Continuing to deliver on its unique strategy: CT Private Equity

CTPE continues to deliver on its unique strategy…by William Heathcoat Amory

Overview

CT Private Equity (CTPE) is a diversified private equity trust investing across Europe with other third-party private equity managers and through co-investments. It has a very different feel to other listed private equity trusts, given the emphasis on smaller private equity groups, which target deals in the lower mid-market of private equity deals. Diversification is a specific strategy of the managers, designed to mitigate risks yet enable the trust to harness the strong returns potential of the private equity managers they partner with.

Having nearly half of the portfolio invested in co-investments means that the team have a good level of control over CTPE’s balance sheet (see Gearing section). Over the medium term, investments and realisations within private equity portfolios tend to balance each other out. However, as we discuss in the Portfolio section, whilst investment activity has rebounded from 2022, compared to the same period last year, there has been a slowdown in realisations. Gearing has crept up as a result, and CTPE’s commitment cover has fallen.

A result of the unique strategy, CTPE is amongst the top performers in the peer group, which we show below over five years. Certainly, other trusts have delivered stronger absolute returns, but these usually come with significantly higher potential risk in the form of having a single management group, sector focus and much higher portfolio concentration. As we discuss in the Performance section, the last three years’ outperformance of the FTSE All Share Index is notable. Exit conditions are now tougher, and CTPE’s NAV has been flat year to date. The team are optimistic that the portfolio will continue to deliver strong returns over the long term.
 

Analyst’s View

CT Private Equity (CTPE) continues to stand out from the peer group. Fundamentally, the diversified approach means that specific risks are minimised, yet shareholders are exposed to UK and Europe’s smaller, hungrier private equity teams, targeting the less competitive areas of the market. Co-investments have been an important driver of NAV returns, which is the reason that the board and managers are targeting a higher exposure over time. In our view, higher allocations are to be welcomed, with the twin potential to boost returns and lower costs (see Charges section).

The team believe that the exit boom of recent years is now past and we are returning to more ‘normal’ conditions. As we discuss in the Gearing section, with more investments being made than realisations, gearing has crept up as a result, and CTPE’s commitment cover has fallen. On its own, we don’t believe this presents a problem although we note that if the board were to announce a larger credit facility, this would reduce any fears that the market may have that CTPE could find itself overextended.

CTPE’s shares have, historically, attracted a premium rating to peers, and if market sentiment returns, one cannot rule out this situation returning. The differentiated strategy, the high formulaic dividend (see Dividend section), net buying by Columbia Threadneedle saving scheme members (including re-investment of the dividend), not to mention strong historic performance present an attractive cocktail for long-term investors.
 

Bull

• Strong and long track record of beating listed equity returns
• Diversified exposure, complemented by significant proportion of co-investments
• Differentiated strategy that has delivered strongly in the past

Bear

• Private equity is a relatively high-cost investment area, as seen in the OCF/KID figures
• Historically, higher gearing than most peers, which can exacerbate downside risks
• Discount is slightly narrower than peers and board not particularly active in buying back shares

 
See the full research on CTPE here >