JPMorgan Cazenove downgrades five listed funds

The risk that listed funds of funds will be unable to meet capital calls as realisations slow and asset values decline, are among reasons the firm has downgraded four publicly listed funds of funds and one private equity fund.

JPMorgan Cazenove has downgraded five listed private equity funds, three of which are fund of funds with over-weighed private equity programmes that the firm says signifies a potential inability to meet capital calls.

F&C Private Equity and Standard Life European Private Equity have both been bumped from “in-line” to “underperform”, based on “over-commitment levels”, while Partners Group’s Princess Private Equity was downgraded from “outperform” to “in-line” for the same reason.

“Funding these calls could become a challenge and we have already seen some companies effectively forced to sell fund interests at discounts in order to improve their balance sheets,” said JPMorgan Cazenove analyst Chris Brown.

JPMorgan Cazenove cited SVG Capital, KKR PEI, AIG Private Equity and Graphite Enterprise as examples of listed private equity vehicles that have sold secondary interests in their holdings.

Fund of funds Mithras was also downgraded due to a “failure to crystallise acceptable value for shareholders”, while direct investment fund OFI Private Equity Capital was downgraded because high leverage levels of were eroding the implied share discount.

The performance of listed private equity has been poor compared to the FTSE since the end of August. The UK and European Listed Private Equity Indices were both down around 35 percent against a decline of just 19 percent in the wider equity markets, according to the research.