Last week was certainly different – from my point of view, that is. Aside from the continuing European saga, there was plenty for me to get my teeth into. On one rather hectic day, I contributed to three separate radio stations – one local, one national and one international – all within the space of 20 minutes. And the subject matter was different on each occasion.
Locally, the collapse of Scottish football club Rangers into receivership was the hot topic (well, there was a local connection). Nationally, it was the coincidence of two reports into pensions, one from the OECD, the other from the Pension Protection Fund, which was grabbing attention. Neither made cheering reading. And for the BBC World Service, for such was the international dimension, Spain’s borrowing costs were making the headlines.
It is remarkable how swiftly sentiment can swing round. On Monday last week, the news that a bailout package to rescue Spanish banks had been agreed was sufficient to send shares soaring around the world. Within 24 hours, enthusiasm for the initiative had evaporated and bond yields were heading north, nudging against that crucial 7 per cent figure at which it is reckoned that debt becomes too expensive to service.
With mixed signals emanating from Germany and the elections in Greece rushing towards us, it made a pleasant change to attend a conference in London on private equity.
Organised by LPEq – Listed Private Equity, a not-for-profit group established to promote awareness of these companies – it was a full-day affair targeting those who might want to include such investments in their portfolios.
A clash of commitments prevented me from attending all the sessions but the event served as a reminder that, although this is a sector not well understood among advisers, it includes companies that have delivered among the best returns from investment companies over the longer term.
But, like Spanish bonds, it is vulnerable to changes of sentiment, with discounts widening in the aftermath of the economic slowdown and continuing financial crisis.
Private equity is, of course, at the higher-risk end of the investment spectrum but the diversification that these companies generally provide should deliver some comfort to those investors that seek to embrace this particular asset sub-class. Problems can exist, though, liquidity can be an issue while costs were raised as a potential negative in some instances. And, of course, the extent to which borrowing had been employed, with less than favourable consequences in the recent downturn, added to volatility.
Talking at lunch to a manager of one such company, it appeared the appetite among discretionary fund managers for exposure to private equity had been growing. They apparently saw the wide discounts and potential superior returns as a good reason to add them into portfolios for those clients prepared to accept a higher degree of risk. The expectation is that, once we emerge from the current malaise, discounts will narrow and growth resume.
Private equity is an interesting sector. It includes a wide range of managers with differing approaches and some of the companies are quite large. And perhaps of most significance, this is a sector that can only properly be accessed through the closed-ended market. Even more than property, private equity does not suit an open-ended structure.
Many investment companies believe the RDR will provide a boost as advisers will be compelled to look at all the options available to them when choosing a suitable vehicle.
I am less certain that this sea-change in how we conduct ourselves will make such a difference but private equity, like property, might find more of a following as investment companies address a wider audience.
Brian Tora is an associate with investment managers JM Finn & Co