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14 December 2021

A Walk Down Private Equity Lane

For many years, private equity was seen as almost alien by most retail investors, with the perceived risk too high and a general lack of understanding of the industry. It’s had its fair share of bad press too; for example, the once revered fund manager Neil Woodford, whose fall from grace lost investors millions and locked their money away for months, whose failure, in part, was due to his reliance on poorly run private companies that provided little in the way of liquidity.
 
However, impressive performance during 2020/21 and greater access to retail investors has seen the popularity of private equity funds spike. Assets under management across global private equity vehicles rose 6% in the first half of 2020 to US$4.5tn, an all-time high and the driver of the majority of the growth in private asset classes. This has steadily coincided with the rise of alternative assets within investors’ portfolios, jumping from 9.8% to 15.2% between 2008 and 2019; according to consultancy firm McKinsey, with private equity now at its highest level ever at 5.7%.
 
This improved level of inflows has helped buoy the IPO market for private equity vehicles in recent years. Goldman Sachs-backed Petershill Partners, one of London’s latest listings, raised £1.2bn which it has earmarked to fund further acquisitions. The event saw impressive interest from institutional investors especially, who were keen to allocate towards the private equity vehicle. However, it is not simply private equity funds that are keen to capitalise on the trend; investment trusts that hold plain vanilla listed stocks and small private equity allocations, so-called ‘hybrid trusts’, have increased in popularity in recent years. Assets such as Scottish Mortgage Investment Trust, the UK’s largest investment trust, currently account private companies for 21.4% of their portfolio and encompass well-known names such as ByteDance, the company behind the social media app TikTok and Epic Games, owner of well-known video game Fortnite.

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To continue reading this article please visit the Autumn 2021 issue of 1875. To subscribe to our investment publications, please visit www.redmayne.co.uk/publications.

Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. The value of investments and any income derived from them may go down as well as up and you could get back less than you invested.
 
A Walk Down Private Equity Lane
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