The STARS of TOMORROW

As firms abandon the stock market, how these four private equity trusts could help you cash in on...

DE-EQUITISATION is one of the top trends of 2024 and it is unlikely to prove a fad, with implications for our pensions and savings.

More companies are opting not to list their shares on a stock market, but to find ‘equity’ or finance from banks and other sources, like private equity funds.

As a result, ordinary investors are shut out from the chance to bet on the stars of tomorrow by buying their shares at an early stage. But there is a way to secure a stake in the fortunes of future winners – by taking a bet on private equity investment trusts which back such businesses.

James Carthew of analytics group quoted Data says: ‘You get access to some good quality, high growth businesses. and, as the shares of many of these trusts are trading at big discounts to their net asset value (NAV), investors can often bag a bargain too.’

Carthew cites such attractive offers as oakley Capital investments with its discount of 30pc and Patria Private equity whose discount is 25pc. Here are four other trusts to consider.

3i group

THE £28bn 3i Group dwarfs other private equity trusts and puts their performance in the shade: its shares stand at a 40pc premium to the net value of its assets.

The largest of these is a 55pc slice of action, europe’s most successful discount retailer, with 2,608 stores and plans for 4,700 more. the stake – which is worth 125 times more than when 3i began to buy in 2011 – makes up about 62pc of the portfolio.

Last november, i wrote about my liking for action’s tidy, well-stocked stores and, put some money into the trust. subsequently, the shares have risen by 40pc to 2,842p.

Analysts at Barclays have set a target price of 3,050p, but it would be wise to wait for some pull back in the shares if you are tempted to take a bet, as other analysts consider 3i a hold. in case you are wondering about the name, 3i began life as investors in industry, a body set up by the Government in 1945 to stimulate start-ups.

Hg Capital

QUIRKY brands are a thing in the private equity sector, with this £1.99bn Ftse 250 member trust being named for the chemical symbol for mercury.

The trust, which is managed by Hg, europe’s largest investor in unquoted software companies, is at a discount of just 1.5pc – having been as wide as 23pc last year.

There has been a 25pc bounce in the shares over the past six months to 488.5p, thanks to several ‘material realisation events’ – that is sales of holdings such as the commodity and energy data provider argus Media.

The trust favours profitable businesses, with growing cash flows and profit margins of 30pc plus, where executives also own a slice of the action giving them to incentive to excel. an appealing proposition in this age of digital transformation.

Pantheon International

THE grandiosely-named Pantheon international plc was at a discount of 40pc-plus in February. But this has narrowed to 33pc, partly thanks to the discount-shrinking strategy of share buybacks.

Jie Gong and Helen steers, managers of the £1.54bn trust, say: ‘as many as 89pc of the buyout and growth companies in the trust’s portfolio are profitable. With fiveyear annualised revenue and EBITDA (earnings before interest tax depreciation and amortisation) and growth of 18-19pc, this outperforms the public markets. the very low loss ratio of just 2.4pc for all investments made by PIP over the last ten years provides further evidence of the quality and strength of the underlying businesses.’

There is a bias in the portfolio towards healthcare and technology but Pantheon international is also an investor in the apparently irresistible action chain.

Over the past six months, the trust’s shares have risen by 12pc to 328p. Jefferies and Barclays both rate Pantheon international a ‘buy’.

Schiehallion

THIS £736m trust, aimed at ‘knowledgeable retail investors’, is named after one of the Munro mountains in scotland. But its holdings are almost all international such as space X ( pictured), elon Musk’s rocket company and ByteDance, the Chinese tik tok owner.

The similarity with the controversial unlisted section of the portfolio of the scottish Mortgage trust is not coincidental: schiehallion is also from the Baillie Gifford stable.

Anxiety over the possible overvaluation of its holdings caused the trust’s discount to increase to 40pc in 2023. the managers conceded they may have overpaid for some stakes, but buybacks have helped lessen the discount to 20pc.

This trust represents a gamble on innovation. if you do not already have significant exposure to technology, this could provide spills, but also thrills.