Barwon Global Listed Private Equity Fund Update – September 2022

September 9, 2022 / Global Investments

Nina: Hello and welcome to our latest Global Listed Private Equity Fund update.  My name is Nina Dunn and today I’m joined by Bob Liu, portfolio manager with Barwon’s global investments team.

Bob, can you talk us through the recent market volatility and the performance over the last quarter of the Barwon Global Listed Private Fund?

Bob: Global equity markets have certainly had a tough year, and the Barwon Global Listed PE Fund has not been immune. And we really feel that markets are pricing in a lot of future bad news at the moment as rates and inflation still haven’t found a definitive high point.

In the last quarter ending September 30, the Barwon Global Listed Private Equity Fund returned negative 6.6%, however the Fund’s 10 year return to 30 September stands at 11% p.a.

Nina: Yes markets have been very volatile with inflation remaining high. Bob, last Fund update we spoke about the recent market performance with a focus on the alternative asset managers and how they have been faring with the recent market volatility. Are Alternative Asset Managers a buy right now?

Bob: I absolutely think they are. The alternative asset managers, as a subsector, have continued to be the main detractors to fund performance. They’ve been at the centre of the concern around interest rates, even though I don’t believe the fundamentals warrant it.

The concern is really centred around two things: slowdown in fundraising – and we are starting to see some of that. And the impact on performance fees in the near term.

We’re seeing the large, established managers fare much better than the industry average. In the first half of this year, the likes of Blackstone, KKR, Apollo, Brookfield, raised more capital in 6 months, than they have in any FULL calendar year before 2020.

And this is in a market where global equities are down 20-30%. That’s a real testament to the breadth of their platform and their market position.

Nina: So Bob, where are the risks and the opportunities you’re seeing, and dare I ask – what is your outlook for returns?

Bob: As I said, I feel the market is pricing in a lot of potential bad news and high quality managers and portfolios are trading at attractive valuations.

In listed PE, the share prices of have fallen a lot more than NAVs – or the reported value of portfolios. So the main movement this year has been the widening of discounts to NAV to 30%, the widest its been prior to COVID for over 10 years.

Part of this is the markets saying we don’t believe in the NAVs. There is some truth to this. Private Equity portfolios are typically valued quarterly, and the upcoming third quarter valuations, which we will begin to receive at the end of the month are likely to be a little weaker again given the further weakness in public equities.

On a fundamental level though, we’ve also had a record level of companies refinancing debt through 2020 and 2021. This has locked in cheap debt, and pushed out maturities. We’ve also seen a lot of expansion and extension of revolving credit facilities. This gives them a lot of runway and the ability for companies and PE sponsors, like through past periods of volatility – to play offense when others are forced to defend.

Nina: Well, don’t they say the best investments are made during the worst of times?

Bob: That’s right and this holds true for both the private equity asset class, and public equities.

The PE investments with the strongest returns were made in years of economic recession.

And if you look at our Global Listed Private Equity Fund, in its 15 year history, if you were to buy the Fund when it had fallen 20% or more, you would have made an average 70% return over the next 3 years, and more than doubled your money over the next 5.

Nina: Thanks Bob. Thank you for joining us today to hear a fund update on the Barwon Global Listed Private Equity Fund.

If you’d like more information, please don’t hesitate to reach out to Barwon’s distribution team.

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