Private equity: the case for Europe

Henderson Private Equity Investment Trust's new manager Ian Barrass also said the trust will have a ‘tight focus’ and only invest in fund of funds going forward rather than direct private equity. He argues that pan-European mid market buy-outs are still attractive as they offer growth potential while there is still bank finance for them unlike larger deal sizes.
 
This is also something which has been noted by fund of funds Standard Life European Private Equity whose underlying funds are principally focused on mid to large sized European buyouts in Europe between €200m (£175.5m) and €1.65bn. Other private equity funds of funds with a European focus include Mithras, Graphite Enterprise Trust and F&C Private Equity Trust.

1yr contrast


Barrass said Europe is a diverse investment area as there is a range of economies at different stages of development, with newer opportunities in emerging markets such as central and Eastern Europe, while European opportunities are more sustainable over the longer-term.

Although other parts of Henderson’s private equity business invest in Asia, Barrass said: “While high growth areas are always tempting there are emerging growth opportunities in Europe. We will focus on what we are most comfortable and familiar with.”

The fund of fund’s team experience is largely in Europe.

Barrass added: “In addition to there being enough opportunities in Europe, a wider focus not suitable for a small team.”

However the trust will retain its existing commitments in China which account for 1 per cent of the portfolio, and an investment in India – also 1 per cent of the portfolio. To date the trust’s European investments are focused on the UK (71 per cent of assets as of 31 July), as well as France and Spain.

Barrass also argues that it is a good time in the economic cycle to invest in private equity. “As the commitments draw down over the next three years it should be a pretty good time to invest as we should be in a post recessionary environment and can exit in better economic circumstances.”

Historically private equity has produced good returns at times like these with other managers, such as Foreign & Colonial Investment Trust’s Jeremy Tigue of the view that 2009 and 2010 could provide very good investments in the long term. This global growth trust has an allocation to private equity which at the end of June was equivalent to 16 per cent of NAV, according to Oriel Securities.