Fund in Focus - BMO Private Equity Trust
An interview with: Hamish Mair, Fund Manager
What makes the BMO Equity Trust different?
BMO Private Equity Trust is distinguished from others in the sector by its exposure to the emerging manager tier of the European Private Equity Market. Also, by its significant component in co-investments, that's direct investments in private companies and by substantial dividend yield.
The emerging manager specialism is something that we have built up over the last two decades, we feel investing with up coming private equity groups gives us a very good opportunity to make strong returns. This is all to do with motivation and incentive at the level of the managers and we are well aligned with them. We like the lower mid-market of European Private Equity because it is a very broad market, it's an efficient market and has a huge wealth of opportunity.
We have developed specialists in that area over the last couple of decades, our divided yield distinguishes us from our peers, most of which appear much smaller dividend and that has been welcomed by our shareholders.
Why should investors consider Private Equity in their portfolio?
Investors should consider Private Equity in their portfolio because it gives them exposure to a range of investment opportunities that are simply not available in the public markets. Private Equity, as the name suggests, is investing in companies which have not yet got a listing on a stock exchange. These are businesses held by entrepreneurs, families and other investors who've yet to take their businesses public. Most businesses are not public, there are tens of thousands of businesses across Europe and across the world which are still private companies. These can be in new business areas, new trends that are not yet available to invest through the stock market, new technologies and new products.
Investing in Private Equity gives you a chance to get exposure to these forms of economic activity that you can't access through the stock market. The second reason that someone should consider Private Equity in their portfolio is that it is a high returning asset class. Typically, Private Equity will deliver several points per annum better than one could achieve through investment in the stock market. Clearly there are risks associated with investing in private companies, this is because generally the companies tend to be smaller. The more limited product range, smaller management teams, the higher gearing on the balance sheet, and because the investor does not have the protection of a listed security. Once you go through a negotiated transaction, and you must come out through a negotiated transaction. You cannot just buy and sell the shares in the stock market, but for all these risks the investor is generally handsomely rewarded, and therefor having part of your portfolio invested in Private Equity is a very complimentary strategy to a main stream equity portfolio.
What is the BMO Private Equity Trust investments objective?
BMO Private Equity Trusts is a London listed investment trust which aims to deliver strong long-term capital gains and some income through investment and Private Equity assets. The portfolio consist of a combination of a range of different equity funds and also direct investments directly into private companies. I am the manager of BMO Private Equity Trusts, I have been since it started nearly 20 years ago, and I also head the Private equity business of BMO Global Asset Management.
Are there any particular sectors/markets that are currently preferred?
The strategy of BMO Private Equity Trust is to maintain a well-diversified portfolio across different industrial sectors and across different geographical markets. The reason for this is, Private Equity carried an inherited risk and the only effective way we have of controlling and reducing that risk is through diversification. So, you will not see us skewing the portfolio towards one particular geography, sector or group of companies. There will be certain areas which will have more emphasis than others, but in general we do not have any pre-determined aim to play an individual sector or country. When you look at our portfolio you will see it is well diversified by country, sector, lead manger or the underlined deals and that is a deliberate policy. There are no sectors or markets that we are particularly focusing on at any given point in time, and each of our investments will look quite different from the ones that have gone before and that is quite a deliberate policy.
It is important that no actions should be taken without first taking advice. Personal circumstances and an individual’s appetite for risk means that the advice for one person may not be the same for everyone. Please remember that the value of your investment can go down as well as up, and may be worth less than you paid in. Information is based on our understanding at 21.02.2019.