Fund in focus: Growing liquidity key to building holdings in HgCapital trust

Published on Friday 4 September 2009 21:01

INDIVIDUAL investors tend to overlook private equity, which is a more popular asset class with institutional investors such as local authorities.

One of the main issues for investors in private equity is liquidity, meaning the availability of shares is limited or it can be difficult to find someone to buy the shares.

Consequently, admitted Ian Armitage, chairman of private equity company HgCapital, potential investors need patience if they are to build holdings in his HgCapital Trust.

"Our ambition is to improve liquidity although we're not obsessed with it. It will happen if we do two things – grow the trust to get into the FTSE 250, at which point more institutions will be interested, and create greater awareness of the trust."

The board of the trust measures its performance over five- to ten-year horizons. Investment wise, the trust aims to out-perform the FTSE All Share by more than 5 per cent a year after all costs and to deliver double-digit absolute net returns. With the exception of 2008, where the absolute return was a modest 0.5 per cent, this has been achieved over the past one, three, five, seven and ten years.

There are significant differences between the trust and a traditional mainstream equity fund. For instance, the investment targets for the trust are typically high growth companies with enterprise values of between 25 million and 500m. Armitage said: "Our aim is to buy them small and grow them bigger.

"When buying we often use debt, so if we exercise our skill and judgement well we will outperform when things are going up but the reverse is also true," explained Armitage.

Other key differences include the extent of the due diligence done on potential investee companies and the strict sell disciplines within a private equity environment. "We typically make investments for two to five years, grow it and sell it to larger institutions or when the company floats."

The trust concentrates on investment in sectors such as healthcare, industrial goods and services and technology, media and telecoms.

"We don't invest in cutting edge tech companies," said Armitage, "but look for companies that are dominant in their market. A good example of industrials is a very good business in Germany where the design is home based but production is done in China at very low cost, so they kill their competition."

For more information visit www.hgcapitaltrust.com or call 020 7089 7888.

&#149 Barry O'Neill is a chartered financial planner with Thomson Shepherd Ltd (incorporating Coggans Wood)