Private Equity Trusts


#1

I am considering investing 5% of my drawdown account into a Private Equity Investment Trust. I am aiming for a yield of 5%. Are these trusts too risky for a regular yield ?


#2

To give you the short answer, YES.
As a rule private equity trusts don’t run revenue reserves, which means that payouts to shareholders are more likely than not being paid out of capital distributions. So, in terms of “a regular yield” of which you apparently seek PE trusts come with continuity risks attached.


#3

I agree with @forrado 's points, but I’d add that PE trusts introduced dividends when they were on huge discounts as a way to attract new shareholders and reduce the discount @kevdraw64. I’m not sure therefore how dependable they are because they’re largely not natural income vehicles.

More reliable options would be the AIC’s ‘Dividend Heroes’ - a collection of trusts who have increased their dividend every year for up to 50 years. It all depends of course on the level of dividend your seeking, as PE trusts pay from either capital profits or a mixture of capital and income they can afford to make higher payouts in some cases.


#4

PE Trusts aren’t natural income plays, like the others have said @kevdraw64 but having said that they are paying a handsome dividend and the advantage trusts have is they can pay dividends from capital profits as well as from income. If this is income you rely on I’d be wary of putting all my eggs in the one PE basket. Why not spread your income needs across different sectors.


#5

The question has been answered, but for those who see the headline and click on to PE Trusts, 3i is worth a look. It has done well, but being top in sector has pushed up the price. It could still be a good buy. If you take out those that are due to be wound up soon, those that have done badly, and appear to be likely to continue to underperform, and those with a high proportion of new investments, there are not that many left to chose from, compared to other sectors. But you still need to do some research.
Have a look at those with investments that are due to mature in the near future, they should give a handsome payout. For a bigger spread, several PE Trusts are fund of funds, some, very large Trusts, giving a degree of security.


#6

Assuming you are prepared to risk some capital values, and still investing over the long term (7+ years) - I would think putting 5% into PE during drawdown was ok, and some trusts will pay a yield based on the NAV. Clearly this will then fluctuate over the years. Many trusts are introducing higher dividend payments using capital (e.g. Int Biotech & JP Morgan Asian) as our hunger for yield will make them more popular.

Many PE trusts (not 3i though) can still be bought on a discount, though in general they have all done well over the last 3 years - so you might be getting in near the top.

Trusts to consider (all paying an income) are (yields from HL.co.uk)
Standard Life Private Equity (SLPE) yield ~3.5%
Princess Private Equity (PEYS) yield ~5.1%
ICG Enterprise (ICGT) yield ~2.5%
Foreign & Colonial Private Equity (FPEO) yield ~3.6%
Neuberger Private Equity (NBPE) -yield 3.9%

I think you would struggle to get 5% on a range of PE trusts (unless you look in the VCT space), many of these trusts are profiled on Edison and Quotetdata - so would advise you do some research before buying. You need to understand the difference between fund of funds and direct investment.


#7

Thank you to everyone for replying and giving their views which were very interesting. I am relatively new to investing ( last couple of years or so ) but I enjoy researching the various trusts to create a balanced and diversified portfolio in my drawdown account to fund my rapidly approaching retirement with the dividends and as little as possible from growth.
I am new to InvestmentTrust.com and I have found the site very informative and helpful.


#8

Best of luck @kevdraw64 I started learning about my investments when a previous IFA I used lost me a lot of money. Most IFA’s are actually quite good at their jobs so I am not anti them but I came to realise that they’re not usually investment experts, but they are good at tax planning/pension structures/Protection options and platforms.

Over time I’ve come to realise that investment trusts are the best option for ordinary investors, not that they’re perfect, they’re not, but nothing is. But they’re better than the alternatives because of their independent Boards, and because they are closed ended.

I’ve done pretty well investing in buy list suggestions on WhichInvestmentTrust.com and also from picking up tips from people on these forums.