He says: “I think current conditions are more indicative of late-cycle [in listed equity markets] rather than early cycle. So I would prefer to focus on quoted equity, with lower fees and greater transparency.”
Brierley says a structural problem can be added to all those cyclical issues, as the fees levied on such trusts are high, and share buybacks — the instruments by which discounts can be reduced and which boost shareholder returns — did not really happen.
He describes this as “not fixing the roof when the sun was shining”.
But he adds that there are also structural positives for the sector, particularly because a phenomenon of recent years has been for companies to remain unlisted for longer, meaning there are a greater range of unlisted companies to invest in than has been the case in the past, changing the long-term reasons for owning private equity funds.
Gilligan, however, is sceptical whatever the long-term positives, because he believes some of the long-term negatives associated with the asset class remain.
He says the fees charged by private equity trusts tend to be far greater than those charged on conventional investment trusts, the latter tend to have charges of below 1 per cent whereas the average fee for a trust in the private equity sector is 2.8 per cent. For this reason, he says he prefers venture capital investment trusts instead.
Brierley is less concerned about fees, because he says the returns achieved by the sector, even after the deduction of fees, are attractive compared with those available from listed equities.
But he believes the cost disclosure regime has been a "dragging anchor" on sentiment for many years and this has contributed to wide discounts and elevated volatility.
However Brierley said the ongoing review of this regime, including the recent decision to scrap the packaged retail investment product rules in the UK, may level the playing field for the closed-end sector, which would be a "significant boost".
Market conditions change, but clients’ demand for diversification is continuous. The years ahead are likely to determine how prominent a role private equity trusts play in those portfolios, following a period of exceptional returns in extraordinary market conditions.
David Thorpe is investment editor at FTAdviser
