In this week’s Industry Insights talk, Jamie Hayford an alumni and Investment Associate at Pantheon Ventures talked us through the Private Equity Sector. As usual, my colleague Daniel Robertson has provided the review:
Jamie Hayford has been at Pantheon Investments for five years, after attaining a masters from the ICMA centre.
Private Equity (PE) involves investing in unquoted companies, as opposed to traditional investing in quoted companies. In addition, private equity investors tend to be more active and push management to improve the underlying investee businesses. Moreover, PE is rapidly growing – AUM has roughly doubled in the past ten years, although it is still small relative to the quoted stock markets.
Pantheon investments has over 450 investors, most of whom are institutional investors such as pensions, including many local county councils.
Advantages of investing in PE include strong returns: PE investments have consistently outperformed the stock market. A reason for this includes a greater long term perspective, with less of a focus on the firms achieving quarterly earnings targets and more on the underlying value of businesses. There is also significantly greater number of private companies to invest in – there’s around 700 publicly listed UK companies compared to 2100 companies that have received investment from PE. Moreover, there has been a decline in the number of listed companies – UK listed equities numbers are down around 50% in the past two decades. The investible PE universe is significantly larger.
PE is also often more forward facing – especially compared to the mix of sectors listed on the stock market. Pantheon have a greater focus on the Consumer Discretionary and Technology sectors, which have witnessed greater returns in recent years.
However, there are issues for PE, including higher valuations compared to a few years ago and more expensive fees due to the greater labour cost associated with a private equity investment. Furthermore, PE investors are legally required to retain their funds with the PE fund for the stated duration, as opposed to quoted investments where there is a large secondary market.
We thank Jamie for an interesting talk about a sector witnessing strong growth and being a petri dish for many well known companies to have developed including Uber and developer Supercell.