Investment in HgCapital Trust plc offers investors a liquid investment vehicle through which they can obtain an exposure to HgCapital's diversified portfolio of private equity investments with minimal administrative burdens, no long-term lock-up or minimum size of investment.
The case for private equity
Private equity is the term given to the provision of equity and equity type risk capital to unlisted companies. It is normally used to finance beneficial change in businesses.
The changes that require equity finance are manifold and ever present. They include a change in the scale of a business (through fast growth or acquisitions), a change in ownership, often in conjunction with management (the management buyout), a change in the strategic direction of a company, a significant change in the structure and operations of a business or financing the commercialisation of new technologies.
Healthy economies require constant change in their corporate sector, otherwise they stultify. Private equity is probably the best form of finance to pay for this change as it is patient, welcomes considered risk taking, and participates directly in outcomes.
In return for their investment, private equity investors receive a share of the equity in the businesses they finance and do so with the objective of making a significant capital gain over holding periods from three to seven years.
Private equity investors like HgCapital aim to deliver their clients higher returns than may be obtained from a portfolio of public equity investments over any rolling period of five to ten years. Attractive returns can be garnered if the private equity manager exploits the inherent advantages private equity investors have over investors in public markets.
Advantages of the pe model
Listed private equity has many intrinsic and recognised advantages over listed public equity and compared with investment in the public markets, a private equity investor has significant advantages:
Alignment of interests
Theory and experience tells us that businesses run by their owners tend to perform better than those run by salaried agents. In a private equity backed business almost everybody around the board table and often a high percentage of managers and staff own shares in the companies they run. In addition, the private equity managers also own equity in the portfolio companies through their co-investment obligations and via their carried interest. Accordingly, the interests of all parties are closely aligned and focused on creating value and realising a substantial capital gain. This is achieved by selecting ambitious medium to long-term goals and allowing managers to pursue them, free from short term distractions that often beset the managers of listed companies.
The private equity manager has more control over the method and timing of the sale of the business than a manager of listed equities. This superior control also extends to the appointment of management.
Able to attract the best management talent
Working in a private equity backed business is highly attractive to the best and most ambitious managers. They will be exposed to capital returns that the listed companies rarely, if ever, match and are given the challenge and satisfaction of running their own business.
Larger universe of opportunities to choose from
The universe of privately owned businesses is much larger than the publicly-traded one so the investor has greater choice. The choice available to private equity also includes listed companies which are frequently de-listed and refinanced with private equity capital.
Better access presenting the possibility for better assessment
Prior to investing, private equity managers have better access to information, including detailed market, financial, legal and management due diligence.
For more information on listed private equity and the advantages of the PE model please visit
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