Analysts said the share price rise was due to speculation that there could be further takeover attempts of listed private equity vehicles, many of which have been trading at deep discounts to their net asset value for years.
Alan Brierley, director of the investment companies team at Canaccord Genuity, said the performance of the listed private equity sector had been “quite strong” last week and that the proposed deal had helped to narrow discounts. “The market is already starting to reprice this,” he said. “Do I think this is the last corporate action we will see in this sector? No.”
Ironically, one of the listed firms enjoying the biggest boost was HarbourVest’s own listed vehicle HarbourVest Global Private Equity, which saw its share price rise by 10.7%, boosting its market value to £802 million by midday on September 16.
Pantheon International Plc saw its share price rise by 6.8%, and Standard Life European Private Equity’s share price rose 5.2% from the close of trading on September 9 to midday on September 16.
Listed private equity manager Electra Private Equity – which is already facing pressure from activist investor Sherborne – saw its share price rise by 7.8% and Apax Global Alpha’s shares rose 5.6% over the same period.
The FTSE 100 fell by 1% over the same period.
Listed private equity vehicles were popular before the crisis because they seemed to offer the growth potential of private equity with instant liquidity via the stock market. However, in recent years they have struggled to generate investor excitement and markets have valued them at a discount to their declared net asset values.
Listed managers have instituted share buybacks and roadshows in an effort to drum up support. But that has not changed the stubbornly persistent discounts to net asset value in the sector, with the average discount of more than 20% for European listed funds of funds over the past 12 months.
Simon Elliott, head of investment trust research at Winterflood Securities, said discounts had narrowed after the SVG bid and predicted that there could be more takeovers of listed managers in the years to come. He said the discounts were “symptomatic of a lack of demand for these vehicles”, with “discounts hard to justify, particularly when you look at what is happening in the secondary market”.
James Carthew, head of research at Marten & Co, said there could be a limited number of takeover deals in the sector but that such deals were typically tricky to complete.
“It might be a wake-up call that actually investors have been pricing this area wrongly,” he said. “It’s very hard to get these sorts of deal across the line. Boards can normally appeal to shareholders and unless they have done a really bad job then quite often the shareholders will back incumbent management… Will there be a rush of them? One more and then the share prices would definitely narrow so there wouldn’t [be that discount].”
Elliott explained that after the difficulties of the post-financial crisis period, particularly the wind-down of Candover Investments, many investors had lost faith in the sector. He said: “One of the key problems is that wealth managers that have increasingly become a mainstay of investment trusts have walked away from this area.”