Listed private equity vehicles have taken a beating this year – write-downs have proliferated, steep discounts to NAV are the norm, share prices have tumbled and some have seen over-commitment strategies backfire. Yet listed vehicles still provide a means of achieving top quartile private equity returns, according to partners at HgCapital Trust and Electra Partners.
“We are able to hold assets longer than most funds. There are some little gems that we have held for 20-plus years,” Tim Syder, a partner at Electra Partners, said during a roundtable in London yesterday. As an example, he pointed to Electra’s acquisition of railway operator DM&E in 1988 for £102 million. The assets sat “in a dark room at the Electra offices” for two decades before the company was sold in 2007 for £1.5 billion, returning £175 million on Electra’s 6 percent stake.
We are able to hold assets longer than most funds.
He said the debt market was another key way of making good returns from long-term investment. Investing between 70 pence and 75 pence in the pound of distressed debt in relatively stable companies, and then holding this debt to maturity, can produce returns of up to 20 percent, Syder said.
Ian Armitage, chief exectutive of HgCapital,stressed the importance of listed funds steering clear of over-commitment strategies as well as deals with excess leverage – strategies that have pushed some listed funds into difficulties. Over-commitment have been cited by analysts as a cause for concern for the likes of F&C Private Equity, Standard Life European Private Equity and Partners Group’s Princess Private Equity. Candover and SVG have both recently disclosed liquidity issues that have stemmed from over commitment to private equity, and have both recorded significant asset write-downs in recent weeks.