Lastly, remember that there is no incentive to hold investments at unrealistic values – there are no gains on unrealised returns.
Fees are too high
PE trusts do charge higher fees than, say, an exchange-traded fund, there is no getting around this. It helps pay for the active, hands-on, engaged management and should lead to higher returns.
PE investors typically sit on the board of a company, provide strategic advice, help hire senior talent, lend artificial intelligence expertise, assist with scouting out new markets and acquisitions.
The typical, dual-fee structure includes a management fee, and a share of realised returns. This ensures the investment adviser’s interests are aligned with the investors’ in that they do not get paid if they fail to perform.
Arguably the bigger issue for listed PE trusts is the ‘double-counting’ of investment company costs under current UK disclosure rules, which make investment trusts seem excessively costly.
PE is narrowing the pool of public companies to invest in
This assertion is partly true. International PE investors are taking advantage of cheap sterling to delist publicly listed companies. But more founders are also choosing to remain private for longer.
Who can blame them? Dysfunctional equity markets, particularly in the UK’s mid-market space, make for low valuations, and that is before you even begin to consider what many consider to be onerous disclosure requirements as a PLC.
Private equity remains a smaller asset class than global equity markets. But it is growing faster and can often generate better returns.
And while traditional PE has typically been restricted to deep-pocketed institutions, listed PE offers easy access to everyday investors looking for another option in a broad portfolio.
Stephen Tredget is a partner at private equity firm Oakley Capital
