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Trust Insider: PE recovery moving faster than investor appetite

by James Carthew on Feb 12, 2014 at 07:00

Trust Insider: PE recovery moving faster than investor appetite

Last week, Marten & Co held its listed private equity conference and it reinforced my view that, despite decent performance, many are still attractively valued.

We had four private equity companies, two London-listed funds – Graphite Enterprise and JZ Capital Partners – and two European-listed funds – Altamir and Private Equity Holdings.

I like the private equity sector but, when talking to investors about the conference, it was surprising to me how many are lukewarm about it.

The experience of the credit crunch, when a few overleveraged and/or overcommitted funds were caught out, seems to have put some people off the sector. However, I would recommend thinking again about this area.

There is little doubt that the years following the credit crunch were difficult ones for the industry. It got much harder to get finance for new deals and refinancing, the initial public offering (IPO) window shut and distressed sellers of assets drove down valuations.

The last 12 months were a year of recovery though. Figures from Deloitte show a dramatic uptick in IPO activity and in all forms of realisations. Graphite Enterprise said in October it reckoned its disposals for the year would top £100 million for the first time since 2007.

For the industry as a whole, the surge in realisations has not been accompanied by an equivalent surge in capital calls and many funds are cash-rich.

For funds-of-funds that commit money to limited partnerships that is then drawn down over a number of years, cash drag can be a real problem.

Overcommitting themselves – making binding promises to invest in LPs beyond your present ability to pay for these – is a necessity and should not be seen as a potential problem unless the manager is overdoing it.

Graphite Enterprise, with a market cap of just over £400 million, is one of the largest UK listed private equity fund-of-funds. It invests in a mixture of external funds investing in Europe and in-house funds investing in the UK.

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