What next for these discounted investment trusts? - Interactive Investor

Mega-cap IPOs, both recent and anticipated, have renewed attention on private equity, according to Interactive Investor. SpaceX (NASDAQ:SPCX) has performed lacklustre on public markets, but the article notes its private valuation grew from $210 billion to an estimated $1.8 trillion. Such listings have delivered large gains for trusts with exposure, including Scottish Mortgage and Baillie Gifford US Growth. Those gains have not translated into better sentiment toward private equity trusts as a group, however. The sector still trades at an average discount of around 25%, an improvement on the 40-50% range seen from 2022 to 2025.

Underlying asset growth has been reasonable for several high-profile trusts. HarbourVest Global Private Equity reported NAV growth of 4.9% over the past 12 months and Pantheon International rose 4.7%, though both trail the S&P 500's 16.45% return. Richard Hickman, managing director of HarbourVest Global Private Equity, argued that the sector's reputation for leveraged buyouts and asset stripping is outdated, noting the firm typically holds companies for five years or more and focuses on operational improvement. The article acknowledges that the sector remains opaque in perception, recalling 2022 concerns over valuations during a rate-driven sell-off, when feared write-downs largely did not materialise.

Complexity and software exposure are further headwinds. Terms such as secondary funds and tiered funding can deter investors, and generalist and specialist trusts such as HarbourVest and HgCapital Trust can show very different return profiles. Software holdings, which have recurring revenues and high margins, have been hit as a potential AI loser this year. The article argues this is overstated: HG Capital, which is heavily technology-focused, saw its NAV fall only 2.75% over 12 months. Over 10 years, the average private equity fund is up 271%, though investors have had relatively unexciting returns versus public markets since 2022.

Luke Mason of Neuberger Pvt Eq Partners argues that a better exit environment could help validate carrying values and lift performance, citing $150 million of realisations to date in 2026. Matthew Read of Quoted Data notes that Patria Private Equity Trust and Pantheon International have reported realisations at meaningful premiums to carrying value, and sees Patria and Oakley Capital Investments as attractive for patient investors, while cautioning that quality varies across funds. Longer-term structural arguments include the lengthening private period for US companies, with median age at IPO rising from five years in 1999 to 12 years by 2025 according to Baillie Gifford, and a roughly 25-fold increase in venture-backed private companies over 25 years. The article also notes that Amazon and Alphabet raised only modest sums before listing, while SpaceX reached a $1.8 trillion valuation at its IPO. Investors seeking lower exposure can consider Baillie Gifford trusts or Caledonia Investments, where about one-third of its £3 billion portfolio sits in direct private equity.