22nd August 2013
I have long been a fan of private equity and venture capital investing writes Ben Yearsley, head of investment research at Charles Stanley Direct.
Getting in at an early stage in a growing company can be highly lucrative, and over the long term this asset class has shown the ability to deliver superior returns. However, patience and an extremely long-term time horizon is needed as investments typically take many years to come to fruition and some may never realise their potential.
Yet the largest problem with this type of investment is that the underlying companies are not listed on any stockmarket. Most private investors do not therefore have the ability to invest directly in them so the area goes largely unnoticed. However, there are ways. One is to invest via a private equity investment trust; the underlying investments are not listed but the investment trust itself is, offering a means to sell the investment at any time.
One such trust I met with recently is Pantheon International Participations (PIP). This unusual, and more specialist investment, is actually a fund investing in other private equity funds. In other words the managers of the trust seek, what in their opinion are, the best private equity managers globally through which to invest.
This “fund of funds” approach means that investors in PIP have exposure to over 4000 different companies globally, though the top 1000 account for approximately 80 per cent by value of the portfolio and the biggest holding, data analysis firm Splunk, is about 1 per cent of the trust. As well as funds there are a handful of direct investments into unquoted companies as well, though this is always alongside a fund manager they trust.
The managers consider the US the most important market as it has the most diverse and developed private equity market. Unsurprisingly, over half the trust’s assets are invested there with a further 32 per cent invested in Europe and 14 per cent in Asia. The companies they invest in are found in a wide range of different sectors and stages of maturities. For example 26 per cent of the trust is invested in large scale buy-out situations, which tend to be later-stage, more mature companies where existing management are buying the business from previous owners. Meanwhile 29 per cent is currently invested in earlier-stage riskier development capital investments – the more “Dragon’s Den” stuff!
Essentially, Pantheon offers an extremely well-diversified means of owning private equity as an asset class, an area otherwise difficult to access for private investors. It could therefore help diversify a large portfolio. It is also worth noting that the trust currently trades at a discount to net assets of about 20%, though it has been more than this in the past, so investors should not presume it will narrow.
Pantheon does not currently form part of the Foundation Fundlist our favoured list of funds across the major sectors as it is a specialist investment trust aimed at very long-term investors who are content with its higher risk nature. However, for those wanting an element of broad exposure to a variety of private equity managers across the globe in their portfolios, it could be one to consider.