Stifel flags disclosure concerns from private equity trust
Investment bank Stifel has flagged disclosure concerns in a private equity trust that has cut back on the level of detail it provides around its loans.
While examining HgCapital Trust’s recent report and accounts, Stifel analysts claimed that there was less disclosure and commentary around debt in the fund than there had been a year ago, despite the trust’s accounts growing in size from 128 to 132 pages.
“There was one reference this year to these loans which totalled £364m, equivalent to 15 per cent of HgT’s [net asset value], compared with six references of the loans which totalled £356m in the prior year’s accounts,” said Stifel analysts Iain Scouller and William Crighton.
“Given that many of the corporate failures have frequently stemmed from excess debt, it is a key metric and if anything we think it is an area where disclosure could be better,” they added.
On an analyst call, one member of the Hg team said there was “no need” to disclosure the fund level debt, as the loan is not held by the trust itself, but its underlying limited partner fund.
“We were disappointed at the apparent ‘pulling-back’ from providing more details around this metric,” said Scouller and Crighton.
City PM understands that the changes to the annual report were meant to make the accounts less complex, and all changes were discussed and agreed with HgCapital Trust’s auditors.
Looking at comparable funds, Stifel noted that competitor Harbourvest Global PE highlights its level of debt on a monthly basis.
Meanwhile, Oakley Capital also published details of its loans in its accounts, but splits out the fund level loan figure from its performance fee provision, which HgCapital Trust does not, Stifel claimed.
“Clearly it would be more helpful to investors if these two figures were shown as separate line items, as is the case with Oakley Capital,” said Scouller and Crighton.
Stifel downgraded HgCapital’s shares to Sell in November, due a decline of net cash on its balance sheet and the trust’s share price at that time looking “relatively expensive”.
Despite the concerns around disclosure, Stifel upgraded the trust from Sell to Hold as the trust’s share price has dipped in recent weeks, falling eight per cent since the start of the year.
The trust was given a stock price target of 490p by Stifel, compared to its current share price of 496p.
HgCapital Trust declined to comment.