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Adviser Fund Index

The Adviser Fund Index panellists displayed a lack of appetite for private equity in the third mid-season questionnaire, conducted in August. Just one panellist rated the asset class as “very important” to his client portfolios. The remaining 15 respondents said private equity is only “slightly important”, or “not important”.

The panellists’ views appear to reflect a wider mood of caution on the sector, with concerns focusing on the availability of credit.

Private equity deals often involve significant gearing. Kohlberg Kravis Roberts, for example, reportedly borrowed 80 per cent of the $45bn (22bn) it needed to purchase TXU, a Dallas-based energy company, in February.

But leveraged buyouts have come under increasing pressure this year, as banks have sought to rein in borrowing and reduce their exposure to debt.

The International Monetary Fund’s Global Financial Stab-ility Report, published last month, warns that credit conditions may tighten further and says medium-term pros-pects for the LBO market app-ear “challenging”.

Donald Robertson, co-manager of SVM’s global opportunities fund, holds about 15 per cent of the 50m portfolio in private equity investments. But he remains cautious on the sector and adds that investments require careful selection under current conditions.

Robertson says: “There are two groups of private equity funds – those who are putting portfolios in place and those who want to realise their inv-estments. A credit crunch will initially impact those in the first category, and I am less worried about funds which have had a portfolio for a number of years.”

The SVM fund recently topped up its stake in the New Star private equity investment trust. Robertson took advantage of the fund’s 20 per cent discount, which has since narrowed to about 14 per cent.

He also has a holding in Bear Stearns private equity. Robertson says the trust has performed “relatively poorly”, but adds that it invests in mature private equity funds that are not seeking to raise finance.

Future investments are likely to include KKR. Robertson says the firm represents good value on its current discount of 25 per cent, but he is waiting for it to finish building its portfolio in 2008. KKR pulled out of an $8bn deal to buy Harman International last month, blaming a “material adverse change” in Harman’s business.

Harman, an American hi-fi manufacturer, was quick to deny the claim, prompting speculation that KKR was struggling to raise cash.

However, KKR was able to complete the second-bigg-est private equity buyout in history towards the end of Sept ember.

The firm acquired First Data, a US payment-processing company,for a reported $2bn.

SVM global opportunities joined the AFI in May, after it was selected by two advisers for the Aggressive index. Sam Sibley, investment manager at Beckett Asset Management and an AFI panellist, says the fund also appears on Beckett’s buy list.


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