"The private equity sector has been a good performer, and has seen a lot of money coming into its funds. In turn, that means there have been a lot of transactions in the sector as companies come under pressure to spend their money, rather than give it back to shareholders," said Charles Stanley's investment trust analyst Stephen Peters.
He added: "The companies are doing a lot of buying and selling from one another in order to spend that cash. That makes me wary on moving into private equity trusts."
Other intermediaries are less bearish. Paul Locke is investment trusts analyst at Canaccord Genuity. He points out that private equity is a cyclical sector, and investors should take note of where in the cycle we are to get the most from their cash.
He said: "Private equity, by its nature, is deeply cyclical. Changes in the supply of both the number and quality of managers, and indeed capital availability, play a key role in determining pricing, quality and level of returns."
He says the pricing of private equity funds is still based on the perception of risk in the sector, and does not differentiate between vehicles, which provides a buying opportunity.
"Key here is that the cycle is progressing and this is not fully reflected in the listed funds market: while discounts have narrowed in the listed closed end sector, they essentially still reflect perceived catastrophe rather than actual and potential recuperation," he said.
Locke adds that the necessary cleansing process in the sector has now largely happened.
Investors are certainly still bullish; a recent Trustnet poll revealed that 76 per cent of investors still favour the sector, 11 per cent think the right time to invest has passed, while 13 per cent are undecided.
Source: Trustnet. Poll conducted 10-14 December 2010. Respondents numbered 287
Simon Elliott, investment trust analyst at Winterflood Securities, thinks private equity can add value to a portfolio.
"There's not a huge amount of value in investment trusts at the moment as discounts have tightened in across the board, but private equity is an exception," he said.
He added: "It is a risky asset class, and if the wheels fall off Europe or economic turbulence prevails then private equity will struggle. It is attractive, but not without risk."
Performance over 1-yr
Source: Financial Express Analytics
Financial Express data shows Henderson Private Equity Investment Trust, SVG Capital and Mithras Capital Partners as the top performing trusts in their sector this year.