Real life examples of the true value of the investments held by private equity trusts can be found in the recent results of both the Pantheon International and the RIT investment trusts.
Pantheon reported that, on average, when it has exited an investment over the past two years, it has achieved an average sale price more than 20 per cent higher than the value of the investments in their accounts.
As part of its results announcement, Pantheon says it is taking action to close the discount at which the shares trade, by buying back £200mn of the equity.
Alan Brierley, who heads the investment trust research team at Investec, says the strong net asset value performance of investment trusts "hasn't been much use" to clients, because they do not get paid the net asset value on the sale, but rather the share price, which is lower. He says Pantheon's actions may spur other trusts to follow suit, and be a "game changer" in terms of sentiment towards the sector.
The RIT investment trust is not a dedicated private equity fund, but it does have extensive unquoted holdings, and on recent asset sales the prices achieved were higher than the value of those assets in the accounts.
Scouller says he remains confident in the valuations of unquoted companies, at least in the context of businesses that were last revalued at the end of 2022.
He says there are two reasons for this view: the first is that the profits of listed companies have not been declining, just growing at a slower pace, so similar can be expected, in aggregate, for unquoted companies.
Scouller adds that the multiples — that is the valuations of listed companies relative to their current profits — have remained steady, implying that the same multiples should apply now to private companies as they did at the end of 2022.
Brierley believes the issues around valuations apply more to earlier-stage companies, which he says could suffer “brutal” writedowns, than to private equity investments, which are later-stage.
Timing is everything
Mick Gilligan, who runs the model portfolio service at Killik and Co, believes there is a very specific time in a market cycle to invest in private equity investment trusts, namely when public equity markets are beginning to recover following a sell-off.
