abrdn Private Equity Opportunities 17 October 2018

• A private equity fund of funds, the only such trust with no performance fee
• Portfolio of Aberdeen Standard Investments’ highest-conviction private equity managers, typically making investments through about a dozen core managers at any one time - currently the top ten managers’ investments constitute 66% of NAV
• SLPE currently has c.13.5% of NAV in cash, and on a commitment-cover basis registers at 0.4x (according to JPMorgan Cazenove), slightly more aggressively positioned than peers
• Strong performance over recent years and the “enhanced” dividend, paid from a combination of income and capital, which currently yields 3.7%, means the discount of 16% stands out relative to other equity income sources

Standard Life Private Equity (LON:SLPE) is a private equity fund of funds and is the only such trust with no performance fee. SLPE invests in a high conviction portfolio of third party private equity funds. At any one time, the Trust is investing through about a dozen core managers and currently the top ten managers’ investments constitute 66% of NAV.

At the start of 2017, the company started to increase exposure to North America by broadening its investment criteria to include US domestic funds The team expects exposure to gradually increase, as well as continuing to target secondary investments to take advantage of attractive investment opportunities and help reduce cash drag.

In common with peers, realisations from the portfolio have been coming in steadily. SLPE currently has c.13.5% of NAV in cash which the Manager is happy with, giving it the flexibility to be opportunistic if market conditions deteriorate. The company runs an “over-commitment” strategy to try to maintain investment levels. Its long-term target range is 30-75%, and as at 30^th September 2018 we calculate that the level was 35% - which is in the target range – considerably up on the September 2017 figure of 24.5%.

Last year and this, the manager has been trying to place more emphasis on buying fund interests in the secondary market, which can be used to increase the company’s exposure to attractive funds without adding significantly to outstanding commitments. It has been actively bidding on deals, but reports a very competitive backdrop. A successful transaction would likely absorb a significant amount of cash, and quickly transform the invested position of the company.

Since inception in 2001 to 31^st July 2018, SLPE has delivered an annualised NAV total return of 9.6% relative to the FTSE All-Share Index's annualised total return of 6.0% - representing strong outperformance against quoted markets. Indeed, the underlying portfolio returns will have been higher than this, given cash drag over the years and the fact that until 2016 the manager was paid a performance fee. Over the past five years, SLPE is well ahead of quoted markets, driven by strong realisations at material uplifts.

The board is targeting a dividend of 12.4p per share, equivalent to a yield of approx. 3.7% on the current share price. Going forward, the board intends to grow the dividend at least in line with inflation and has moved to pay quarterly dividends, further enhancing the attractiveness of the trust to income investors.

SLPE currently trades at a discount of c 16%, in line with the peer group average.

SLPE is well positioned as a “pure” fund of funds, with relatively low costs – especially given there are no performance fees payable to the manager. The trust has got one significant holding in the form of Action, which could potentially impact relative returns - positively or negatively - but otherwise has a diversified exposure to a high-quality bench of managers.