In the last decade many investors gambled on tech stocks and private equity, myself included.
The returns were spectacular. I nearly sold Scottish Mortgage when it got to £5 but didn’t because the trend is your friend, as the saying goes in the City. It peaked at £15 and now has halved to £7.50, where it was in 2020. It’s the same story at Monks. Both investment trusts are in the Baillie Gifford stable by the way and both are at a discount to NAV of a little more than 10%. I see no reason to sell, partly because of Capital Gains Tax, but also because some of the tech stocks they hold were over-valued and now are under-valued. Furthermore both investment trusts, alongside the big techs they hold, are investing in start-ups a few of which will be winners.
But Tech is a dirty word now.
Private Equity first got a bad reputation thanks to Neil Woodford. He had performed very well when he was at Invesco Perpetual but found its supervision restrictive. He kicked over the traces and went it alone. He became over exposed to illiquid stocks and could not meet redemptions when investors wanted out. Now any investment trust with exposure to Private Equity is in the sin bin. Even the venerable Rothschild Investment Trust (RIT) is deemed risky. Private Equity is difficult to value accurately and there are cowboys out there who will disguise losses for as long as they can. Trusts like RIT and Caledonia are conservative in their valuations and provide pleasant surprises when they exit a company. However, Caledonia raised the valuation of its Private Equity holdings in the period June to September 2022 from £850 million to £877 million. Over the whole of 2022 Private Equity did well, as Caledonia reports in their December 2022 fact sheet.
“NAVTR for December was -1.5% and for the first nine months of the year was 2.9%. Our private assets, in both Private Capital and Funds, have generated good returns during the first nine months of the year, based on a mix of positive underlying performance and the favourable impact of the 9% fall in the value of Sterling against the US dollar. In contrast, our public equity holdings have been adversely impacted by volatility and weakness in global equity markets.”
But Private Equity is a dirty word, well two dirty words if you are a pedant.