Aberdeen Private Equity Fund (APEF) provides access to a globally diversified portfolio of private equity funds and co-investments with a bias towards the US and technology. Recent changes to the manager’s corporate structure have not specifically affected the fund but have brought direct investment and Asian expertise in-house. Share price performance ytd has been flat, while NAV gains have widened the discount. As the cycle matures there may be scope for it to narrow again, realisations may be the catalyst.
The managers take a top-down approach to asset allocation by geography and sector but devote most time to selecting underlying PE funds. The Aberdeen Asset Management private equity team of c 50, which manages $15bn overall, devotes considerable resources to fund selection and has been strengthened by the acquisitions of Scottish Widows Investment Partnership (bringing direct investment expertise) and FLAG (which has Asia specialists). The remit to co-invest alongside managers whose funds APEF does not own has recently been approved by the board and co-investments are likely to become an area of greater focus.
After bumper PE fundraising in 2014 and with a record $1.35bn of uncommitted funds globally, Q315 saw a slowdown in the number of individual funds and amount of capital raised compared to Q314 (data from Preqin). This implies that the opportunities to deploy such abundant capital at attractive prices are becoming limited. Increasing competition from low-cost capital sources such as sovereign wealth funds and from corporate takeovers exacerbates the challenge and increases deal prices. As a result, exposure to a range of managers who are thoroughly screened and researched by a well-resourced and experienced team may be attractive.
APEF’s discount has grown in 2015 and is the widest in its peer group at 27.6%, near the upper end of its three-year range of 20% to 31%. With NAV total return ahead of peers in the twelve months to 30 January 2015 (the date of our last note) at 20.2% vs a 9.5% average, and matching the group so far in 2015 at 7%, it may be that the discount has widened because of corporate changes at the manager. There was a significant increase in the discount from 23.7% to 30.8% after the announcement that Aberdeen would buy SVG out of the joint venture in March 2015. That effect may be reversed as the market recognises the limited impact of the ending of the joint venture on the fund itself.