The views come after a Trustnet poll revealed that almost half of investors have no plans to up their exposure to private equity. When asked whether they planned to increase their private equity holdings, 46 per cent of 378 respondents said no, 43 per cent said yes, while 11 per cent remain undecided.
Weekly poll result
| Are you planning to increase your exposure to private equity? | |
| Yes | 43.65% |
| No | 45.77% |
| Undecided | 10.58% |
Source: Trustnet. Poll conducted 27 September - 4 October 2010. Respondents 378
Ben Yearsly, investment manager at IFA Hargreaves Lansdown, is a long term fan of private equity.
"Many investors are scared of the asset class, and for no particular reason. It took a hit in the downturn, but has a lot to offer," he said.
"As many banks are still failing to lend, many private equity firms can take advantage, taking the lender's place. Larger private equity firms, meanwhile, offer funding for the bigger, long term projects which were delayed in the wake of the credit crunch," he added.
Private equity can offer both income and growth, depending on the investment vehicle used. Yearsly holds VCTs and direct investments in his portfolio, which offer up income. Cannacord Adams analyst Paul Locke, meanwhile, favours investment trusts, which is more of a growth play.
"Private equity is unloved, but it has a lot to offer. Investment trust investors can get in at a 40 per cent discount right now, which they won't be able to do in six months time," he said.
"Underlying private equity partnerships are doing well at the moment, but most analysts are more focused on things like cash and balance sheets, rather than the underlying value of portfolios, so they’re missing a trick," he added.
He points to JP Morgan Private Equity and F&C Private Equity as favourites within the IT Private Equity sector.
Performance of JP Morgan Private Equity and F&C Private Equity vs sector over 3-yrs
Source: Financial Express Analytics
F&C Private Equity, managed by Hamish Mair, is trading at a discount of 41.1 per cent, while JP Morgan Private Equity is at a discount of 13.3 per cent as of 4 October.
Financial Express data shows the IT Private Equity sector is becoming less risky, and offering higher returns, than three years ago. Over a longer time period the sector as a whole made a loss of 19.5 per cent, while taking on 36 per cent of volatility. It was one of the riskiest sectors in the investment trust universe, and gave one of the lowest returns.
In the year to 30 September, however, there has been a big turnaround. It returned 15.5 per cent, at a risk of 15.5 per cent, giving more back to investors than the popular IT Global Growth and IT UK Smaller companies sectors.
Locke, a contrarian, says investors have yet to realise the benefits private equity has to offer, as most are still on the emerging markets bandwagon.
"If everyone is investing in an area, I see it as a time to get out. Private equity will be in a similar sphere in six months time, I imagine," he said.