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Listed private equity delivers exceptional returns, says Collins Stewart

The listed private equity sector has delivered exceptional returns over the past year, research by Collins Stewart has found.

Solid net asset value returns have been enhanced by improvements in ratings from capitulation levels, balance sheet issues have been addressed, and mature portfolios have begun to deliver healthy, positive cash-flows.

Transparency remains an issue to the listed private equity funds of funds sector but the introduction of a number of high quality funds in recent years has raised the benchmark in terms of investor relations, the report says.

Concerns over excessive gearing, over-commitment and valuations led to a collapse in share price during the financial crisis. But during the period, NAVs of the funds of funds sector remained resilient, reflecting the defensive qualities of the underlying portfolios. Since then, many companies have taken action to address their over-commitments and repair their balance sheets.

Ratings have moved from capitulation to distressed levels. The re-ratings of the listed private equity sector have been the key driver behind total returns for the past year. Further contraction of discounts from current levels is expected over the medium term. Discounts will remain vulnerable to changes in risk appetite, according to the report.

The net asset value of J.P. Morgan Private Equity outperformed during the financial crisis. The FTSE All share NAV fell by 49.7 per cent with J.P. Morgan Private Equity falling by only 35.5 per cent.

During the financial crisis there were concerns over excessive commitment levels and the ability of companies to fund these. High levels of commitment are a concern to investors but several companies have since taken action to address this.

J.P. Morgan Private Equity has a current level of cash/unutilised debt of USD113m versus outstanding commitments of USD135m, giving a comfortable commitment cover of 84 per cent.

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