Investment Trust Insider on ICG Enterprise

Investment Trust Insider on ICG Enterprise

James Carthew: the perverse discounts on private equity

Some of the discounts in private equity investment trusts look perverse given the high prices they are achieving on the sale of mature portfolios.

The listed private equity market has become cluttered with trusts suffering a slow death. Some of these can make interesting investments. For example, when I wrote about the decision of Dunedin Enterprise (DNE) to wind itself up in February 2016 it had a market value of £74 million. Since then, it has returned £30.9 million in two capital distributions and has paid some sizeable dividends, yet it still is valued at £79 million and the shares trade on a 15% discount to their net asset value (NAV) at the end of March.

This shows how the gains realised as private equity funds harvest their mature investments can be substantial, although the process of liquidating these portfolios can take some time.

The asset strippers in charge of Electra Private Equity (ELTA) have decided to try to accelerate matters by looking for a buyer for the whole company. I think this is not a big ask. A long run of good returns, aided by the realisation of investments made in the wake of the bursting of the credit bubble, has allowed private equity firms to raise record amounts of money for their new funds.

There is considerable ‘dry powder’ available for new private equity investments of around $553 billion…. read more here