Investing in private equity funds

LHW99

Thrugelmir said:

LHW99 said:

I put a very small amount last year into Harbourvest, to see how it performed, as its fees were a little lower than a couple of similar trusts I looked at. Its certainly been more volatile than other holdings, but I plan to stick with it longer term, and perhaps increase my holding on the dips.

Private companies are staying private for longer. As there's sufficient capital available to grow the business without the need to list the company on the public exchanges. More often or not now. Companies have already enjoyed much of their early stage gains, before investors look to exit their positions. By encouraging the company to list. 

Best example is Ant Group, Jack Ma's financial services empire. If it where to list now. In terms of market capitalisation would rank no 1 in the UK. PE isn't just about start up's. 

Yes, I understand that, however its interesting to look at how these go over 10-15 years, if only as a learning experience. If it goes to zero, it won't be a particular problem.

ivormonee

Of course, there's always Woodford. He's coming back and no doubt his "UK equity income funds" will be a bunch of unlisted biotechs!

Thrugelmir

LHW99 said:

Thrugelmir said:

LHW99 said:

I put a very small amount last year into Harbourvest, to see how it performed, as its fees were a little lower than a couple of similar trusts I looked at. Its certainly been more volatile than other holdings, but I plan to stick with it longer term, and perhaps increase my holding on the dips.

Private companies are staying private for longer. As there's sufficient capital available to grow the business without the need to list the company on the public exchanges. More often or not now. Companies have already enjoyed much of their early stage gains, before investors look to exit their positions. By encouraging the company to list. 

Best example is Ant Group, Jack Ma's financial services empire. If it where to list now. In terms of market capitalisation would rank no 1 in the UK. PE isn't just about start up's. 

Yes, I understand that, however its interesting to look at how these go over 10-15 years, if only as a learning experience. If it goes to zero, it won't be a particular problem.

Standard Life Private Equity had 465 underlying investments at the end of the last financial year. Very much a case of spreading the net far and wide. As many of these companies are unlikely to ever see the light of day. 

house_help

I hold some Harbourvest, ICG Enterprise and HG Capital. Been pretty good performers for me overtime. 

underground99

nick1234 said:

I have narrowed it down to harbour invest, pantheon and 3i..just seems like a stab in the dark to pick one as the factsheets dont really list all underlying companies they invest in

It wouldn't make much difference to you if they did list all the companies - as you wouldn't have much idea about them, their financials or whether their valuations were fair, because by their nature they are private businesses. And for example, within Harbourvest Global Private Equity the most valuable 1000 underlying businesses will make up 80-90% of the NAV. What would you practically do, with that list of 1000 non-public businesses?

Harbourvest GPE and Pantheon International are similar to each other in that they are an investment fund vehicle whose money is directly or indirectly committed into private equity fund partnerships run by third party private equity fund managers. 

Whereas 3i is a fund manager that is investing its own money alongside the external investors who commit money into the funds it runs. So you are partly invested in a fund management business and partly invested in underlying investee companies.

HVPE and PIN will give you a broader exposure and a different profile of returns, from a wide selection of portfolio companies around the world which are at different stages in their development and were acquired when the opportunity presented itself in different vintage years.

I hold HVPE and PIN and have done for over a decade. Both were on particularly steep discounts to NAV in the global financial crisis /credit crunch as many funds-of-funds with a similar strategy faced a liquidity issue, as they had ongoing commitments to provide contributions to loads of investment partnerships while the distributions they were getting back from the investees were at risk of drying up, as investment exit activity declined. You would expect most PE sector investors to be trading at a discount to fair value, reflecting illiquidity of underlying assets.

When Covid hit a year ago, the nature of HVPE and PIN with their infrequent valuations meant that reported NAV did not fall anywhere near as quickly as other types of investment trust and it took a little longer for values to drop. So it was useful to be able to take some money off the table out of their value which had held up well while everything else was down more; then a few days later when it eventually and inevitably fell to follow everything else, there was an opportunity to add at low prices (eg under £10 for HVPE which is trading at £20+ now).

The private equity model is inherently expensive to run, as 'doing a deal' takes more effort than clicking public equity names on a broker screen. But holding businesses away from the public eye where the board aren't under pressure to deliver figures to the market every quarter is not a bad thing for long term returns. The management teams of the portfolio companies are generally well incentivised to deliver on an exit after a multi-year period, rather than as in the public equity world to be given some stock awards as a gift for massaging short term results.

So generally PE is a useful asset class to get involved in, and even if the costs are high, it's useful as a diversifier if the returns aren't fully correlated with public markets.

Aside from HVPE, PIN and some rather less diversified venture plays, I hold NBPE - it which can be relatively cheaper to run than the funds-of-funds vehicles, as it's mostly invested directly in coinvestment opportunities alongside the main PE partnerships in which NB's institutional funds invest.

maxsteam

nick1234 said:

does anyone have a preference or alternatives?  I have a high tolerance for risk and long time frame.  

I have a few shares in Oakley Capital. There's a lot of cash on their balance sheet and they are involved in some quality businesses. But yes, the entry and ongoing costs of investing in private equity are relatively high.

If you have only ever invested in funds, why not consider investing in a couple of your favourite FTSE stocks? You will avoid the costs of using a fund manager. Even if you don't have your own favourite FTSE stocks, it's very easy to find out a fund manager's favourites.

AlanP_2

maxsteam said:

nick1234 said:

does anyone have a preference or alternatives?  I have a high tolerance for risk and long time frame.  

I have a few shares in Oakley Capital. There's a lot of cash on their balance sheet and they are involved in some quality businesses. But yes, the entry and ongoing costs of investing in private equity are relatively high.

If you have only ever invested in funds, why not consider investing in a couple of your favourite FTSE stocks? You will avoid the costs of using a fund manager. Even if you don't have your own favourite FTSE stocks, it's very easy to find out a fund manager's favourites.

How does that relate to private equity investments which are by definition not listed on the FTSE or any other exchange?

Charges for PE funds are generally higher than general funds because the transaction and analsysis costs will be a lot higher.

They have to review a lot of Ugly Ducklings to identify the Swans to invest in and will get one or two Golden Eagles that makes up for all those that fail along the way.