Disclosure – Non-substantive Research
This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. With this commentary, Kepler Partners LLP does not intend to influence your investment firm's behaviour.
Most companies and funds that are backed by private equity are revalued only periodically. The falls in share prices experienced in February and March by listed private equity trusts are therefore based on an expectation – rather than the reality – of NAV declines. The ‘discounts’ are therefore largely illusory. The reality of the discount implied by today’s share prices is likely to only emerge later – perhaps when the end-June NAVs are published in late July or August.
Are these discounts justified? Is now a buying opportunity? In our view current discounts offset some of the potential NAV downside. However, rather than valuations being what Ben Graham looked for as a ‘margin of safety’, we believe it is the underlying businesses – and the way private equity managers create value – that actually offer real attraction for long-term investors in the asset class. Discounts suggest this is an underappreciated sector. But in our view, it is the underlying portfolios that definitely deserve more attention.
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