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Fund Profile

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Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by CT Private Equity. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
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Overview

BMO Private Equity Trust (BPET) offers investors a distinctive approach to accessing private equity, in that it invests with managers at a relatively early stage in their development. BPET’s manager believes this means being exposed to more motivated teams and to lower mid-market deals where BMO are more likely to be offered co-investment opportunities. The team aim to manage risks by deliberately diversifying across a wide range of underlying companies, funds and managers.

Private equity has delivered handsome returns to investors over the years. In its most recent financial year ending 31 December 2020, BPET extended its run of strong performance relative to listed equity markets by generating a NAV total return of 22.7%. This compares with negative returns for the FTSE All-Share and the Numis Smaller Companies indices.

BPET’s managers observe that no company was immune to the effect of the pandemic, but the resilience displayed by the portfolio is reflective of the unique advantages that private equity-backed businesses have. Managers and investors are highly aligned in private equity deals, but the additional sector and financing expertise brought to bear during the pandemic from PE managers meant that many worst-case scenarios were avoided. This meant that companies have been in a good position to benefit from the resurgence in deal activity that occurred in Q4 2020.

Dotmatics, a portfolio company recently sold at 8.7x invested capital, illustrates the significant value creation that is achievable through private equity. BPET offers investors a simple way to get diversified exposure to co-investment opportunities such as these. We expect the level of co-investments to remain between a third and a half of NAV, reflecting a rise in the number of opportunities that BPET’s managers have observed in this area over the years.

Analyst's View

BPET has a differentiated proposition and a track record of delivering good returns. BPET slipped onto a material discount during 2020 but has partly recovered some of the lost ground and now trades in line with peers on a discount to NAV of 17%. In contrast to peers, BPET was trading at a premium for several months during 2018, but also most recently in January 2020.

Part of the reason for this discount emerging could be a result of worries about the effect of the pandemic on the portfolio, combined with the trust’s gearing. As we discuss in the Gearing section, the managers believe that BPET’s diversified portfolio suits gearing and complements the over commitment strategy to blunt the effect of cash drag on returns.

As the latest results illustrate, worries over the portfolio were unfounded: in aggregate BPET’s portfolio has proved resilient. The return of deal activity has led to material gains for the portfolio, such that gearing will reduce to c. 8%, and commitment cover is now in line with peers. We think this can only help in terms of market sentiment and, at the margin, therefore help narrow the discount.

BPET pays an attractive formulaic dividend which gives investors certainty on the current and future level, currently yields 4.3%. The underlying strategy is differentiated and has proved capable of delivering strong capital growth. As such, the current discount of 17% could be an attractive entry point.

Bull
Bear
Strong and long track record of beating listed equity returns
NAV provided relatively infrequent, meaning sentiment can significantly affect share price
Diversified exposure, complemented by significant proportion of co-investments
Higher gearing than most peers
Wide discount relative to level in January 2020, in-line with peer group average
Private equity is a highly illiquid asset class, meaning discounts can potentially exist for longer
Continue to Portfolio

Fund History

08 May 2024 The doctor will see you now
Taking the pulse of the listed private equity sector…
08 May 2024 Fund Analysis
CTPE’s portfolio represents a tangibly different opportunity…
21 Dec 2023 The best-performing investment trust of 2023 (so far)
3i’s price rise this year is unlikely to be repeated, but what of the rest of the LPE sector?
14 Dec 2023 Fund Analysis
CTPE continues to deliver on its unique strategy…
31 May 2023 Fund Analysis
Increasing co-investment activity should add to CTPE’s appeal…
18 May 2023 Treasure hunters
What can a corporate raider’s perspective tell us about private equity trusts..?
19 Apr 2023 Are we nearly there yet?
We look at which trusts have done best year to date, and ask where there may be value…
13 Apr 2023 Far from the madding crowd
Smaller nimble companies, both public and private, may be best placed to navigate the current environment…
22 Mar 2023 Good vibrations
We identify some sectors with structural discounts we think could close over time…
28 Dec 2022 Fund Analysis
CTPE’s differentiated strategy continues to deliver strong results…
30 Nov 2022 Cry havoc!
Lessons from a year in which an already troubled world was savaged by the dogs of war...
03 Aug 2022 Diverging fortunes in listed private equity
Growth capital and buyout trusts now trade at similar wide discounts. In our view, this belies very different prospects for underlying earnings and for valuations...
27 Apr 2022 Fund Analysis
BPET’s discount and differentiated portfolio make the trust stand out…
02 Feb 2022 Getting in on the act: Private markets
Private markets could be the next big opportunity for investors…
03 Nov 2021 Don't fear the reaper
With market direction hard to call, we consider the case for taking a long-term view in the investment trust sector…
13 Oct 2021 Fund Analysis
BPET currently seems to be in a private equity sweet spot, potentially making its discount attractive…
23 Sep 2021 Even better than the real thing
We explain private equity and examine why tweaks to listed private equity trusts give the sector an advantage over the direct route...
21 Apr 2021 Fund Analysis
BPET’s strong 2020 and the recent sale of Dotmatics highlights the attractive returns private equity can generate…
25 Nov 2020 Fund Analysis
BPET has slipped to a meaningful discount, but offers a differentiated strategy that has outperformed equity markets…
View all

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