Investing Recommendation: Do not invest. Fees are very high and PE1 will take 4 years to be fully invested. If you want private equity exposure, get it via superannuation.
Trading Recommendation: Post IPO and short term only if discount is at least 3% greater than recent (1 to 6 months) average. Minimum discount advised is 8%.
Lonsec Product Review:
Link: Lonsec PE1 March 2019
Key Excerpts:
<<
Weaknesses:
• The portfolio is expected to take four years to reach its target allocation. The Fund will have a high cash/ credit exposure initially, which reduces the incentive to enter the IPO.
• Being a relatively small LIT, the Fund is likely to be highly correlated to the broader equity market and exhibit high volatility. The Fund may also be relatively illiquid (particularly if the IPO raising is at the lower end of the range).
• The fee load is very high in absolute terms (but similar to other private market funds), including two layers of management and performance fees.
The fees are 1.25% p.a. for the Responsible Entity/ management fee and a 20% performance fee over a hurdle rate of 8% p.a. (net of Responsible Entity/ management fees). The Manager invests into private equity as a Limited Partner (’LP’) and the Fund will invest into primary, secondary and co-investment opportunities. As such, the Fund will effectively have two layers of management and performance fees. The total fee load is estimated by Pengana as being 2.36% p.a. for FY2019.
Lonsec notes that the portfolio composition is likely be markedly different to the target allocation over the first three years. IPO investors will therefore need patience. Initially the Fund will have a large holding in cash/credit exposure. Once built out, the portfolio will be highly diversified across companies, industries and vintages.
>>
Independent Investment Research Product Review:
Link: IIR PE1 March 2019
Key Excerpts:
<<
Based on the below portfolio allocation the blended management fee would be 2.42%p.a. With respect to performance fees, if you were to assume an 18%p.a gross return from the underlying funds and assume a performance hurdle of 8%p.a across all investments, after management fees the total performance fee would equate to 2.5%p.a. Using this gross return assumption this would equate to total fees (management plus performance fees) of 4.92%p.a.
>>
