THE Standard Life European Private Equity Trust is abandoning its geographic focus due to ongoing uncertainty in European markets limiting the potential investments it can make.
The board of the trust, which had £105.9 million of uninvested cash at the end of the last financial year, is asking shareholders to approve measures that will allow it to invest in private equity funds that are not restricted to investing in European businesses.
Chairman Edmond Warner said the trust, which is run by Standard Life Capital Partners, is overhauling its investment strategy in light of the wide-reaching repercussions of the Brexit vote.
“Much of the past year has been dominated by the Brexit process,” he said.
“The pound has fallen by 14.8 per cent against the euro as investors have faced up to the prospect of prolonged uncertainty about the economic, industrial and political implications of the referendum, not only in Britain but across Europe.
“Although equity markets have proven resilient, which has had a positive impact on the comparative valuations of the unlisted companies in [our] portfolio, there have already been some indications that the uncertainty is affecting corporate activity.”
As a result, the trust had nearly 50 per cent more uninvested cash at the end of September than it did at the same point last year.
The amount it had committed to invest in funds that have not yet been raised had risen from £245.8m to £305.9m.
The trust mainly invests in new private equity portfolios that themselves invest in companies valued at between €100m and €2 billion, although in more limited circumstances it will buy out another investor’s position in an existing fund.
As part of the proposed changes the trust, which will be renamed Standard Life Private Equity Trust to drop the reference to Europe, will be able to direct unused cash into listed companies that make private equity investments.
Unlike pure private equity investments, which are difficult to sell out of, these companies should be relatively easy to exit as they are publicly traded on the stock market.
“The board has concluded that it would be beneficial to increase the private equity opportunity set available to the manager by removing the current size restrictions and broadening the geographic reach on private equity investments in the company’s investment policy,” Mr Warner said.
“In addition, to maximise the returns on cash held pending investment in private equity funds, the board recommends broadening the investment policy in regard to cash management to incorporate listed direct private equity investments, to be utilised opportunistically in suitably liquid investment companies.
“The key outcome of these changes is that the manager will be able to invest in the leading private equity buyout funds regardless of size and with additional geographic freedom, thereby enhancing the overall exposure to the private equity asset class.
“The intention is to increase the private equity opportunity set without diluting the strategy and focus.”
The trust had net assets of £532.6m at the end of September, having grown by 24.8 per cent in the preceding year.
Its benchmark, the MSCI Europe Index, delivered a total return of 20.2 per cent over the same period.
As a result of the growth Standard Life Capital Partners was paid a £6.5m success fee, which related to the fund’s performance over the five years to the end of September. In addition, the firm received an investment management fee of £3.6m.
Mr Warner noted that a success fee would no longer be applied to the trust.
“The board is in the process of finalising new fee arrangements with the manager and has negotiated the adoption of a single management fee of 0.95 per cent of net asset value to replace the previous management fee and incentive fee,” he said.
“The board believes the new fee structure delivers value for shareholders.”
That new structure would have resulted in a total fee of around £5m for the 2015/16 year.
Standard Life Capital Partners, which is run by managing partner Roger Pim, is part of Standard Life Investments.
The latter is wholly owned by Edinburgh-based FTSE 100 pensions business Standard Life.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here