9 Aug 2022 07:00
London, UK, 9 August 2022
Edison issues review on Abrdn Private Equity Opportunities Trust (APEO)
Abrdn Private Equity Opportunities Trust (APEO) posted a 6.8% NAV total return (TR) in H122 (ending March 2022), which was a function of a robust return in late 2021 (in calendar Q421 at 5.2%, driven by profitable exits). The NAV TR between end-December 2021 and end-June 2022 stands at 2.4%, but its latest NAV is still largely based on end-March 2022 valuations and does not capture the subsequent sell-off in public equities. APEO's manager acknowledges that macro headwinds are likely to exert pressure on corporate earnings and portfolio valuations in H222. We note that this has already been reflected in its share price as APEO's discount to NAV widened to c 39% (versus 20% in our February 2022 note).
We note that APEO invests primarily in PE mid-market funds with a typical size of €1.0-5.0bn AUM (and has lately put more emphasis on lower mid-market funds of €150m to €1.0bn), which in recent years have accumulated less capital than PE 'megafunds'. Therefore, mid-market funds are likely to see a less demanding competition for acquisition targets. At the same time, mid-market funds tend to be less dependent on IPOs as an exit route, which may help sustain a good level of distributions to APEO despite the market headwinds. APEO's commitment coverage ratio has decreased recently to 26% (from a 43% monthly average over the last two years), but we view this as a safe level (see below). APEO's board is also confident that the company can continue its dividend policy, with 3.6p to be paid in October 2022 and January 2023, implying an annualised yield of 3.3%.
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