11:01 Mon 25 Jan 2010
Investment Line: Why 2010 could be a vintage year for private equity
A close look at the historical performance of listed private equity funds since 1993 suggests the scene is set for the asset class to stage a sharp turnaround in 2010.
According to research from LPX Group, which provides investment solutions for alternative asset classes, over a 16-year period when share prices of listed direct private equity companies traded at discounts to their net asset value (NAV) they have typically produced superior returns the following three years.
LPX points out that in 12 years since 1993 when these investment vehicles have traded at wide discount at the year end, they have outperformed the MSCI World Index for 75% of the time over the following three years (See graph below).
A good example would be 1998, when listed private equity traded at a discount of 16% and went on to deliver a return of 71% between 1999 and 2001 compared to a return of just 20% on the global index.
A similar scenario occurred in 2002 when private equity traded at a discount of 22% and went on to return 106% between 2003 and 2005 versus the 50% gain in the world index.
On the flipside when private equity traded at premiums in 1999 and 2005 of 15% and 6% respectively the returns for the following three years were -17% and -56%.
At the end of 2009 private equity traded at a discount of 16%, suggesting returns from private equity in the next three years could be attractive.
Commenting on the findings a member of, LPEQ, a group of 17 European listed private equity companies with a combined market capitalisation of more than 5 billion, said 2010 could be a vintage year for private equity.
Koen Dejonckheere, chief executive of European venture capital firm Gimvv NV, said: 'Despite a challenging two years when discounts were at their widest for most of the sector, the outlook for listed private equity is more positive going into 2010 and the LPX research substantiates this. There is no reason why 2010 should not be a good vintage year, so now is an attractive time to consider investing in the sector.'
The findings also lifted sentiment at fellow LPEQ member Dunedin Enterprise Investment Trust, which is trading at a 30.3% discount according to Wins Investment Trusts.
Brian Souler, who has managed the trust since January 2001, said: 'The findings are good news for investors who are seeking returns in a low growth environment. Listed private equity in particular offers private as well as institutional investors the most ready access to the asset class, so any findings that show the potential of attractive returns in the sector is a positive development for the investment community.'
Analyse all the private equity investment trusts on Citywire's sector page.
Investment company news bought to you by Citywire Financial Publishers Limited. 