U.K. Listed Private Equity Trusts: Getting Into A Key Asset Class At Discounts Up To 40%

2025-01-01 19:48:23 ET

Summary

• UK-listed private equity trusts offer retail investors access to private equity at significant discounts, presenting a unique investment opportunity.
• Discounts are due to mistrust in valuations and market conditions, but these are expected to improve with better exit opportunities.
• Narrowing of discounts can provide an additional return boost for investors.
• Investing in these trusts can provide diversified exposure to private equity, with potential for high returns as market conditions stabilize.

Introduction

As a successful 2024 ends and an uncertain 2025 starts it is typically the time to review one's portfolio asset allocation going into the new year. Equity markets trade at very high valuations, with a Shiller P/E-ratio of over 38. Individual stocks have become increasingly volatile, with even minor earnings or guidance disappointments often leading to large drops like in the case of Oracle or Novo Nordisk . The recent Fed meeting has also cast doubt about the way forward in the bond market. Since the September, low 10-year rates have risen by a whopping 100bps. The big question for 2025 is, therefore, how to allocate your money to get good returns with limited risks.

In this article, I will make the argument that now is the time to increase one's allocation to private equity through investing in publicly listed private equity trusts in the UK that currently trade at historically high discounts of up to 40%. I will explain the reasons behind these discounts and why I think they will shrink over the next few years, contributing to additional returns for investors in addition to the underlying returns of their private equity holdings....

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