Investment Trust Awards 2019: Best Private Equity Trust

Contenders: 20 trusts in the private equity sector. And the winner is...

Click here to see the full list of winners for the Investment Trust Awards 2019

Winner: HGCapital

Most private equity trusts achieved positive NAV total returns in the 12 months to the end of January. Returns of 10.8% from HgCapital Trust (HGT) were lower than several of its peers, despite profit growth from its top 20 holdings rising to 27% in 2018 and the sale of 12 holdings for an average of 23% above carrying value. However, its three-year returns are the best in its sector, and it has an outstanding 10-year record.

The trust invests in unquoted companies through and alongside limited partnerships managed by its parent, HgCapital. The group focuses mainly on companies in northern Europe and the UK that specialise in technology and technology-enabled services, generally via leveraged buyouts.

Its team of more than 100 investment professionals seeks to accelerate investee companies’ growth by strengthening management, developing new products, and improving their sales and marketing capabilities. These companies are encouraged to network and share insights between “established large players and younger innovative businesses that were born in the ‘cloud’”.

HGT currently holds stakes in 30 businesses including firms with business-critical needs, subscription or repeat revenue models and fragmented customer bases. Many offer software-as-a-service, using the cloud for secure delivery, data storage and access.

The HGT team accepts that demand for such services could be affected by a general slowdown in economic activity, but it believes “secular growth in demand arising from the benefits of new technology is likely to continue at a faster rate than any cyclical downturn”.

Realisations exceeded reinvestments by £85 million last year. However, HGT’s cash and recently increased borrowing facilities are equal to less than half its commitments of more than £400 million, which are due to be drawn down over the next two years.

HGT can opt out of commitments to HgCapital-managed funds, but the board would be reluctant to do that, so it might raise new capital through a share issue. This will be difficult if its shares are trading at a discount.

Key facts

Managed by Nic Humphries since 1989
Sector Private equity
3-year NAV total return 60.8%
3-year share price total return 117.6%
Yield 2.3%
Discount -3.8%
Average discount for sector -21%
Ongoing charges 5.44% (including performance fee)

A graph showing a remarkable record for HGCapital


Highly commended

Princess Private Equity's (PEY) three-year NAV returns were among the best in its sector over the three years under review, and above-average in each of those years. Its 6.1% yield is funded partly from capital.

It is managed by Partners Group, a Swiss company with offices worldwide and over 60 billion under management, mainly in private equity and private debt. The trust has moved from investing predominantly through funds managed by Partners Group, to investing most of its assets in direct investments.

The changeover has left it with a relatively immature portfolio. However, its legacy holdings in funds are providing it with a flow of realisations which are fetching good prices, thanks to the strong secondary demand for private equity holdings.

PEY’s direct holdings are predominantly mid-market buyouts, a sector where Partners Group claims to benefit from having the largest globally deployed team of operating specialists. Europe including the UK accounts for over half the portfolio, the US for 34%, and the rest of the world including Asia for 13%.

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