takeovers and a management buyout. This trend has staying power. One of the many advantages of managing global multi asset class portfolios, ranging from government bonds to venture capital, is that unexpected connections can be made. In 2007 - 2008 we did learn that no one investment can be assessed in isolation. Private equity is no exception. One of the frustrations about investment in emerging markets is that many important companies are not listed on a public exchange. Specialist funds are, as a result, restricted to investing in companies that individuals, families or governments want to sell. Not always a good starting point. For example although China has now overtaken Japan to become the second largest economy in the world, the total value of companies listed in Shanghai is still only 75% of the London market. As the emerging economies mature more of the corporate sector will move to public markets, but during this transition period better value and greater opportunity may well be found off-exchange via private equity. In developed markets different issues are driving the balance between public and
private. Companies are questioning the benefi t of a public listing not only because of the pressure to report progress on a quarterly basis but also because of increasingly onerous regulations. In Europe there are 8,179 listed companies of which 5,162 have a market capitalisation of less than €100 million. Undoubtedly some of the smaller companies will return to the private sector, but perhaps more importantly new companies will choose not to list. Facebook with an estimated value of $50 billion remains a private company.
Despite all the problems of the last few years the Private Equity industry has delivered respectable returns as shown by the most recent BVCA survey.
Annual return (net of fees) Total UK Private Equity FTSE All-Share
10 years (%) 13.1 1.6
5 years (%) 17.3 6.5
Tactically, the next few years have the potential to be exceptional for private equity. Strategically investors will need to address how to invest in growth companies whether in developed or emerging economies that are unlikely ever to be listed.
David Miller Cheviot Asset Management Limited
cywinter 2011 39
3 years (%) 4.4
- 1.3 BVCA Survey
One of the frustrations about investment in emerging markets is that many important companies are not listed on a public exchange
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