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James Carthew: trusts that didn’t escape me last year

James Carthew: trusts that didn’t escape me last year

As 2018 gets underway, I thought that it might be worth revisiting some of the funds that I wrote about in 2017.

At the start of the year I hailed the changes that Standard Life Private Equity (SLPE) was implementing to broaden its investment proposition and noted the increasing interest in its shares. That trend continued through 2017 as the discount – or gap between its share price and net asset value (NAV) – narrowed from 17% to 10%.

F&C Private Equity (FPEO) and Princess Private Equity (PEY) were also successful in reducing their discounts although overall the median discount for the sector barely moved from 17% to 18.0% as trusts in the process of liquidating their portfolios saw their shares’ ratings weaken.

I think it would be great if we could get back to a position when some of these funds could think about expanding. That might seem fanciful but the recent purchase of the portfolio of Aberdeen Private Equity (APEF) prior to its liquidation at a modest premium highlights the latent value in these portfolios.

In March, I drew attention to the then 21% discount on India Capital Growth (ICG) and the attractions of the Indian stock market. Last year proved to be a fantastic year for investors in Indian equities as investors shrugged off the short-term depressive effect of the introduction of GST (India’s equivalent of VAT). All three Indian funds did well but the more mid/small cap focused portfolio of India Capital Growth benefited most and its discount narrowed to 9%.

In April, I took a look at some of the debt funds. I was trying to make the point that some losses are inevitable in these portfolios and they should not necessarily spook investors. The vast majority of debt funds had a good year; only three – NB Distressed Debt (NBGD), NB Global Floating Rate (NBLS) and Ranger Direct Lending (RDL) – lost money in share price terms.

Over in the leasing sector, SQN Asset Finance Income (SQN) also lost money. It was hit by a new problem with the failure of Snoozebox but it is working on recovering value from this investment. In December, SQN’s manager said it was confident of a positive resolution to its Suniva problem with more news expected by 26 January.

In Ranger’s case its NAV continued to fall through the year, mainly as it increased its provisions against its Princeton/Argon Credit exposure. We are waiting to see who the board is bringing in to beef up the management of the fund. Hopefully this will help stem the losses and something will be done to address very wide discount of 34%.

In May, I pointed out that Pershing Square (PSH) had not covered itself in glory since launch, mainly on the back of its investment in Valeant. This blunder came back to haunt it again this month as Pershing settled a lawsuit related to the attempted acquisition of Allergan by Pershing and Valeant in 2014. Pershing’s share of the settlement was $193.75 million, $75 million of which had already been provided for. This knocked another 1.3% off NAV.

Sensing perhaps, the effect this news would have on Pershing Square’s shareholders, Bill Ackman and related parties plan a $300 million tender for Pershing Square’s shares, topping up the $100 million they put in at launch. Long-term investors are unlikely to pile in, however, until there is concrete evidence of improving NAV performance. The end December NAV, before the legal settlement, was $17.41, 6% down on the year and well below the $25 launch level in 2014.

In June, I wrote about John Laing Infrastructure (JLIF). Things looked relatively rosy then but the Labour Party conference four months later hung a pall over the whole infrastructure sector.

JLIF’s own analysis suggested that it would be one of the worst hit funds if a Corbyn government terminated private finance initiatives (PFI) and private-public partnerships (PPP) model was terminated. The shares have recovered from the lows but it is still the cheapest fund in the subsector based on its premium and it offers one of the highest yields.

Also, that month I wrote about China. Chinese investment companies did even better than Indian ones in 2017. I concluded by saying I would stick with my investment in JPMorgan Chinese (JMC). Despite high valuations, I am glad I did, given that the NAV climbed by 20% between then and the end of the year. It turned out to be the best performing trust in 2017 in NAV terms, excluding Amedeo Air Four Plus (AA4) whose NAV is distorted by accounting convention.

I still think there is room for an additional China-focused trust but, the higher the market goes, the more nervous investors might get about the country.

Finally, in in September explained my lack of enthusiasm for the launch of The People’s Trust. It seems mean to say so but I am glad that it did not succeed. The sector deserves more attention from the general public and the mainstream press but not for an undersized, expensive fund with an odd investment approach.

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