An Open and Closed Case for Investing in Unlisted Companies


An Open and Closed Case for Investing in Unlisted Companies

Reducing the risks highlighted by Woodford’s woes

September 2019, LONDON - Concerns over the use of unquoted companies in open-end funds are warranted, but the closed-end structure of investment companies is well suited to this type of investing, according to the latest issue of The Cerulli Edge—European Monthly Product Trends Edition.

Cerulli Associates, a global research and consulting firm, notes that the issues faced by U.K. fund manager Neil Woodford’s firm have focused attention on unlisted companies and the risks they carry for equity investors. In the months leading up to the suspension of the Woodford Equity Income Fund, it was reported that roughly a quarter of the fund’s £3.7 billion (US$4.6 billion) assets were invested in “hard to sell” stocks, those that would have taken between 180 and 360 days to redeem.

“The liquidity crisis that ensued highlighted the structural weakness of open-ended funds that invest in assets with limited liquidity—however, it is certainly not the first time that private equity as a sector has been under pressure,” says Fabrizio Zumbo, associate director, European asset management research, at Cerulli, adding that the global financial crisis of 2008 hit this area of the market hard.

The focus on unquoted opportunities by investment companies has been fueled by the decisions of business owners to remain private for longer.

Zumbo notes that there are essentially two types of private equity investment trusts that investors can choose from: funds of funds and direct. The former invest in limited partnership structures through a range of underlying managers across various sectors and geographies; the latter are typically more specialist as the managers have the responsibility for selecting individual unlisted companies to invest directly in and then offer them the support they require.


  • European equity markets remained relatively flat during July; however, European equities suffered €1.3 billion (US$1.4 billion) of net outflows during the month and €18.8 billion year-to-date (YTD). Many equity sectors have suffered YTD, largely as a result of global trade tensions and investor caution. July was a strong month for bonds, with yields falling in many markets. Expectations of monetary policy easing by the European Central Bank contributed to the performance in the bond market.
  • Property funds, the country’s best performers so far in 2019, continued their upward trajectory in July, with net new inflows of €221 million taking YTD net inflows to €5.1 billion. Active funds continued to outpace passives in July, with the former attracting €1.8 billion of net inflows and the latter just €12 million. The picture is similar when looking at net flows YTD, with active funds attracting €10.8 billion and passive funds posting €136 million in net outflows.
  • Money market and bond funds were largely responsible for the net inflows in the cross-border market in July, posting €24.0 billion and €15.5 billion respectively. Most of the cross-border managers Cerulli surveyed anticipate fast or moderate growth of environmental, social, and governance (ESG) fund assets across Europe in 2019. ESG is not yet mainstream at the European level, but Cerulli believes that growing interest from banks (both private and retail) and retail asset managers will boost the sales of cross-border ESG funds.

These findings and more are from: The Cerulli Edge—European Monthly Product Trends Edition, September 2019 Issue.


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