Indicative Report – Sample Answers – Private Equity
Example 1
Question 1)
The Five Private Equity Funds / The Investment Trusts:
The chosen five private equity funds/ the investment trusts are the following:
? ICG Enterprise Trust
? Harbourvest Global Private Equity
? Pantheon International
? The Blackstone Company
? The Pfizer Pharmaceutical Company
Private Equity Selected: Pantheon International
The private equity selected for this question is the Pantheon International. Although ICG
Enterprise Trust is one of the largest companies whose shares are traded in the private equity
industry with a net worth of almost ￡579 million (as of March 2020) yet Pantheon International
is a better choice to invest in due to certain reasons. Firstly, Pantheon International is a good
option because it is located in the United Kingdom. An investor who belongs to UK can easily
invest with the company. Furthermore, amid COVID-19, Pantheon International has performed
quite well and currently has worth of almost ￡1627 million three times greater than ICG
Enterprise. Currently, the company is also performing quite well, for as of today it has gained
0.43% of the previous day value. Moreover, the company has also been selected because
London has somehow managed to deal with the deadly pandemic of the COVID-19. Vaccines
are also quite set to be released, ultimately making UK a good choice to invest in. Pantheon
has also been selected because its rate of annual return to its customers is almost 12% which is
more than that of the other two UK’s companies. For instance, ICG offers 10% rate of return.
Blackstone and Pfizer have not been selected because both of these companies are related in
another country. Although change in the American administration has opened up pathways for
a better COVID and economic management yet it is quite early to decide the fate of the
companies operating in the region. Moreover, currently the stocks of these two American
companies are not performing well.
Example 2
Candidate number: XXXXXXXX
Q1 Private Equity
Private equity is part of an alternative investment on capital where the funds are used for
private company investment. The five private equity funds that I consider are:
? ICG Enterprise Trust
? Harbourvest Global Private
? Pantheon International Participations (PIP)
? CVC Credit Partner
? BlackRock
I would recommend investing in Harbourvest Global Private, the net asset value (NAV)
performance in 5 years is 71.8%, whereas ICG Enterprise Trust NAV performance is
51.9%, 12.1% for PIP and 3.9% for CVC monthly performance. This shows that
Harbourvest Global Private have the highest fund performance when compared to the
other four listed. Also, the annual share price for Harbourvest and CVC were shown to
be quite steady with the exception on March, comparing to ICG, the pattern of the share
price is more fluctuated, the share price for PIP and BlackRock have decrease, generally,
when the flow share price is fluctuated, it is not ideal to invest for in the short run
because of reliability. Therefore, it is recommended to invest on company with stable
share price. Finally, the current financial time stock exchange (FTSE) for Harbourvest is
100.11%, 103.15% for BlackRock, 80.20% for PIP, 55.44% for ICG and -7.59% for CVC.
Both Harbourvest and BlackRock have relatively high FTSE which shows that they have
great fund management. Overall, I believe that Harbourvest is the best investment when
compared to the other four companies that I have chosen because they have the best
overall financial performance, in the short-term, I would recommend investing in
Harbourvest but for the long-term it is still unknown as many variables could occurred.
Example 3
Q1 Private Equity
Funds identified 1. ICG Enterprise Trust
2. Harbourvest Global Private Equity
3. Pantheon International Participants
4. Apax Global Alpha Ord
5. HgCapital Trust plc
Recommended fund HgCapital Trust plc
Reasons for
recommendation
Over the past 5 years, the fund with the greatest trailing return is HgCapital
with 25.9% holding quite a lead over second who is Apax with 15.6%.
However, HgCapital charge the highest amount of fees in relation to
performance and transaction cost. They charge 1.56% and 0.2%
respectively whilst the cheapest of the five, Harbourvest, charge 0.55% for
performance and zero for transaction costs. This ultimately weakens the
position that HgCapital are in, but I ultimately believe they are still the best
choice.
When looking at the areas each fund has invested into there is somewhat
great similarity. Unquoted companies are a common trend followed by
primary and secondary commitments. HgCapital is one of these, investing
in unlisted companies but values maximising opportunities and minimising
investment risk by a great spread of businesses diversified by sector,
market and geography. Investment is achieved directly or indirectly, like
through a fund. ICG Enterprise is like HgCapital but has greater focus on
indirect and on larger companies. HarbourVest objectives are identical to
HgCapital. Pantheon specialises in unquoted investments with the odd
direct holdings and finally Apax who are close but also operate investments
in public and private debt.
Example 4
1. Private Equity (16 marks)
Funds Identified: 1. ICG Enterprise Trust
2. HarbourVest Global Private Equity
3
. Pantheon International Participations
4. Hg Capital
5. 3i Group
Recommended Fund: Hg Capital
Reasons for
Recommendation:
Reasons why Hg Capital’s the better fund. First, Hg Capital has
5-year returns of 213% compared to the next highest 3i Groups
185.6% and the lowest Pantheon International Participations of
74.5 % making it the best performing of all the selected funds.
Second, Hg Capital has performed the best throughout COVID19, with 1-year returns of 21.3% compared to the next highest
of 3i groups 12.9% demonstrating the fund has been able to
greatly mitigate the impact of COVID-19.
Third, Hg Capital has 81% of its total assets in the technology
sector, a sector performing well during COVID-19. Despite not
being as diversified as other funds some such as ICG
diversified in sectors like leisure, industrials and consumer
goods which have been hit hard during COVID-19.
Fourth, Hg Capital has diversified itself much better by country
than other funds with 20% of its assets being located within
Asia and the Middle East which have seen the smallest
decreases in GDP due to COVID-19. Hg Capital also invested
heavily within Norway with 20.2% of total assets invested in
Visma alone. With Norway seen as a top 5 performer during
COVID-19, experiencing only a 5% decline in GDP in the first
quarter.
Fifth, ICG have 20.8% of total assets located within the UK
and 34.9% within North America, both performed poorly
throughout COVID-19 especially the UK experiencing -21.6%
decline in GDP during the second quarter. Coupled with high
uncertainty towards UK/USA (Brexit/Election) makes them
unfavorable countries to heavily invest within. These same
problems are apparent with other funds such as Pantheon and
HarbourVest.
Sixth, Hg Capital is currently trading at a discount of -0.8%,
compared to the premium of 27.2% on 3i Group suggesting 3i
Groups current shares are overvalued. Although this isn’t as
alluring as the discount of -22.6% on Pantheon international,
the performance as well as the diversification of Hg Capital
compared to Pantheon international more than makes up for it.
Seventh, Hg Capitals management fee of 1.5% is equal to
Pantheons fee and despite being higher than other funds such as
HarbourVest’s 0.86%, in return for this it does offer
diversification and delivers a return which is likely to do better.
Example 5
Candidate number: XXXXXXXX
Q1 Private Equity
Funds identified: ICG Enterprise Trust
Harbourvest Global Private Equity (HVPE)
Pantheon International Participations
BMO Private Equity Trust
HG Capital Trust Plc
Recommended
Fund:
Pantheon International Participations
Reasons for
recommendation:
First, performance:
Unlike many ICG’s peers which tend to mainly invest either via
funds or directly in companies, ICG does mixture of both and limits
risks by focusing on company buyouts rather than venture capital.
HVPE’s returns have beaten those of broad indices – FTSE World
while PAN reports an increase of 7.72%. BMO’s 15% gearing ratio
suggests a low-risk appetite, which explains the lower annual returns
and is less susceptible to loss compared to those more highly
leveraged. HG has recovered strongly and has beaten the FTSE
Index by +10% too.
Second, investment strategy:
ICG focuses on larger companies with leading market positions and
teams. HVPE’s well-diversified portfolio limits downside risk from
individual holdings. Pantheon is a close ended trust which allows
managers to take a longer-term view since do not have to sell assets
when investors sell their shares. BMO offers investors diversified
exposure to investments where the trust has a stake in individual
companies, but has a bias to the UK, which is half the fund. HG has
invested in Benevity, a leader in corporate cloud software and The
Septeo Group, a leader in Legal Tech.
Third, fund manager/management team:
Pantheon’s Paul Ward was Investment Director for Lehman
Brother’s PE Group and my scepticism is due to their history. BMO’s
Hamish Mair has 27years of PE experience but I have doubts about
his management experience as he has only managed small teams.
Fourth, how they have dealt with global trends.
ICG recovered well with focus on defensive growth; NAV 1,126.9p
beat FTSE’s -17.8%; its portfolio recovered strongly in Q2, +3.2%
return vs -4.1% in Q1 in 2020. ICG has high conviction investments
e.g. retail market leaders Chewy and Leaf Home solutions, and
￡197m of available liquidity to fund uncalled commitments.
Pantheon’s small exposure to travel and high street retail means it
was not greatly affected by COVID. However, Pantheon’s shares
briefly collapsed at 44% discount, and even now in settled markets
the discount is over 22%.
Fourth, fund performance history.
ICG has 39-year track record, with assets totalling ￡775m. Also has
responded well to political and social changes by focusing on
diversity; ICG signed up to the Women in Finance Charter in 2018.
HVPE has a 35-year history and assets under management worth
more than ￡30bn.
Pantheon has over 35-year experience and $55.5bn assets under
management. BMO has received poor reviews from numerous
sources ranging from marketbeat to stockpedia.
HG has remained one of the best performing trusts of the last 20
years (withstood the 2008 crisis) and has a strong +22.7 share price
performance relative to FTSE Index.