV:8.7%

Literacy Capital is focused on investing in and supporting UK businesses and helping their management teams to achieve long-term success. They donate 0.9% of our net assets every year in cash to literacy charities in the UK, amounting to more than £7.8 million since Literacy’s creation in 2017

They invest in mainly UK based businesses generating £1m - £10m EBITDA (or £0.5m+ for bolt-on acquisitions

Launched in June 2021, ongoing charges are 2.41% (As at 31/12/2022). Performance since launch has sen the price increase from £3.00 to £4.40 , trading at a discount of 8.6%.

The managers control 40%.

Given the newness of the fund I will be not investing, but the initial performance has been good.

Oakley Capital Investments (LON:OCI) Oakley Capital Investments.

I hold

Total NAV: £1194m

Yield: 1.03%

Fees: 2.45%

Carried Interest: 20% of sale above 8% gain. Performance fee 0.8% if outperforms 8% gain.

10 Year Return: 14.4% annualised.

Discount to NAV:36%

I have held this fund for 5 years. They invest in Invest in Technology, Education, Consumer and business service unlisted companies throughout Europe. Using their origination network they are often the first Institutional investor in the portfolio companies.

My P.A Dubens has recently bought 200000 shares in the Trust and now holds 10.86%. If you look at Director dealings they are all buys over the years. That makes me confident the board are vested in the success of the Trust.

Top holdings as at 30/6/2023

The current discount to NAV is 36% which given the 5 year performance of 154% seems high to me.

For me the narrow investment sectors they look at is appealing- and they managers certainly get a lot right.

Key long term holding for me despite the fact the carried interest charge is pretty high. Hoping the board will look at this.

CT Private Equity Trust (LON:CTPE) CT Private Equity Trust

I hold

Total NAV: £538m

Yield: 5.7%

Fees: 1.8%

Carried Interest: NIL. Performance fee 0.88% of Internal Return Rate of 8% p.a claculated over 3 years.

10 Year Return: 14.36% annualised

Discount to NAV:33%

The Trust takes stakes in private equity focused limited partnerships, offshore funds and investment companies as well as direct private equity investments, mainly through co-investment in specific companies.

The private equity funds in which the Trust invests comprise buy-out funds, venture capital funds and mezzanine funds.

There is therefore an element of double charges as they charge a fee as may some of the funds they invest in. This is not ideal, but in this case I am backing the manager, Hamish Mair. If he left I would possible sell.

Directors have been buying shares in the Trust.

abrdn Private Equity Opportunities Trust (LON:APEO) abrdn Private Equity Opportunities

Total NAV: £1185m

Yield: 3.67%

Fees:6.25%

Carried Interest: NIL

10 Year Return: 15.2% annualised.

Discount to NAV:43%

The investment objective is to achieve long-term total returns through holding a diversified portfolio of private equity funds and direct investments into private companies alongside private equity managers, a majority of which will have a European focus.

I do struggle to take Abrdn seriously after the rebranding of Aberdeen but perhaps that is a naïve view.

The fund performance is reasonable.

They Invest in Primary funds which do look like they are investing in interesting areas and sectors.

They also co-invest directly into unquoted companies.

One I will monitor, investigate further and get over my dislike of the new branding of Abrdn.

ICG Enterprise Trust (LON:ICGT) ICG Enterprise Trust

Total NAV: £1283m

Yield: 2.86

Fees: 2.77%

Carried Interest: 0.7% if performance +8% p.a.

10 Year Return: 13.2% annualised.

Discount to NAV:41.4%

The Trust exclusively invests in BuyOuts- which does make it different from its peers.

They focus on investing in buyouts of businesses that are profitable, cash generative and have defensive growth characteristics that we believe will deliver strong and resilient returns across economic cycles.

The investment strategy results in a differentiated portfolio with attractive growth characteristics.

Portfolio composition at 31 July 2023

Flexible mandate that enables us to deploy capital in:

• Primary investments (55% of the Portfolio)

• Secondary investments (19%)

• Direct investments (27%)

  
  

Portfolio composition at 31 July 2023

The Portfolio is well diversified and weighted towards sectors with defensive growth characteristics. Technology (24.1%), Healthcare (13.2%), Business Services (12.9%) and Education (5.4%) make up 55.6% of the Portfolio.

Whether the buy out sector is a great one at the moment would need more investigation.

Apax Global Alpha (LON:APAX) Apax Global Alpha

Total NAV: £1107m

Yield: 7.48%

Fees: 2.15%

Carried Interest: 2.45%

5 Year Return: 11.26% 5 year annualised performance due length of life

Discount to NAV:29%

AGA aims to build and maintain a high-quality, global portfolio of investments across four core sectors - Tech & Digital, Services, Healthcare and Internet/Consumer.

Target: an annualised Total NAV Return across economic cycles of 12-15%, net of fees and expenses. AGA also aims to pay a dividend yield of 5% of Net Asset Value (“NAV”) per annum.

Private Equity 71%

Derived Investments 29%

PORTFOLIO SPLIT BY ASSET TYPE

Private Equity71%

Derived Debt 28%

Derived Equity1%

PORTFOLIO SPLIT BY GEOGRAPHY

North America60%

Europe14%

United Kingdom14%

Israel3%

India3%

China1%

Rest of the World 5%

PORTFOLIO SPLIT BY SECTOR

Tech & Digital36%

Services31%

Healthcare13%

Internet/Consumer 20%

The fund has a resolution every 3 years as to whether to continue. The fund has a good spread of holdings. The positives are they aim for a Total NAV return of 12-15% net of fees and a good sector yield of 7%.

Harbourvest Global Private Equity (LON:HVPD) HarbourVest Global Private Equity.

Total NAV: £3160m

Yield: 0%

Fees:3.36%

Carried Interest: 1.8%- average over 5 years.

10 Year Return: 17.8% annualised.

Discount to NAV:45%.

One of the latger PE funds it has performed well and I have rather overlooked it as in investment. Their aim is provide easy access to a diversified global portfolio of high-quality private companies by investing in HarbourVest-managed funds.

The fees seem reasonable modest given the performance over 10 years.

HgCapital Trust (LON:HGT) HgCapital Trust

Total NAV: £2167m

Yield: 1.79%

Fees:1.93%

Carried Interest: 20.0% over capitalised return of 8% annually.*

10 Year Return: 17.2% annualised.

Discount to NAV:20%.

*KID info An incentive based on performance, or “carried interest” is payable after the repayment to the Company of its invested capital plus a preferred return of 8% capitalised annually thereon for each Fund to which the Company makes a commitment. Once these conditions have been met, carried interest of 20% of the aggregate profits applies.

The fund is focused on defensive growth buyouts in software and services operating in specific end-market ‘clusters’ with enterprise values (‘EVs’) of £100 million to over £10 billion, growing faster than the broader economy. Hg predominantly seeks controlling equity buyout investments in businesses headquartered in Europe and North America, often with a global footprint and customer base.

Reasonable performance. Carried interest looks high , but it does focus on specific sectors. Buying controlling stakes slightly concerns me.

Princess Private Equity Holding (LON:PEYS) Princess Private Equity Holdings

Total NAV: £1088m

Yield: 7.0%

Fees:2.4%

Performance fee: Seems to be about 2% depending on performance

10 Year Return: 12.0 % annualised.

Discount to NAV:15%.

Investment style Princess pursues a relative value investment strategy, the goal of which is to systematically identify and invest in private equity investments that are particularly attractive at a given point in time based on its global scale, broad market overview, insight and strong deal flow.

The team has experience in all major jurisdictions around the globe and specializes in the following sectors: healthcare, consumer, media & telecom, IT, industrials, infrastructure/energy & utilities, financial and business services, and real estate.

They tend to invest direct into unlisted companies rather than using other funds. Industrials (28.7%) and Healthcare (22.9) are the largest sectors. 16.8% is in consumer discretionary which might not do that well in the current financial environment.

They have a quarterly report presentation by the managers on Nov 23 2023 which I have registered for as I am finding it hard to get a flavour of this fund. Good yield for the sector .

Pantheon International (LON:PIN) Pantheon International

I hold .

Total NAV: £2250m

Yield: 0%

Fees: 3.35%

Performance fee: NIL

Carried Interest: Nil

10 Year Return: 13.7% annualised.

Discount to NAV:37%.

PIP's portfolio is diversified by manager, underlying companies, vintage, region, investment type, and sector, to maximise risk-adjusted returns.

The fund aim's to generate sustainably high investment returns through a well-managed, institutional grade portfolio built by investing with the best private equity managers globally through three strategic pillars of primary, secondary and co-investments, with each offering their own merits. We believe that by combining the three ways of accessing private equity investments, we are able to:

• Build and maintain a well-balanced portfolio in a combination that we monitor and manage with the aim of maximising capital growth;

• Manage the maturity profile of our assets so that our portfolio remains naturally cash-generative on a sustainable basis;

• Ensure that the vehicle remains as cost-effective for our shareholders by reducing any potential drag on returns.

As portfolio companies are sold by our private equity managers, PIP’s share of the cash that is generated from those sales is deployed into new investment opportunities

The Company’s policy is to make unquoted investments. It does so by subscribing to investments in new private equity funds (“Primary Investment”), buying secondary interests in existing private equity funds (“Secondary Investment”), and acquiring direct holdings in unquoted companies (“Co-investments“), usually either where a vendor is seeking to sell a combined portfolio of fund interests and direct holdings or where there is a private equity manager, well known to the Company’s Manager, investing on substantially the same terms.

The Company’s policy is to adopt a global investment approach. The Company’s strategy is to mitigate investment risk through diversification of its underlying portfolio by geography, sector and investment stage. Since the Company’s assets are invested globally on the basis, primarily, of the merits of individual investment opportunities, the Company does not adopt maximum or minimum exposures to specific geographic regions, industry sectors or the investment stage of underlying investments.

I had watched a couple of presentations before I invested in this fund and always came away impressed.

They have recently had a new Chairman, John Singer. He has given interviews stating what he feels PIP- and other funds- need to do to attract investors-and so get discounts down.
He has visited a number of key investors to sound them out. One of the issues was true governance- what is the real relationship between Board and Managers. Valuations as well documented was another concern.
Buybacks is one way funds can increase the return to shareholders by increasing the NAV.PIP have now announced a buyback formula that will increase the amount of buybacks the wider the discount.

They are working to encourage the whole private equity sector to put shareholders first.

There is a transcript of the interview on the AIC site