Type: Investment trust.
Aim: Growth by investing in private equity funds which invest in unquoted companies.
Minimum investment: £50.
Maximum investment: No maximum.
Investment split: 100 per cent in private equity funds which invest in unquoted companies.
Types of share: Ordinary shares.
Isa link: No
Pep transfers: No.
Redemption date: None.
Charges: Annual 0.8 per cent.
Tel: 0800 333353.
European Private Equity Trust
Investment Philosophy 7.3
Past Performance 7.3
Company's Reputation 8.0
Product Literature 3.0
Standard Life has introduced the European private equity trust, an investment trust that aims for growth by investing in private equity funds which invest in unquoted companies.
Looking at how the trust fits into the market, Chapman says: “As this is the launch of a new trust in what is a very specialist sector, it does not fit into any particular market other than the venture capitalist and development sector.”
Holmes says: “The Standard Life European private equity trust fits well into the market. This is a fast growing area that is also potentially very exciting. Standard Life is a well respected participant and has aimed the trust at retail as well as institutional investors.”
Pack says: “Investment trusts are gaining in popularity due to the Its marketing campaign from the Association of Investment Trust Companies that has been running over the past year, which is promoting the use of investment trusts with a series of adverts. With its name awareness Standard Life should do well in the industry.”
Moving on to the type of client that the product is suitable for, Holmes says: “This trust is probably for those with other existing assets who need an investment spread for their portfolio. Despite assurances from the company, I believe that this has an increased risk element and that it therefore should be suitable for investors over three to five years and not for any earlier than this. This is not a short-term investment. The advantages are that this is traded on the stockmarket and is priced daily, both pluses for those seeking capital growth. This is also suitable for those for whom a product listing on a recognised exchange is a necessity – ie trustees, pension funds and so on.”
Chapman thinks that it will be most suitable for the high net worth experienced investor, while Pack says: “I do not expect the public to buy this directly, only indirectly as a part of a portfolio.”
The panel has different views about the types of marketing opportunities that the trust will provide. Pack and Chapman both think that it will provide none.
Holmes on the other hand says: “This investment trust will enable Standard Life to promote itself as a real force in the private equity trust market, particularly after having a successful earlier launch under its belt.”
Concentrating on the strong points of the product, Chapman says: “There are two main pluses. First it has the ability to gain exposure to a specialist sector of the market. Second, with approximately 50 per cent of the assets already invested, this gives the trust a head start over its rivals.”
Pack says: “Its only strong point is the Standard Life name and reputation.” Holmes adds: “This has a good trading record and a strong team behind it. It has daily pricing on the stockmarket and reasonable charging. It also has good European market prospects (there is no correlation between the private equity market and the stockmarket) and also has the possibility of less volatility.”
Turning to the product's disadvantages, Pack says: “The drawbacks include the indefinite life of the trust, and the fact that the literature lists no time targets or performance aims for the management to achieve.”
Holmes says: “There is no expected yield for people who are looking for income, and there is the danger of illiquidity if investors wants to pull their money out, although the company believes that a structure whereby commitment is made over five years, means that funds are available. This has to be invested in for the medium term to achieve realistic returns.”
Chapman says: “The big drawback is that the trust has already started trading at a premium in a sector where most trusts trade at a discount.”
Looking at the investment philosophy of the trust, Holmes says: “The philosophy is pretty standard. It offers the achievements of long term capital gains through a diversified portfolio of private equity funds predominantly in Europe. It will be selecting from private equity funds which have an enterprise value of £100m to £400m.”
Chapman says: “I feel that it is an interesting trust, but one with a limited value other than to an institutional investor.” Pack adds: “The philosophy is safe, solid and plodding. It is also limited to 19 private funds initially.”
Moving on to the reputation of Standard Life, Chapman says: “It has a very strong reputation, especially in both European open-ended investment companies and private equity funds.”
Pack says: “It has an excellent reputation and is a top notch company. I have held it in high esteem for many years.”
Chapman says: “Standard Life has had good steady long-term performance, with an increasing retail awareness.”
Commenting on Standard Life's past performance record, Holmes says: “For this sort of product it is difficult to tell, but previous private equity funds have shown early promise and the underlying investments look strong. It also has good quality management.” Pack adds that Standard Life has a very good past performance record and that it is well-known to the public.
Identifying the trusts that may provide the main competition, Chapman says: “It is difficult to point to an exact competitor as the trust is specifically investing in European private equity partnerships. However in a portfolio where you are looking for some venture capital experience then 3i or Schroder ventures may be looked upon as competition.”
Holmes says: “The only similar competition is from the Pentheon investment trust or a quoted international venture capital trust.”
Casting an eye over the issue of whether the charges are fair and reasonable, Chapman says: “The charges are probably fair and reasonable. However the 0.8 per cent annual management fee is on the high side for an investment trust.”
Holmes says: “I think that the charges are fair and are less expensive than normal. It has a management fee of 80 basis points of net asset value and a profit related package leading to the creation of founder shares. They are highly complicated though.”
Pack adds: “The charges are fair and the offset of 90 per cent to capital and 10 per cent to revenue is a good spread.”
The panel agrees that the commission charged is also fair and reasonable.
Looking at the product literature, the panel is not impressed. Holmes says: “The literature is complicated and is hard to get through, although it is mostly relevant.”
Pack says: “It fulfills all the legal requirements. However it is boring and ponderous and is generally totally uninteresting to the public.”
Chapman thinks that it is a standard prospectus and offers nothing that is not relevant or new.
Summing up Pack says: “The geographical exposure for this trust is UK top-heavy, although the sector exposure is a good spread.”
Nick Holmes, Associate Director, Brooks Macdonald Gayer, Brian Pack, Principal, Brian Pack Financial Services, Nigel Chapman, Fund Manager, James Brearley & Sons.