Managers make the case for private equity investment trusts after long-term asset funds set for inclusion in ISAs

Private equity trusts versus Long-Term Asset Funds (LTAFs)

Alan Gauld, Senior Investment Director at Patria Private Equity Trust, said: “Overall it is a positive development to see greater choice introduced for investors seeking to access private markets. However, it is important to remember that private equity trusts have been around for over two decades on average. They are proven investment vehicles with established portfolios, strong long-term performance track records (including regular cash yields via dividends in some cases) and independent boards providing robust governance and oversight on behalf of shareholders.

“Another key advantage of private equity trusts relative to LTAFs is that trusts can be traded daily on public exchanges. Liquidity is often a core requirement for investors, offering peace of mind that they can access live pricing and enter or exit positions when they choose. This liquidity does of course come with a trade-off, as private equity trust share prices move independently of the underlying portfolio valuation and share prices have generally traded at a discount to net asset value (NAV).

“In contrast, LTAFs limit redemptions, typically to 5% of NAV, on a quarterly basis. In times of broader market turbulence, when LTAF managers may experience the crunch of portfolio realisations drying up at the same time as more investors want their cash back, it could prove challenging to continue delivering redemptions and avoid gating investors’ money. We have seen this in the past with similar vehicles in the real estate space, so investors will need to consider carefully how long they can lock up capital for.

“Whilst LTAFs do allow investors to hold their positions at NAV and therefore valuations will be less susceptible to changes in public market sentiment than those of private equity trusts, it could be argued that the current level of share price discounts in private equity trusts provides a relatively cheap entry point and therefore a margin of safety versus newly created LTAFs.

“Finally, an important advantage of private equity trusts is they do not need to hold cash to service redemptions like LTAFs do. This cash buffer could be a drag on overall returns for LTAFs which could be significant over the longer term.”

Steven Tredget, Partner at Oakley Capital, adviser to Oakley Capital Investments, said: “With private equity backed companies forming an increasingly large part of the economy, investors who lack exposure to the asset class are missing out on some of the most dynamic, high-growth segments of the market.

“While both private equity investment trusts and Long-Term Asset Funds offer investors this exposure, investment trusts retain some key advantages. Most importantly, for investors that are new to the asset class or need flexibility in their portfolio, private equity investment trusts benefit from the day-to-day liquidity of public markets, as well as the high levels of disclosure and transparency that a public listing entails.”

Colm Walsh, Portfolio Manager for ICG Enterprise Trust, said: “We don’t view this as an either/or proposition; each product can serve different investor types, and we welcome policies that give investors appropriate choice and access to private equity. However, we believe the investment trust structure has clear advantages for many investors.

“Investment trust shares can be traded daily, whereas LTAFs have more restrictive windows for investors to get their money back. Administration and execution is simple and widely understood; it is just like buying and holding any other stock. And importantly, the interests of investors are protected by the regulatory regime for listed companies and an independent non-executive board.”

Portfolio valuations

Hamish Mair, Manager of CT Private Equity, said: “The best reassurance that the valuations are fair and accurate is provided when the investments are sold. In general, when a private equity holding is sold it achieves a noticeable premium to the immediately preceding holding value – this is usually around 35% or even more. So, in fact, private equity investment trusts’ shares provide investors with a highly attractive double discount.

“Secondly, the valuation guidelines followed by all mainstream private equity houses are clear and based on objective criteria. It is not the case that managers can make up their own valuations as they please. Boards and auditors won’t allow this anyway.”

Private equity fees and charges

Alan Gauld, Senior Investment Director at Patria Private Equity Trust, said: “Patria Private Equity Trust (PPET) has a flat management fee of 0.95% and we believe that our management fee is one of the cheapest in the private equity trust market. In addition, we do not charge a performance fee on top of that, allowing shareholders to benefit in full when NAV performance is particularly strong.

“At an underlying level, PPET has been an investor in private equity funds since its inception in 2001, and these funds typically have underlying fees and carried interest. However, over the last few years we have strategically increased PPET’s exposure to direct investments into private companies, which typically have no underlying fees – or at least reduced costs compared to funds. Our direct investment exposure has increased from zero at the start of 2019 to 28% of the portfolio in 2025. This has effectively reduced the underlying fee drag that shareholders experience.”

The value added by private equity

Hamish Mair, Manager of CT Private Equity, said: “The principal way of adding value is through providing support to the management of the companies. This can vary from high level strategic input to the introduction of new management information systems plus acting as a sounding board for the executives. It is rarely the case that telling a senior executive how to do his job will add much value – micromanagement is not the answer.”

Steven Tredget, Partner at Oakley Capital, adviser to Oakley Capital Investments, said: “Private equity is playing an increasingly important role in driving economic growth, with the British Venture Capital Association reporting this year that the industry’s annual economic contribution in the UK alone has increased to almost £200 billion of the country’s GDP. As such, private equity’s investment in the economy is clearly an important driver of growth, particularly within the mid-market, where companies have seen their access to more traditional forms of financing limited in recent years by higher interest rates.

“But private equity’s role in the economy goes much further than simply providing financing. Skilled private equity managers bring other vital assets to their partnerships with companies, based on their extensive experience and networks. Companies seeking private equity investment are often looking for support in internationalising businesses, expanding via mergers and acquisitions, or ensuring their companies remain at the cutting edge of digitalisation.”