Listed private equity sector shows signs of confidence
Confidence in UK-listed private equity firms has shown signs of strengthening following a rise in the public markets, with share price discounts to underlying asset valuations reaching their lowest level in seven months.
The average trading price discount to net asset values, a reflection of the performance of underlying assets, has reached 50% for the first time since November when it stood at 46.5%, according to data from investment bank JPMorgan Cazenove.
The average discount increased steadily after the bankruptcy of US investment bank Lehman Brothers in September dragged down markets globally. It stood at 32.6% at the beginning of October, increasing to 46.5% on November 17 and breaking through 60% on February 20 as the credit crisis deepened. The largest discount since October was 63.2% on March 13.
The narrowing of the discount will be welcome news to listed private equity funds as it suggests the market may be expecting a rise in NAVs, which tend to lag the public markets because private equity firms report them on a quarterly basis.
One analyst said market prices had come down in advance of an expected drop in NAVs and that the market rally since March should mean NAVs will be going up. He added: “I think if people feel NAVs have bottomed or are near the bottom, [50%] could well be a [psychological barrier]."
Two sets of results out today have shown listed private equity firms may be experiencing a recovery. Euronext-listed fund of funds HarbourVest Global Private Equity announced its NAV rose 1.3% in April.
Electra Private Equity, the listed buyout subsidiary of private equity fund manager Electra Partners, said its NAV fell 16.1% through the market's low point from the beginning of October to the end of March, while the FTSE All-Share Index fell 20.1% in the same period.
Meanwhile however, Swiss private equity firm Partners Group confirmed this week it plans to delist its direct private equity and debt vehicle to escape stock market volatility. The firm, which floated Partners Group Global Opportunities in London in 2006, said it will propose a delisting after demand from “an overwhelmingly large number of investors”.
Urs Wietlisbach, a director of the vehicle and co-founder of Partners Group, said: "The [move] is intended to allow shareholders to obtain true exposure to the private equity portfolio, therefore eliminating undue stock market volatility".
PGGO's NAV fell by 31% to €6.78 ($9.20) a share from the second first quarter of last year to the first quarter of this year.
Michel Degosciu, managing director of listed private equity indices group LPX, said: “Investors are more optimistic but I don’t think that we have seen the bottom of the market. There are higher discounts in the US, more because some of the US companies have issues regarding refinancing their investments.”
-- Additional reporting by Paul Hodkinson
-- Write to Jennifer Bollen at jbollen@efinancialnews.com
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