The next six to 12 months are shaping up to be lively for funds with vintages dating back to 2020 and earlier, if forecasts from investment bank Stifel are anything to go by.
Despite a sluggish first half of 2024, Stifel analysts expect the flow of realisations to ramp up as investments made at or before the turn of the decade start to ripen for exit.
Perhaps foreshadowing this impending exit bonanza, Stifel noted that fund discounts are narrowing across the board, having sharpened from 34% at the start of 2024 to 29% today.
“We think this reflects some demand from investors who think the sector will see realisations pick up and the portfolios will continue to benefit from good earnings growth at underlying companies,” said Stifel.
The bank highlighted that portfolios with significant exposure to funds of funds (being funds investing in a diversified pool of other funds) have some of the biggest discounts in the sector.
“We think this is somewhat ironic given that these portfolios are the most diversified in the listed sector and, thus, they have little or no company-specific risk,” said Stifel.
According to Stifel, fee structures in the funds of funds space may be partially responsible, given the charges on both the listed investment company and the underlying limited partnership.
One FTSE 250-listed fund, the actively managed Pantheon International PLC (LSE:PIN), remains wider than the average.
According to Stifel analysis, PIP’s discount to net asset value is at 38%. This is despite a liberal share buyback programme that will see £200 million returned to shareholders by the end of the financial year.
“We think this continues to offer reasonable value for a well diversified portfolio with no material company-specific risk,” said Stifel.