Oakley Capital Investments (OCI ) says interest in his trust from retail investors has grown exponentially since the onset of the Covid-19 pandemic.

Steven Tredget, a partner at Oakley Capital responsible for the investment company that invests in its funds, told Citywire that in 2020, 3% of OCI’s share register was retail investors. That number has now grown five-fold to 15%.

Tredget, a partner at OCI’s manager Oakley Capital, noted that this money was replacing investment from wealth managers who are often restricted from holding investment trusts an closed-end funds.

‘There’s greater interest from private investors going into private equity (PE) for the first time,’ he said. 

‘We’ve also noticed wealth managers, who are prohibited from buying our trust for their clients, are buying the trust in their personal portfolios.’

The £812m trust currently trades at a 31% discount to its net asset value (NAV) – a level which is not unusual for private equity trusts in the current uncertain environment. Numis Securities recently said that OCI’s price represented ‘exceptional value’.

According to the Association of Investment Companies, 14 out of 17 private equity investment companies traded at double-digit discounts in June. 

Wealth managers were historically major buyers of listed private equity funds but have cooled on the sector since many funds ran into trouble during the financial crisis. More recently, consolidation among wealth managers has also made it harder for all but the largest trusts to find a place in the centralised portfolios of these bigger firms. 

‘Icing on the cake’

Like other private equity managers, Tredget believes current pricing is ‘inefficient’.

‘We’ve had earnings growth in our companies. The discount is a complete red herring, and a distortion of the situation,’ he said.

‘There’s a lack of trust in PE company valuations, and there’s a low expectation of future returns. But the discount provides an icing on the cake for investors.’

He added that more than 60% of the consumer-facing, media and education companies in the portfolio have ‘had some kind of pricing event within the past 12 months’.

In its interim results OCI, which acts as an effective shop window to private equity manager Oakley Capital, revealed that it had invested $100m (£79m) in an artificial intelligence (AI) venture fund launched by its parent company.

The update for the first half of 2023 also revealed that its £1.1bn portfolio had generated an underlying investment return of 0.5% with 2.5p per share of dividends included.

Those fairly modest returns should be viewed in the context of a 158% total return for shareholders in the five years to 17 August. That is triple the 49% gain for the MSCI World index, according to Morningstar data. 

‘The modest increase in asset value reflects the company’s cautious approach to trading outlook and valuation multiples, and the fact that half of the NAV was not subject to change in the period,’ OCI said in a trading update.

‘This results from approximately 50% of the asset value being held in cash, or underlying investments that were valued based upon a transaction within the last 12 months.’

‘It’s hard to explain listed PE’

Tredget added that wealth managers have a ‘hard time’ buying investment trusts more generally.

‘It’s hard to explain listed PE to investors, especially with the discount factor,’ he said.

‘There’s this view that PE is elitist and inaccessible, and the perception of vultures of old. The likes of Woodford and Chrysalis (CHRY ) have also impacted the industry.’

Tredget does not, however, believe that a share buyback policy is the best way to close OCI’s discount.

‘We only do a buyback when we think it’s the best way to deploy capital,’ he said.

He did acknowledge that it is often a good way for a trust to signify its confidence in its net asset value.

Rival Pantheon International (PIN ) announced a pledge to buy up £200m of its shares earlier this month, in a bid to eradicate its yawning 43% discount.

The interest in OCI from private investors is somewhat at odds with Fidelity’s retail platform recently restricting investments into funds that have a high private markets weighting – or the higher fees that invariably come with that. 

Last month, Fidelity International suspended new allocations to £2.9bn Rothschild-backed RIT Capital Partners (RCP ).

At the start of the year, the Fidelity platform also suspended investment into Jupiter UK Mid Cap . However, restrictions have since been lifted after Jupiter sold unquoted holdings from the open-ended fund.