The trust, a private equity fund of funds which was launched in 1997, has suffered from a very wide discount to net asset value (NAV), partly because of problems besetting its sector but exacerbated by the collapse of New Star and uncertainty over its future. This was of concern to shareholders as was its small market cap – leading to calls for the fund to be wound up or merged.
However the trust has enjoyed a tightening of the discount following the appointment of a new manager. On the 27 February, for example, the discount was 73 per cent, while on the 30 June it was 64.5 per cent and on 10 September it is 63 per cent, according to WINS data.
There has also been a rebound in the share prices private equity trusts across the sector in recent months, so that the average for private equity fund of funds is -43.4 per cent as of 10 September. Nevertheless, Barrass, who runs Henderson’s private equity fund of funds business said one of the first aims will be a further narrowing of the discount to NAV – still the widest of private equity funds of funds.
Barrass said rebranding the trust and remarketing it to a wider audience of investors will be a way to achieve this and increase the market cap - currently £22m – in contrast to assets of £59m, according to WINS as of 10 September.
He feels that the trust has a good investment case and said: “We were surprised at the quality of the existing underlying investments. This is a good will be a good platform for growth when we can make more commitments.”
Going forward, however, the portfolio will be given a more focused approach. Click here for further details.
Barrass is not currently looking to do share buybacks as previous ones, such as in September 2008 did not tighten the discount. Barrass said he prefers to spend the money on commitments.
In addition, WINS Investment Trust Research expects discounts among private equity trusts to tighten further if markets continue to strengthen.
The wide discount is a reason why the trust is not looking to imminently do an equity issue to raise funds for investment, like a number of peers in its sector.
1yr performance
These include Electra Private Equity which completed a £43m zero dividend preference share (ZDP) issue and JPMorgan Private Equity which raised US$75m via ordinary shares. NB Private Equity , meanwhile, has proposed a ZDP issue for later this year.
But Barrass said further ahead options for strategic financing will be considered as he expects the trust’s commitments to need around £40m. The trust has banking facilities of £30m which it has only drawn down £1m though this will rise over the next year.
It also has a listed portfolio worth about £7m which it could sell down, and may receive some distributions. However it is expected that draw downs will come first, and the pace of draw downs over the next 12 months will determine how and when the trust fund raises finance.
Barrass asserts that the trust is not over committed which has been a problem for some of its sector peers and resulted in asset sales to meet commitments.