In a report released earlier this week, Winterflood said market conditions were particularly similar for funds investing in illiquid asset classes, such as funds of hedge funds and private equity funds.
“Dependent on ongoing market conditions, it is possible that discounts could widen again across the sector,” the report said.
However, Winterflood said it did not believe discounts would widen to the same extent as seen in 2008, when many hedge funds were trading at premiums or around NAV.
Winterflood claimed listed private equity funds were also vulnerable to a change in sentiment, citing that most have seen their share prices fall in recent weeks, despite the prospect of good NAV growth.
“However, discounts are wider, having never recovered to early 2008 levels and balance sheets are stronger now, with lower levels of outstanding commitments,” the report said.
The company said while there was not as much value in investment trust sector as it expected, Winterflood nonetheless saw some value appearing.
“Historically, the investment trust sector has suffered during market falls, due to the effect of gearing and widening discounts,” the report said. “This has provided sophisticated investors with the opportunity to buy out-of-favour asset classes on wide discounts, which has led to significant out-performance when markets have eventually turned and discounts tightened.”
