The Fund seeks an indirect exposure to returns from a private equity portfolio which generates performance comparable to a private equity program of top tier private equity managers and which outperforms public equity markets over the medium term. The Fund is designed for investors who are looking for an exposure to a private equity portfolio. The Fund’s investment strategy is to invest in the Underlying Fund, which invests in listed private equity.
Contributors over the month included Golub Capital BDC (USD +2.0%), ICG Enterprise Trust plc (GBP +10.0%) and Eurazeo (EUR +3.7%). Detractors to performance included Compass Diversified Holdings (USD -9.1%), Onex Corporation (CAD -4.4%) and Oakley Capital Investments (GBP +0.1%).
A number of our portfolio holdings conducted capital markets days in September. Here are some key highlights from our observations:
• Onex Corporation – The Canadian-listed private equity group hosted its capital markets day on September 28, offering an update on leadership succession, restructuring progress, and near-term strategic direction. We are encouraged by the measures taken by the new CEO, Bobby Le Blanc, to refocus the organization following the setback of failing to raise its flagship private equity fund. Onex owns both an asset management business with $34 billion in thirdparty fee-generating AUM and a $8 billion balance sheet of investments, both of which are performing well. As of 30 June 2023, the 12-month NAV growth of its balance sheet was +9%.
With $1.5 billion in cash (19% of NAV) and no debt, its balance sheet is well-capitalized. Despite the pause in fundraising for its large-cap PE fund, Onex still trades at a substantial discount to its intrinsic value. The shares currently trade at a 40% discount to NAV, with no value attributed to its third-party asset management business, which generates over $250 million in annual revenue.
• 3i Group – During its capital markets day on September 20, 3i provided a positive update on its largest investment, Action, which accounts for 70% of its NAV. Action continues to deliver impressive year-to-date sales growth (+31% YoY) and even more impressively, like-for-like sales growth of 20%. Its robust growth and cash flow generation have led to rapid deleveraging, with a net debt to run-rate EBITDA ratio of 1.3x, potentially paving the way for a cash distribution to shareholders through a dividend recap. We expect the rest of the portfolio to deliver very strong NAV growth even in a slower macroeconomic backdrop.
• Brookfield – Brookfield held their annual capital markets days for its listed entities including Brookfield Asset Management (the asset manager spun-out at the end of 2022) and its listed private equity vehicle Brookfield Business Partners. The asset manager is performing well and on track for a record year of fundraising of almost $100 billion in private capital and another $50 billion in insurance capital inflows. However, the share price performance of Brookfield Business Partners, its listed PE vehicle, has been very disappointing. The shares now trade at a distressed valuation of >60% discount to NAV. Surprisingly, the decline in share price has not coincided, as it typically does, with a decline in NAV. Although its balance sheet is stretched, there is visibility to significant deleveraging when the sale of Westinghouse, announced a year ago, finally closes (expected by year end).
What is Barwon Global Listed Private Equity AF Barwon Global Listed Private Equity AF is an Managed Funds investment product that is benchmarked against Credit Suisse AllHedge Fund Index and sits inside the Alternatives - Private Equity Index. Think of a benchmark as a standard where investment performance can be measured. Typically, market indices like the ASX200 and market-segment stock indexes are used for this purpose. The Barwon Global Listed Private Equity AF has Assets Under Management of 10.73 M with a management fee of 1.02%, a performance fee of 0.00% and a buy/sell spread fee of 0.6%.
How has the investment product performed recently?
The recent investment performance of the investment product shows that the Barwon Global Listed Private Equity AF has returned 15.13% in the last month. The previous three years have returned 10% annualised and 20.53% each year since inception, which is when the Barwon Global Listed Private Equity AF first started.
How is risk measured in this investment product?
There are many ways that the risk of an investment product can be measured, and each measurement provides a different insight into the risk present. They can be used on their own or together to perform a risk assessment before investing, but when comparing investments, it is common to compare like for like risk measurements to determine which investment holds the most risk. Since Barwon Global Listed Private Equity AF first started, the Sharpe ratio is 0.65 with an annualised volatility of 20.53%. The maximum drawdown of the investment product in the last 12 months is -7.35% and -30.02% since inception. The maximum drawdown is defined as the high-to-low decline of an investment during a particular time period.
What is the relative performance of the investment product?
Relative performance is what an asset achieves over a period of time compared to similar investments or its peers. Relative return is a measure of the asset's performance compared to the return to the other investment. The Barwon Global Listed Private Equity AF has a 12-month excess return when compared to the Alternatives - Private Equity Index of 4.95% and -1.59% since inception.
Does the investment product produce Alpha over its Peers?
Alpha is an investing term used to measure an investment's outperformance relative to a market benchmark or peer investment. Alpha describes the excess return generated when compared to peer investment. Barwon Global Listed Private Equity AF has produced Alpha over the Alternatives - Private Equity Index of -1.42% in the last 12 months and -1.92% since inception.
What are similar investment products?
For a full list of investment products in the Alternatives - Private Equity Index category, you can click here for the Peer Investment Report.
What level of diversification will Barwon Global Listed Private Equity AF provide?
Barwon Global Listed Private Equity AF has a correlation coefficient of 0.83 and a beta of 3.3 when compared to the Alternatives - Private Equity Index. Correlation measures how similarly two investments move in relation to one another. This establishes a 'correlation coefficient', which has a value between -1.0 and +1.0. A 100% correlation between two investments means that the correlation coefficient is +1. Beta in investments measures how much the price moves relative to the broader market over a period of time. If the investment moves more than the broader market, it has a beta above 1.0. If it moves less than the broader market, then the beta is less than 1.0. Investments with a high beta tend to carry more risk but have the potential to deliver higher returns.
How do I compare the investment product with its peers?
For a full quantitative report on Barwon Global Listed Private Equity AF and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Barwon Global Listed Private Equity AF with the Credit Suisse AllHedge Fund Index?
For a full quantitative report on Barwon Global Listed Private Equity AF compared to the Credit Suisse AllHedge Fund Index, you can click here.
Can I sort and compare the Barwon Global Listed Private Equity AF to do my own analysis?
To sort and compare the Barwon Global Listed Private Equity AF financial metrics, please refer to the table above.
Has the Barwon Global Listed Private Equity AF been independently verified by SMSF Mate?
This investment product is in the process of being independently verified by SMSF Mate. Once we have verified the investment product, you will be able to find more information here.
How can I invest in Barwon Global Listed Private Equity AF?
If you or your self managed super fund would like to invest in the Barwon Global Listed Private Equity AF please contact Level 10, 17 Castlereagh Street, Sydney NSW 2000 Australia via phone +61 2 9216 9600 or via email -.
How do I get in contact with the Barwon Global Listed Private Equity AF?
If you would like to get in contact with the Barwon Global Listed Private Equity AF manager, please call +61 2 9216 9600.
Comments from SMSF Mates
SMSF Mate does not receive commissions or kickbacks from the Barwon Global Listed Private Equity AF. All data and commentary for this fund is provided free of charge for our readers general information.
Performance Commentary - August 31, 2023 Contributors over the month included KKR & Co (USD +6.1%), Golub Capital BDC (USD +6.2%) and Blackstone Group (USD +1.5%). Detractors to performance included Brookfield Business Partners LP (CAD -10.0%), Compass Diversified Holdings (USD -8.3%) and PowerSchool Holdings (USD – 8.5%).
As we approach the close of the third quarter of 2023, private equity NAVs are likely to continue their growth supported by better-than-expected resilience in underlying earnings growth, and improving valuations in broader public equity markets. Although average discounts to NAV on listed buyout funds have come in from almost 40% to 30% this year, the discount remains at almost double the 10-year average of 15%, and significantly wider than where unlisted private equity funds are trading on the secondary market. After three consecutive quarters of positive PE NAV growth since Q4’22 (and possibly four if markets remain stable through Q3’23), concerns of overvaluation of unlisted PE assets has somewhat abated. Arguably for some, their investments have grown into that valuation as earnings haven’t slowed down as precipitously as feared, and others have benefitted from a recovery in valuations of the harder hit growth and technology sectors. Whatever the case, our confidence in private equity NAVs across the space has improved through the year, and exit activity – albeit limited to date – has continued to validate the conservativeness of valuations.
At the start of September, S&P announced Blackstone would be added to the S&P500 Index effective 18th September. It was long awaited as the $130bn plus market cap company was the largest eligible company not yet in the widely followed index. Even though its entry was widely anticipated, the incremental demand is substantial. In total, estimates for demand could be up to 15-20% of Blackstone’s total free float from the c$8tn in AUM that either passively tracks or is benchmarked to the index. This represents over 40x average daily volume. The inclusion marks an important milestone for the trillion-dollar AUM manager, has provided a technical boost to Blackstone’s share price, and has now firmly put it on the radar of more institutional investors.
Blackstone’s inclusion also opens the door for other alternative asset managers – namely KKR and Apollo Global Management as the next two largest by market cap.
Performance Commentary - July 31, 2023 The Barwon Global Listed Private Equity Fund’s (Fund) net return for the month of July 2023 was 3.1%. Over the 10 years ended 31 July 2023 the Fund has returned 9.9% p.a.
Contributors over the month included Blackstone Group (USD +13.6%), Onex Corporation (CAD +10.8%) and PowerSchool Holdings (USD +26.3%). Detractors to performance included Eurazeo (EUR -13.9%), Apax Global Alpha (GBP -6.2%) and abrdn Private Equity Opportunities Trust plc (GBP -4.1%).
At the time of writing, we are in the middle of Q2 earnings season with private equity NAVs released to date returning positive growth in the low single digits on average. This will mark three consecutive quarters of positive PE NAV growth. The broader economy and companies are performing better than expectations at the start of the year.
The positive NAV development has started to drive a re-rating in the discount to NAV on which Listed Private Equity buyout stocks trade, with stocks re-rating from a ca. 40% discount in the fourth quarter of 2022 to a 27% discount today. 27% remains wide relative to the sector’s 19% long term average discount. While share buybacks have been somewhat limited among LPE buyouts, Pantheon International Plc a London-listed private equity buyout fund, has set a new standard to address the current discount to NAV. It has announced a new capital allocation policy, which includes committing £200m (ca. 15% of market capitalisation) to buy back its own shares during the year to May 2024. Furthermore, the new policy will be extended to dedicate a proportion of future net portfolio cash flow to share buybacks. We see this as a significant step in sector, and goes to highlight the company’s confidence in its published NAV.
The listed alternative asset managers (AAMs) have reported solid Q2 results. Investment performance for Q2 has been positive and whilst transaction activity remains slower than 2022, we are seeing fundraising, capital deployment and monetisations recovering modestly for the AAMs. The Fund exited one of its AAM investments on valuation grounds in July as it traded to a 20% premium to intrinsic value.
Performance Commentary - May 31, 2023 The Barwon Global Listed Private Equity Fund’s (Fund) net return for the month of May 2023 was 1.0%. Over the 10 years ended 31 May 2023 the Fund has returned 9.5% p.a.
Contributors over the month included HgCapital Trust plc (GBP +16.6%), 3i Group plc (GBP +10.7%) and Pantheon International (GBP +8.2%). Detractors to performance included Brookfield Asset Management (USD -8.1%), Eurazeo (EUR -1.2%), and PowerSchool Holdings (USD -9.3%).
During the month, our team attended over 40 meetings visiting companies in London, Paris, and New York on two separate research trips.
Sentiment among private equity managers and investors appears to be improving. Over the past 12 months, we have seen significant easing in shipping costs back to pre-Covid levels, normalisation of input and energy prices, and wage inflation ease (albeit remaining relatively high).
Importantly, underlying companies have delivered better than expected revenue and earnings growth. Private equity and private credit managers are reporting high single digit earnings growth across their underlying companies / private equity portfolios. In general, companies operating in the healthcare and technology sectors are reporting stronger sustained organic growth in the low-teens, while consumer businesses and industrials have seen a more marked deceleration from peak 2021 levels.
Within our Fund’s holdings, underlying companies have generated trailing 12m EBITDA growth of circa 15% on average. This is driven in part by add-on acquisitions to platform investments but for even the most acquisitive portfolios, organic growth represents more than half the total. And indeed has been the primary driver of positive NAV growth, offsetting some valuation multiple headwinds.
Performance Commentary - April 30, 2023 The Barwon Global Listed Private Equity Fund’s (Fund) net return for the month of April 2023 was 2.7%. Over the 10 years ended 30 April 2023 the Fund has returned 9.6% p.a.
Contributors over the month included Apax Global Alpha (GBP +9.0%), Pantheon International (GBP +7.7%) and Intermediate Capital Group plc (GBP +6.9%). Detractors to performance included Brookfield Business Partners LP (CAD -8.9%), Onex Corporation (CAD -1.1%) and Golub Capital BDC (USD -0.6%).
There is a lot of conversation about the divergence in private and public market valuations, and for the same asset we can see very different valuations being applied by public markets. Who is right?
2022 was a tough year for Listed Private Equity (LPE). The NAVs of our Fund holdings returned on average +13% over 2022, but share prices were down 14% over the same period. This resulted in the average LPE discount to NAV widening to over 30%, the widest discount for the sector since 2012, aside from a very brief period in 2020 (see LPE Sector Average Discount to Net Asset Value chart below for a full year history).
Performance Commentary - March 31, 2023 The Barwon Global Listed Private Equity Fund’s (Fund) net return for the month of March 2023 was -3.9%. Over the 10 years ended 31 March 2023 the Fund has returned 9.7% p.a.
Contributors over the month included 3i Group plc (GBP +3.6%), Ares Management Corporation (USD +4.5%) and Eurazeo (EUR +2.7%). Detractors to performance included Apax Global Alpha (GBP -13.0%), Onex Corporation (CAD -13.4%) and Intermediate Capital Group plc (GBP -13.2%).
In March, Lisa Swanton (Portfolio Manager) and Levina Pham (Investment Analyst) travelled to New York and met with 20 listed PE managers across the Alternative Asset Manager, Private Debt and Buyout sectors. This included companies and funds such as Ares Capital Corp, TPG Inc, Blackstone Secured Lending and Brookfield Business Partners. The trip coincided with the week following the collapse of Silicon Valley Bank (SVB) and Signature Bank (SB). Management teams were coming straight off the back of a weekend spent reviewing their portfolios to determine their exposure. An interesting time to have been on the ground in New York.
Performance Commentary - February 28, 2023 Contributors over the month included Onex Corporation (CAD +6.1%), Brookfield Asset Management (USD +4.0%) and 3i Group plc (GBP +3.3%). Detractors to performance included Blackstone Group Inc (USD -4.5%), Brookfield Business Partners LP (CAD -10.7%) and HarbourVest Global Private Equity Ltd (GBP -3.9%).
In light of recent events, we can confirm that Barwon Investment Partners and the Barwon Global Listed Private Equity Fund do not have any direct banking relationships with Silicon Valley Bank (SVB) or Signature Bank. Furthermore, we completed a full review of all our Fund holdings and can confirm that there is minimal indirect exposure to these banks. HSBC’s takeover of SVB’s UK operations and the FDIC backstop for depositors has significantly mitigated any liquidity risk to short term operations. For example, Instructure Holdings, a PE backed listed company held in the Fund, had cash on deposit at SVB and was able to transfer out all cash when the bank re-opened on Monday 13 March. We don’t view the failure of SVB as representative of heightened systemic risk. It’s a relatively niche sector focused bank, with a highly concentrated deposit base many of which are venture capital backed tech companies, and had a massive failure in balance sheet risk management.
What this does expose is the high cash burn, drop-off in funding rounds, and a slowing macro backdrop facing US venture capital backed companies. Our Fund has no direct investments in venture capital or growth equity focused LPEs. The Fund has indirect sector exposure via its holdings in HarbourVest Global Private Equity and Pantheon International, which represent approximately 3% exposure on a look-through basis, primarily to later stage growth equity, and to a lesser extent earlystage VC.
Meanwhile, private equity buyout fundraising continues to be slow. For the higher quality managers – it appears to be a matter of when, not if, they achieve fundraising targets. Apollo Global Management for example has raised ~$15bn to date for its next PE flagship Fund X with a target of $25bn. Apollo has been in the market raising this fund since early 2022, and to date has seen greater than usual support from non-US regions and private wealth channels, rather than its traditional US institutional investor base. The important thing to note is that Apollo Fund X commenced its investment period back in October 2022 and has deployed a few billion dollars in distressed situations, a take-private transaction, and a structured finance deal to date. Investors coming in to the fund now will pay “late management fees” which back-date to the start of the fund’s investment period. And so, while the slowdown in fundraising may mean funds take longer to raise capital, the actual economic impact on the manager’s revenue is less than first appears.
Earnings from Business Development Companies (BDCs) have been the standout this year. Higher interest rates drove mid-teens earnings growth on average across the sector in the fourth quarter. Meanwhile credit stress is starting to creep up but remains stable and at very low levels. The majority of BDCs have increased dividends, with more announced for Q1’23. We expect greater NAV volatility in the private credit funds this year, as the higher interest costs, inflation, and slower growth environment could lead to a deterioration in credit quality. While our Fund’s current holdings in BDCs is low, volatility will likely present attractive investment opportunities.
Performance Commentary - January 31, 2023 Contributors over the month included Blackstone Group Inc (USD +29.3%), KKR & Co Inc (USD +20.2%), and Intermediate Capital Group plc (GBP +20.9%). Detractors to performance included Apax Global Alpha (GBP -5.5%), HarbourVest Global Private Equity (GBP -2.0%), and PowerSchool Holdings (USD -2.4%).
The Fund has started the year strongly returning 10.2% in January. Markets rallied as the very negative market sentiment at the end of last year met better than expected macroeconomic developments. Solid Q4’22 results which are still being released have also supported the market.
Fourth quarter 2022 PE NAVs are showing healthy gains of between 2-5%, as public market valuations stabilised in the fourth quarter. Median full year 2022 PE returns look to be modestly negative, the first negative calendar year since 2008.
At this point, companies continue to perform well delivering good earnings growth. However, a noticeable slowdown in earnings growth due to pressure on profit margins remains a headwind. Encouragingly, the Golub Capital Altman Index, an index of 150 private US mid-market companies in Golub Capital’s portfolio, showed a healthy 10.8% revenue and 9.2% EBITDA YoY growth for Q4 2022. And PE sponsors with a focus on operational improvement such as Brookfield are able to generate value and better mitigate the higher supply chain and energy costs. For example, in the first six months of acquiring CDK Global last year, a software provider to automotive dealers, they’ve appointed a new senior leadership team, reduced global headcount by 15% and commenced initiatives to improve the business’ EBITDA by $200M, or 33%, when fully implemented.
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