This month’s RDR Best Practice Closed-end Funds Forum webinar focused on the topic of Beyond the Conventional. Moderator David Harris of InvaTrust chaired a lively and engaging debate among four fund managers, all of whom run non-conventional investment trusts.
Ian Barrass of Henderson Private Equity (HPEQ) shared his thoughts on the challenges of managing a private equity fund. Indeed, his own fund has been in the process of realising its assets for the last two years and still has some way to go, which demonstrates how long that process can take. It also helps to reinforce the long-term approach that needs to be taken with such investments. When he was making investments in the fund early in its life, it was typically in a 10-year limited partnership structure, under which private equity would invest for the first five years and then harvest the returns for the subsequent five years.
One issue within private equity investment is the lack of visibility on valuations which, combined with delays in the reporting of results, can be a big deterrent for investors. That lack of visibility can cause wide discounts at times of market volatility and this is what puts off many would-be investors.
Richard Kirby from F&C Commercial Property (FCPT) cited the fact that investors can be gated from redeeming units in open-end funds when there is a raft of investors trying to exit. In addition, there can be a long lead time until they’re able to get their money out as the fund manager has to physically sell property to meet those redemptions. He doesn’t have these pressures in the closed-end structure as it’s a fixed capital base, so it makes for a better investing experience for both the manager and shareholders.
Charlie Thomas, manager of Jupiter Green (JGC), runs a more mainstream fund in that it’s invested in equities, but its specialism in resource efficiency, infrastructure and demographic changes means it’s perceived by many as non-conventional. He favours early-stage companies so his portfolio tends to be biased towards mid- and small-cap names. Thomas also emphasised the need for a long-term view towards his investments.
Then there was Jon Macintosh from Saltus, who runs their Euro Debt Strategies fund (SED). Distressed debt is probably the least conventional of all the funds represented by this panel; in the case of Saltus, they’re looking at the debt of private equity deals that went wrong, making it an extremely illiquid asset class.
A common theme throughout the discussion was the lack of knowledge on the investors’ part about these non-conventional funds. Barrass made the point that there is no substitute for getting out and spreading the message and Macintosh was quick to add the need for education, particularly when it comes to the likes of distressed debt.
Nonetheless, there was a strong case made for the attractions of asset classes that aren’t typically correlated to the more conventional markets and the diversification of risk they can bring to a portfolio.
To listen to the discussion in full and to hear the managers’ outlook for the next 12 months, see the video below:
