Citywire for Financial Professionals
Stay connected:

View the article online at http://citywire.co.uk/money/article/a1122838

Birrell warns private equity party drawing to a close

Citywire A-rated manager reduces private equity exposure after strong performance that he says has left fewer opportunities.

 
Birrell warns private equity party drawing to a close
 

Citywire A-rated manager Neil Birrell has warned opportunities are drying up in private equity after strong performance of the asset class over the last two years. 

Birrell has halved exposure to private equity investment trusts in his Premier Diversified fund over the last year.

He said a narrowing of the shares' discount to net asset value left less scope for returns, while the trusts were now being forced to invest at higher prices.

'Over the last two years the investments experienced significant positive reratings, meaning there was less scope for the narrowing of discounts to NAV or corporate activity. Narrow discounts also mean that the correlation with listed equities is likely to be higher,' he said.

'Furthermore, private equity managers have been able to make large numbers of realisations of existing investments at attractive prices recently but as a result, new investments are now being made at less attractive valuations, making the outlook less positive.'

Among the private equity trusts Birrell has kept is NB Private Equity (NBPE ), trading on a discount of 20.7% to NAV and held in the Diversified fund.

His Diversified and Diversified Income funds meanwhile both hold the £1.6 billion Fondul Proprietatea (FP) trust, founded by the Romanian government in 2005 to manage previously state owned businesses in the power, oil, and gas sectors. It currently trades at a discount of 24.5%.

Birrell has also been upping global equity exposure in his Diversified fund, and now holds 57 stocks, up from 50 at the start of the year.

Valuation concerns led Birrell to reduce equity exposure in the fund this year and protect the fund with a put option on the S&P 500 index, which benefited the funds during the sell-offs.

‘It’s been interesting that since the lows hit towards the end of March, the UK equity market has rallied strongly, while the FTSE All World index, in local currency terms, has not,’ he said.

Birrell has added US pharmaceutical company AbbVie (ABBV.K) to the Diversified portfolio after falls in the share price on the back of disappointing data. However, Birrell said demand for AbbVie’s anti-inflammatory drug Humira ‘continues to grow and recent corporate results were good’.

He also added a position in Phillips 66 (PSX.N), arguing the US oil refiner would benefit not only from the rallying price of Brent crude but from margin expansion given its access to cheap shale. 

‘It is entering a post-capital expenditure phase so free cashflow will increase,’ said Birrell. ‘It pays an attractive dividend and has consistently repurchased shares.’

Birrell noted that in the US, geopolitical and trade risks were receding and the economy was performing ‘respectably’.

‘It is worth noting that most of the developed and developing world is also in decent shape, with the UK currently being something of an exception,’ he said. ‘Twin concerns of inflation and interest rates rising faster than expected have reduced for now but still remain a concern.’

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

The Citywire Guide to Investment Trusts


In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.

Watch Now

More about this:

Look up the funds

  • Premier Diversified B Income
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Premier Diversified Income D GBP Inc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Look up the shares

  • Fondul Proprietatea SA (0OKS.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Look up the investment trusts

Look up the fund managers

  • Neil Birrell
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

More from us

Archive

Today's articles

Tools from Citywire Money

From the Forums

+ Start a new discussion

Weekly email from The Lolly

Get simple, easy ways to make more from your money. Just enter your email address below

An error occured while subscribing your email. Please try again later.

Thank you for registering for your weekly newsletter from The Lolly.

Keep an eye out for us in your inbox, and please add noreply@emails.citywire.co.uk to your safe senders list so we don't get junked.

Read more...

Builders offer yields of up to 10% as shares slide

by Michelle McGagh on Oct 18, 2018 at 15:30

Sorry, this link is not
quite ready yet