Petershill Partners PLC (LSE:PHLL), the closed-ended private equity fund run by Goldman Sachs, has been downgraded by UBS as the shares' large discount is not expected to improve much in the foreseeable future.
At the start of the month UBS flagged the near-50% discount to the theoretical valuation the company would warrant as an "actual private market manager".
But even though this discount, and with the shares trading at 54% cheaper than net asset value, the bank has now removed its previous 'buy' rating and shifted to a 'neutral' stance, cutting earnings forecasts.
Even though the shares look cheap, UBS analysts said, Petershill's closed-ended corporate structure is a hurdle to institutional investment.
"We think the poor liquidity in Petershill shares will likely continue to act as a deterrent for institutional investor interest in the name," analysts said, adding that the recent share buybacks may have further weakened liquidity.
While the FTSE 250-listed fund is a "unique" vehicle that gives exposure to a portfolio of private market and alternative asset managers, the analysts said they think the closed-ended structure of the entity also deters some institutional investors as a result of the dual-layer of management fees that are applied to end investors.
"As a result, we expect institutional underweights in the name to persist, limiting upside potential."
However, the performance of the underlying managers is "not transparent", the analysts said, "which makes it difficult for investors to assess the value of the portfolio holdings".
After Petershill added new 'partner' firms to the portfolio, the UBS team suggested that the sale of one or two of existing minority stakes at a price near to their accounting book value "could serve as a positive catalyst for the shares", though they think such sales are unlikely.
After lowering 2023-25 earnings per share forecasts by 20-33%, the UBS price target was lowered 35% to 160p.