Private client money flows to listed PE

UK private client fund managers have directed more of their clients’ money towards listed private equity investment trusts over the past year, as the low return environment drives demand for alternative assets, according to new data from capital advisory firm Radnor Capital Partners.

Domestic investors in the UK public markets owned £5.5 billion-worth ($7.3 billion; €6.2 billion) of shares in direct private equity investment trusts – such as HgCapital Trust and JZ Capital Partners – in June 2017, up from £3.8 billion at the same point last year, the data show.

Among these investors, private client fund managers grew their exposure to the sub-asset class most dramatically; their exposure rose 50 percent to £492.6 million over the 12-month period.

Private client money also flowed into the listed fund of funds space, home to companies like F&C Private Equity and HarbourVest Global Private Equity. Private client exposure rose 40 percent year-on-year to £298.5 million.

“In the past, from a private client wealth management perspective, direct funds were seen as slightly riskier because there they did not offer the same diversification as funds of funds,” Iain Daly, partner at Radnor Capital Partners, tells Private Equity International. “However, we have seen private client wealth managers become more risk tolerant of late. They have been increasing their exposure to direct listed private equity over the last year at a faster rate than they have fund of funds.”

Institutional investors have also raised their ownership of direct fund investment trusts by 42 percent to £4.8 billion, according to the data.

“There is a general emphasis on seeking out returns from other areas of the market because returns in the mainstream equity market have become more difficult to come by, particularly income returns,” adds Daly.

The growth comes despite a number of recent high profile corporate actions that have seen capital being removed from the listed private equity sector. In October 2016, HarbourVest agreed to acquire the investment portfolio of London-listed SVG Capital for £806.6 million. While the deal had started out as a 650 pence-a-share takeover offer, over time the deal morphed into an £807 million bid – equivalent to around 715 pence-a-share – to buy SVG’s assets in a series of tender offers.