This point around the difference in valuations between public and private markets, and the ability of private equity to act as a diversifier is something also highlighted by Brierley, who says some trusts have a correlation of only around 50 per cent to listed equity markets, and therefore can act as a diversifier.
Interested parties
Richard Hickman, who runs the HarbourVest Private Equity trust, which invests in other private equity funds, says one feature of the sector in recent years is they have not overloaded with debt, despite interest rates being low, as he says "the private equity fund managers knew the party wouldn’t last forever".
Brierley agrees that debt levels are much lower this time, and says this contrasts favourably with the debt levels that were reached, but he says a bigger issue may be the fees charged – he notes that even in normal times “the high fees were leading to discounts staying quite large at around 20 per cent”.
Leatham notes the disadvantages outweigh the problems right now, saying: “The longer-term track record of some of the leading private equity managers has been strong with material outperformance of listed equity indices and lower volatility.”
David Thorpe is special projects editor of FTAdviser
