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Advantages of listed private equity
Private equity is not a simple asset class to navigate, barriers to entry are high and manager selection is key as the dispersion of returns is far wider than other asset classes. To safeguard against mediocre returns, extensive due diligence on the private equity manager, its track record, investment strategy and competitive differentiators is essential, as are strong relationships with those top performing firms, as the funds they manage are often hard to access due to huge investor demand. It is also an illiquid asset class and traditional private equity funds are difficult for most private investors to access. Minimum commitment sizes are typically at least £5m, and investors commit to a long-term obligation to fund investment programmes, typically through a 10-year fund.
Listed private equity companies are ‘evergreen’, reinvesting proceeds from the sale of investments, free of capital gains tax, into new investments, compounding returns and providing shareholders with long-term capital appreciation. In addition, recognising the importance of a reliable source of income for shareholders, some listed private equity companies pay dividends from realised capital profits, allowing shareholders to participate, to some degree, directly in the proceeds of the realisations from the underlying portfolios. The long-term horizon of private equity means that listed private equity is best suited to long-term holding, rather than frequent trading.
Finally, London listed investment trusts are supervised by boards of directors, who are typically all independent and who oversee the manager’s accountability to shareholders.