Fund-of-funds PIN trades on a near 15% discount despite having cleaned up an unwieldy share structure a couple of years ago and exited a long tail of small holdings in the portfolio. Investment performance over all periods, including back to inception in 1987, is a remarkably consistent 12% per year. Given that most of the portfolio was last valued at the end of September, there is sure to be more to come. Despite the absence of a dividend, the shares are cheap.
Intermediate Capital took over management of ICGT five years ago, giving the fund access to a broader range of private-equity contacts and expertise and enabling nearly half the portfolio to be internally managed. This part of the portfolio has returned 19% per year over five years while the third party funds have returned 14%, promising continued improvement as the internally managed portfolio grows. This progress should bring down the discount from a heady 18%, as it did for Apax.
NB Private Equity (LSE: NBPE) managed a 12-month return of 21% but still trades on a discount of 25% to estimated NAV, reckons analyst Chris Brown at JPM Cazenove, making it “excellent value”. He estimates the discount for Harbourvest (LSE: HVPE) to be 19%, which looks anomalous given its excellent record (a return of 100% over five years) and high exposure to the tech sector (29%). The record of Princess Private Equity (LSE: PEY) is even better, 106% over five years, but Brown rates it as only a “hold” as its discount of 16% is “fair relative to peers”. In absolute terms, it still looks attractive.
Perhaps the biggest bargain is Oakley Capital (LSE: OCI), which is trading on a 26% discount after an 18% return in 2020 and 114% over five years. Performance is held back by the 31% of the portfolio in cash, but this is matched more than twice over by commitments to invest in Oakley funds. The portfolio looks modestly valued given its focus on the popular technology and education sectors. The third leg of its investment strategy, consumer brands, provides recovery prospects once the coronavirus crisis passes – notably via Time Out, the well-known publisher of entertainment and nightlife guides, which has been expanding into food centres and events in cities around the world.
“I am very positive about the outlook for private equity and believe that it will continue to out-perform public equities,” says Gardey. “Long-term ownership has provided superior governance and there have been fewer disasters in the last ten years.” This confidence is reflected across the sector, which makes the cheapness of most of the listed trusts an anomaly. Perhaps, as one cynic says, “the brokers are too busy earning fees from issuing equity in anything renewable to pay any attention to listed private equity”.