Statement re Henderson Private Equity Inv Trust


 

TIDMADU TIDMHPEQ 
 
RNS Number : 0169G 
Advance UK Trust PLC 
22 January 2010 
 
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Statement re: Henderson Private Equity Investment Trust PLC 
 
 
Advance UK Trust PLC requisitioned a meeting of shareholders of Henderson 
Private Equity Investment Trust PLC to be held on 2 February 2010. We asked that 
Henderson Private Equity's directors come up with proposals to address their 
twin problems of the low rating of their shares and their illiquidity. In the 
circular convening the meeting the directors of Henderson Private Equity said 
they did not believe there was any action they could take in the short term to 
improve the lot of shareholders, we disagree. We do not believe that 
shareholders' best option is to sit and wait for a recovery in the private 
equity market. We were contacted recently by Edmond de Rothschild who suggested 
they take on the management of the fund and run off the portfolio, returning the 
proceeds to shareholders over time. We believe the adoption of such a policy 
would trigger a re-rating of the Company's shares. Having secured their 
permission, we reproduce their letter to us below and recommend this course of 
action to the Board of Henderson Private Equity. 
 
 
 
 
 
 
22nd January, 2010 
 
 
Dear Mr. Carthew, 
 
 
Henderson Private Equity Investment Trust PLC ("HPEQ") 
 
 
Following your requisitioning of an Extraordinary General Meeting of HPEQ on 
16th December, 2009 and the subsequent circular to shareholders of HPEQ sent on 
6th January, 2010 convening the Extraordinary General Meeting, we contacted you 
to discuss how the significant discount at which HPEQ's shares trade relative to 
net asset value could be narrowed. As requested, this letter sets out our 
thoughts on how HPEQ should be managed in order to reduce the discount. 
 
 
In the statement issued on your behalf by Northern Trust, it was stated that, on 
the basis of its then market capitalisation of GBP23 million, HPEQ was trading 
at a discount of 59 per cent. to net asset value compared with the average 
discount for listed private equity fund-of-funds of 37 per cent. We believe that 
the reasons for this substantial discount against HPEQ's peers include: 
 
 
  *  the small size of HPEQ's market capitalisation, which discourages liquidity and 
  institutional interest in the shares. 
  *  concern about HPEQ's ability to finance its commitments due to: 
 
               i.  the likelihood of heavy calls from funds over the next 12 to 
18 months when they perceive that we 
                  are at the bottom of the economic cycle and so start to make 
investments again;




             ii.  the possibility that HPEQ will face calls from funds,


even if their investment periods have expired, 
                  for equity cures where portfolio companies have financing 
issues;




             iii. the probable continuation of the famine in


realisations over the coming period as funds wait for 
                  profits and valuations to recover, so that they can sell 
businesses at a decent premium to cost;

and


 
 
       iv. the dependence on the GBP10 million and GBP20 million loan facilities 
provided by the Bank of Scotland, 
                  which are committed until July 2010 and July 2011 respectively 
and whose renewal is uncertain. 
 
 
We consider that the likelihood of effecting a merger between HPEQ and another 
listed private equity fund-of-funds, intended principally to narrow the 
discount, is quite unlikely in the near-term. It would be extremely difficult to 
agree acceptable terms when HPEQ's shares are trading at such a substantial 
discount and, in any event, the number of potential merger parties is highly 
limited. Moreover, such a merger would not necessarily act to reduce the 
discount and other measures may well have more immediate effect. 
 
 
We appreciate that many changes have occurred in how HPEQ is managed over the 
past three years, but note the Board's view that, in relation to current policy, 
"...it may take some time before it has a significant positive effect". We 
strongly believe that a change of policy should be implemented as a matter of 
urgency with a view to narrowing the discount and that it should principally 
involve: 
 
 
  *  institution of a run-off policy with a view to liquidating HPEQ over a period 
  of, say, five years, with the proceeds being distributed to shareholders on a 
  tax-efficient basis. 
  *  implementation of a cash-conservation strategy to ensure that HPEQ has 
  sufficient liquidity to meet its commitments. This would include: 
 
 
 
                i.   discussions with the Bank of Scotland with a view to 
extending the maturities of the two loan 
                     facilities;




               ii.  detailed analyses


of likely cash calls over the next 24 months, HPEQ's ability to finance those 
                     calls, and alternative financing sources; 
 
 
     iii.  the prioritisation of funds and investments to ensure that those most 
likely to generate superior 
                     returns are supported first; and 
 
 
iv. a review of administrative expenses which, prima facie, seem high by 
industry standards. 
 
 
 
 
We have absolutely no doubt that the foregoing change in policy could be 
implemented within the three-month period within which you requested HPEQ's 
Board to develop proposals to narrow the discount to net asset value. We believe 
that we would be uniquely well-qualified to develop and implement the above 
strategy, given that: 
 
 
  *  We manage two fund-of-funds targeting funds operating in the Western European 
  lower mid-market buy-out segment and so we have a team dedicated to the segment 
  where HPEQ is investing. The team, which has extensive knowledge of, and 
  relationships in, this segment, exclusively follows this segment, and is in it 
  for the long-term. 
  *  We are currently raising a fund to invest in secondary transactions in the 
  segment and, indeed, have carried out a number of such transactions in our 
  fund-of-funds. The team, therefore, has the expertise to source, negotiate and 
  execute secondary transactions on behalf of HPEQ: whilst in the immediate 
  environment it is unlikely that the secondary market will optimize value for 
  HPEQ, we believe that it could play a significant role over time. 
  *  The team has extensive experience in negotiating financings such as may be 
  involved in the discussions with Bank of Scotland or alternative sources of 
  funding. 
  *  We believe that we can develop a compensation structure which would be lower 
  than the management and performance fees charged by the current managers and 
  which, in basing the performance fee on share price performance, would create a 
  much closer alignment between shareholders and the manager. 
 
 
 
We very much hope that you will be able to persuade the Board of HPEQ of the 
merits of these proposals. 
 
 
Yours sincerely, 
 
 
 
 
D. G. Seligman 
 
 
 
 
END 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
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