If investors listened to the headlines, they would be understandably nervous about the prospects for private equity. Vincent Mortier, chief investment officer of Amundi, the largest asset manager in Europe, described parts of the industry as a “Ponzi scheme”[1], while former Pimco chief Mohamed El-Erian also raised concerns about the sector, notably its claims to be immune to volatility in public markets[2]. They suggest a ‘smell the coffee’ moment for the sector.
This has hurt private equity investment trusts. Half of the sector sits at a discount to net asset value of 30% or more and half has yields of over 3%. This includes some well-established and popular names, such as HarbourVest, Pantheon International and abrdn Private Equity Opportunities. For most of the trusts, it is their widest discount in over a decade.
A perception problem
Alan Gauld, lead manager on the abrdn Private Equity Opportunities trust, suggests private equity trusts may be suffering from a perception problem. Private equity has been subject to the same value-growth phenomenon as public markets. The low cost of capital has sent investors hunting for high growth private companies in areas such as ecommerce, software or digitalisation.
Valuations have also been inflated by vast venture capital groups such as SoftBank and Tiger Global. With $100bn at its disposal, Softbank has created bidding pressure on deals. Finally, says Gauld, the government’s response to Covid brought new…
