The Telegraph says investors should put Alliance Witan on their watch lists, while MoneyWeek believes the combination of HarbourVest’s very strong performance record and ‘inexplicably high discount’ is hard to beat

By
Frank Buhagiar
09 Jul, 2024

Questor: Keep a keen eye on this investment trust about to hit the FTSE 100
The Telegraph’s Questor Column takes a closer look at the latest headline-grabbing deal in London’s investment company space, the proposed combination of long-established global trusts Alliance and Witan. As the article explains, the idea behind the deal is to create a one-stop shop, where investors can gain all their equity exposure via the new trust which will be known as Alliance Witan. Certainly, the two trusts appear a good fit with both adopting a multi-manager approach, whereby external fund managers are mandated to run the bulk of the two funds assets.

With both Alliance and Witan having market caps of over £1billion, the combined £5billion plus fund will likely be a shoe-in for inclusion in the FTSE 100. Promotion to London’s top-tier index not just a nice-to-have. The fund’s profile will be raised, making it easier and likely cheaper to trade in the shares. FTSE 100 inclusion will also put the fund on the radar of a deeper pool of investors. Those investors will also benefit from lower costs as management fees are to be reduced so that total ongoing charges will fall to under 0.6% a year, compared to Witan’s current 0.76% level and Alliance’s 0.62%.

As for performance, Alliance has the upper hand. Since April 2017 when Alliance adopted its multi-manager approach, the fund has grown assets by 102%, or 10.2% a year. That’s comfortably above Witan’s 60% return or 6.8% per annum. All of which leads Questor to conclude ‘investors should put Alliance Witan on their watch lists. A weakening in the share price before or after the transaction completes could provide a good buying opportunity’.

MoneyWeek: Should you invest in HarbourVest ?


The MoneyWeek article opens with a mystery. Private equity fund of funds HarbourVest Global Private Equity’s (HVPE) NAV is up +251% over 10 years and has doubled over five years. Yet the shares trade at a 40% discount to net assets. Why?

One possible answer is that those net assets are overvalued. Quite possible were stock markets selling off, the world hurtling towards recession and the portfolio’s holdings trading on steep valuations. But as MoneyWeek points out ‘markets have been rising steadily against a benign economic backdrop. The average valuation multiple for a representative sample of the portfolio at year-end was a reasonable 14 times cash flow, average cash flow having increased 15% in the year.’ And on valuations, MoneyWeek highlights that during the year ended 31 January 2024, around 10% of HVPE’s portfolio was sold at an average 24% premium to carrying value, suggesting a conservative valuation approach.

The article then runs through a check-list in an attempt to explain that hefty discount such as lack of buybacks, poor liquidity in the shares and high costs. No lack of buybacks though. Since September 2022, HVPE has bought back 2.9 million shares or nearly 4% of those in issue. And with the board allocating $150-$250 million to a buyback pool, more buying appears to be on the table. Nor should the liquidity of the shares be an issue as the private equity fund has a market value of £1.840 billion. As for costs, total expenses in the latest year came in at 1.8% of the average NAV, but as MoneyWeek points out ‘Managing private equity is expensive, with costs more comparable to a listed company than to a fund investing in listed shares, but the returns are significantly higher.’

So, unable to come up with a satisfactory explanation for that HVPE discount, MoneyWeek concludes ‘Within a very undervalued sector, the combination of HVPE’s very strong performance record and inexplicably high discount is hard to beat – especially with the board trying to narrow the discount and add to NAV by buying back shares’.