Recently Mr. Treacy mentioned that most of the growth and yield opportunities are currently in the Private Equity. I would appreciate Mr Treacy's view on UK tax efficient Venture Capital Trusts. I am considering them as they provide exposure to early stage companies and provide tax efficient investment. Does Mr. Treacy deem this a good vehicle or would he suggest any other investment instruments?
Thank you for this email which may be of interest to subscribers. There are plenty of growth opportunities in the regular stock market. The success of the recent IPO market is a testament to that phenomenon.
However, there is a clear trend among institutional investors towards stuffing portfolios with “alternatives”. It’s an incredibly broad sector including everything from seed capital for new companies to timberland, real estate and gold.
With interest rates close to zero the perception of risk from investing in illiquid assets has evaporated. One needs to have a very clear opinion on the success potential of constituent companies within a portfolio because the sector is highly leveraged to interest rates in just the same way as the stock market.
The siren call of Oxford Technology 4 Venture Capital Trust is in the 27.78% dividend yield. However, the trust has been trending lower for five years and lost about 60% of its value in that time as dividends fell. It is trading at a discount to NAV of 60% which suggests significant write-downs are required.
I’m afraid it is beyond my expertise to offer views on individual private equity portfolios but this one at least resembles the kind of valuation that prevailed in subprime mortgages before the crash in 2008.Back to top