Private equity investment trusts have started to feel the impact of this year’s crises that have hit listed markets – the sell-off of software stocks due to AI concerns in February and the reaction to the US-Israeli war against Iran in March.
Valuations in the sector are partly based on those in the listed sector but come through months later, so investors do not immediately see how private equity houses have accounted for changes to their unlisted holdings.
This is especially important right now as private equity valuations are typically updated every quarter. Markets hit their lowest point this year at the end of March before rallying again in April. Private equity trusts’ share prices reacted straight away, but the effect on net asset values (NAVs) has only become apparent.
Software specialist HgCapital Trust (HGT) was among the worst hit, with its portfolio value falling 5.4 per cent in the first quarter. The drop in public markets actually reduced the NAV by 9 per cent, but this was offset by better-performing companies in the portfolio.
James Carthew, head of investment company research at QuotedData, argued that this valuation does not appear to fully reflect the sell-off in listed markets.
“Values of comparable listed stocks fell by 25 per cent over Q1 and [HgCapital’s] share price fell by 22.9 per cent, but it is arguing that valuations of its companies only fell by 9 per cent. Investors are going to take a lot of convincing of the validity of the NAV,” he said.
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Strong exits and good performance from companies in the portfolio might help, but Carthew argued “the jury will be out for a long while yet”.
Another heavily impacted trust was growth capital play Chrysalis (CHRY), which is in a managed wind-down and will be attempting to sell its entire portfolio over the next three years.
In the first quarter of the year, its NAV was down 17 per cent. The trust said this “largely reflects the performance of global equity markets over the period, with 30 March representing the year-to-date low for Nasdaq and the S&P 500”.
The two indices have since recovered considerably. If that continues to be the case, the trust’s NAV should also partially recover at the next valuation point in June.
“The problem is less acute for the other trusts, but there will be some impact,” said Carthew. HgCapital’s biggest holding, Visma, for example, was also the third-largest holding in Patria Private Equity’s (PPET) portfolio, albeit accounting for just 2.2 per cent as at the end of January.
Partners Group Private Equity (PEY) saw its NAV decline by 3.3 per cent in the first quarter, partly due to share price drops for two of its listed holdings.
For some trusts, particularly those that invest at least partly as funds of funds, it will be a while longer before the effect of market movements in February and March is seen in NAV figures. Pantheon International (PIN), HarbourVest Global Private Equity (HVPE) and Patria have all published their March NAV updates, but most of the figures are based on December 2025 valuations.
Oakley Capital (OCI), which also has a significant portion of its portfolio in technology companies and had seen its share price fall considerably earlier in the year, bucked the trend at portfolio level, with its NAV up 2.7 per cent in the first quarter.
The exit drought
More broadly, private equity has been waiting for a true recovery in exit activity since the start of the war in Ukraine and the interest rate increases in 2022. This is now likely to be further delayed, particularly in the software sector.
Carthew said that exit activity in the first quarter of the year looked “a bit better”, but then slowed. “I think the main hold-up for exit activity is uncertainty around the Iran war and its impact. In software, there is a definite agentic AI impact that will take a while to get over,” he said.
Gordon Smith, head of fund research at Killik & Co, agreed, arguing that “recent market concerns have clearly impacted the near-term prospects of deal flow in the software space” – with the delay of the Visma IPO being a clear symptom of this.
“We believe many businesses within the Hg portfolio have created substantial moats and dealt with significant competition already,” he added. “However, it is likely to take some time for these businesses to further prove their positions, and the negative impact on pricing power is likely to mean market participants approach valuations with greater caution.”
Private equity trusts are having to get more creative to generate liquidity. Earlier this week, Pantheon International announced that it had sold fund stakes worth about a tenth of its portfolio, at a discount of about 13 to 15 per cent to the latest valuation, according to Winterflood. Most of the proceeds will be used to fund buybacks in an attempt to reduce the trust’s 27 per cent discount to NAV.
