Monday, 6 March 2017

The risk of investing in listed private equity is lower than perceived by investors ...

Well, that's what Edison reckons, anyway ... in Monday morning's PR email, though I received it last week. 'Ha!' It's not investment advice, of course. They're just saying, that's all.

Edison, founded in 2003, is a strategic advisory and investment research company. We service nearly 500 corporate clients with Investor Relations, Investment Research and Strategic Consulting from our offices in North America, Europe and Asia. Edison's renowned international investment research platform enables us to provide a highly differentiated approach to strategic advisory work based on deep multi-sector knowledge and extensive networks of investors, advisors and companies.

You see, dear reader(s)? Edison. They do research. A bit like my intern, the Voice. Only he's fucking useless. 'That's a bit harsh, boss. I try my best.' Sure you do.

Edison, the investment research and advisory company, issues its latest report on Listed Private Equity (LPE) which finds that the sector displays a similar risk-reward profile to major equity indices, US real estate investment trusts (REITS) as well as other equity classes over the longer term. LPE also continues to trade at a 14% discount to NAV despite achieving double-digit annual returns over the last five years. Despite these findings, public market investors still tend to treat LPE with caution, citing leverage and investment commitments, lack of disclosure, high valuations and discount volatility as issues.

Ah, this report. It's probably really interesting, dear reader(s), but I haven't actually read it. 'You don't need to read it, boss. You've read the PR email.' Yeah, that's the way I look at it, man.

The view that LPE is considered more risky than other equity-like comparables, Edison believes, stems largely from the sector's performance during the financial crisis which is still prominent in investors' memories. The perception appears at odds with the strong recent performance of the LPE sector which has generated strong average annual total share prices returns over the past five years of close to 19% while NAV returns have been close to 10% with very low volatility. In addition, the long term risk-reward profile which notably includes the financial crisis years and does not differ significantly from that for the major equity indices.

Yes, investors' memories. They're probably like elephants or something. 'Big.' What?! 'Are the investors really big, boss? And grey?' Shut up, you idiot!

Right, there's a lot more about this report. (Some of these emails really go on, you, know?) I'm just going to finish with Rob Murphy. 'Who?!' Rob Murphy. 'Who the hell is Rob Murphy when he's at home?!' Christ! Not that it's any of your business, Voice, but Rob Murphy just happens to be an analyst at Edison. He has ideas about things. He likes to give his opinion. And, personally, I think we should give him a chance to talk. 'Oh, okay.' Take it away, Rob, mate -

Rob Murphy, analyst at Edison Investment Research says: "We have seen that LPE has delivered competitive returns compared to equity indices and closed-end structures like US REITs both recently as well as over very long time periods and there is good reason for optimism regarding the perception of LPE moving forward. The fact that the sector is trading at a meaningful discount reduces valuation risk compared to equity markets in general. The less flattering risk-return profile of the last 10 years will arithmetically fall out of the comparisons over the next couple of years or so, which should improve the sector's relative attractiveness from an investment consultant's point of view. We believe that the PE model mitigates risk and the resilience of the sector has been demonstrated during difficult times, as evidenced by the low incidence of failed investments during the financial crisis. The PE ownership model itself is relatively unchanged and has proved to be a highly effective and successful vehicle to create value in unlisted companies with tight control over risk and lessons have been learned from past mistakes at the LPE company level. The relatively aggressive leverage and commitment strategies at a few LPE companies are no longer a feature for the sector. This augurs well for the relative performance of LPE in future down cycles, which will inevitably occur, and suggests potential to further improve the average risk: reward profile."

Nice one, son! ‘Well, this Rob goes on a bit, don't he?' Leave him alone, Voice. He's just doing his job. If he only said a few words, Edison might think his heart wasn't in it. 'Maybe he's passionate about his work, boss.' Ha! Let's not get carried away, man.


Anything else? Music? I'm listening to The Bends by Radiohead. I really think they should have stuck to recording albums like this, and OK Computer. 'It's amazing how weak their first album is, compared to the two masterpieces that followed, Mikey.' Of course it is! But they got their shit together. That's willpower and commitment for you. Greatness is quite often a choice, you dig?