For much of last year, private equity trusts languished in a dealmaking ‘drought’ thanks to a combination of high interest rates and widespread economic uncertainty.
However, an uptick in share price performance at the end of last year and through the beginning of 2026 suggests a softening in sentiment towards the beleaguered sector. That said, private equity trusts are an eclectic bunch and performance has varied.
Broadly, private equity trusts can be split into two camps: traditional private equity, with trusts focused on buyouts, and growth capital, which is more similar to venture capital investing.
Of the two subsectors, growth capital has been the stronger performer over the past year and, within this category, clear frontrunners are emerging.
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Traditional private equity trusts
A lack of deal activity has led to muted net asset value (NAV) performance across traditional private equity trusts in recent years. Over the past year, direct private equity trusts saw an average NAV total return of just 2 per cent, while private equity fund of funds saw an average NAV total return of only 5 per cent.
However, during this same period, share prices have started to recover. Over the past year, direct funds returned 11 per cent, on average, while funds of funds returned 19 per cent.
William Heathcoat Amory, managing partner at Kepler Partners, argues that historically share price growth has been a good indicator that NAV growth will soon follow.
Given that discounts across the sector are currently very wide, 17.2 per cent on average for direct private equity trusts, and 24.5 per cent on average for fund of funds, this could be a good buying opportunity for investors, Heathcoat Amory said.
“Once you start to see NAV growth, you will start to see the share price really motor up and there’s the chance of sentiment continuing to build so that the discounts narrow further,” he added.
However, while share prices may be moving in the right direction, some analysts have concerns about the debt levels of the underlying portfolio companies in these trusts.
“Refinancing risk is still a big issue. Many businesses were financially engineered in the era of low interest rates and many of these need to be refinanced at much higher rates,” Mick Gilligan, head of managed portfolio services at Killik & Co, said.
“This could lead to selling pressure and downward pressure on private equity valuations.”
Growth capital
While traditional private equity trusts might be staging a tentative comeback, growth capital trusts are already roaring ahead.
Over the past year, the subsector’s average share price total return was 44 per cent, compared with the FTSE All-Share index’s 22 per cent. Meanwhile, over the past three months the subsector has delivered an average return of 17 per cent compared with the FTSE All-Share index’s 7 per cent.
Growth capital’s relative outperformance compared with its private equity peers is largely due to differing approaches to portfolio construction.
Growth capital trusts tend to adopt a more concentrated strategy and as several of these trusts focus on defence tech companies, this has left them well positioned to capitalise on the shifting world order.
Seraphim Space (SSIT) is a clear example of this. It has been the top performer in the capital growth sector over the past year, with a share price total return of 161 per cent. Over the past three months it has returned 63 per cent.
The trust invests in early and growth stage space tech businesses and has benefited from an increase in global defence spending. In its latest annual report, the trust stated that 17 of its portfolio companies had secured additional funding over the previous financial year amounting to $2.1bn (£1.5bn). By comparison, $900mn was raised by its portfolio companies the year before.
Schiehallion (MNTN) was the second-best performer in the capital growth sector both over the past year, returning 54 per cent, and over the past three months, returning 40 per cent.
“Its cluster of defence tech holdings is probably the best way to play this theme across the investment trust landscape, outside of Seraphim Space,” Winterflood analysts argue. These include Anduril, which develops autonomous defence systems, and aerial intelligence company Tekever.
Several of its portfolio companies are potential IPO candidates in 2026, Stifel analysts add.
SpaceX is its second-largest holding, with a 13.8 per cent allocation, but Anthropic, Databricks, Anduril and Bending Spoons could also list over the next year, which would unlock value for the trust.
