'High risk' and 'speculative' are some of the attributes you might associate with private equity investing, but 'cautious' and 'naturally conservative' probably don't spring to mind. Yet this is exactly how Graphite Enterprise (GPE), an investment trust focused on private equity, describes its method of investing, a method which has also paid off in terms of returns (read our tip).
Private equity is investment directly into private companies that are not listed on a stock exchange, with the aim of seeking high returns on capital. So how is it possible to marry private equity with cautious, and naturally conservative portfolio and balance sheet management?
"Firstly, balance sheet management," says Tim Spence, finance director at Graphite Enterprise. "We don't want to put the balance sheet under undue risk and pressure, so over the last 20 years we have typically had a positive cash position. We have a bank facility which we recently increased to £100m but don't plan to draw on it on a long-term basis, and haven't drawn it yet. It is to make provision if we don't have cash for a short-term need."
In times of crisis such as 2008, concerned that the ability to sell on investments might totally dry up, the team at Graphite disposed of some assets and significantly reduced commitments, leaving them with more than 40 per cent of their assets in cash. "This was very different to our peer groups," explains Mr Spence.