Have Private Equity Investment Trusts Paid Off For Investors?

Key Takeaways

• As the UK pushes more individual investors toward private market investing, the track records for private equity investment trusts offers a mixed picture of their success.
• With a wide range of private equity strategies, long-term returns show a large gap between the winners and losers.
• Many UK-focused private equity trusts have outperformed, but most global strategies failed to beat public markets over 10 years.

Private market investments are being touted by UK government officials as a way for savers to earn higher returns on their retirement money, but the data makes it clear that isn’t always the case.

As a whole new class of investors potentially put money to work in private markets, they can look to the long history of private equity investment trusts for clues on returns and how these strategies can fit into a portfolio.

On the one hand, over the last two decades, many private equity investment trusts have provided returns competitive with publicly-traded UK stocks. However, the comparison generally looks poor when compared with global listed stock strategies that have seen returns fueled by big US technology stocks.

Dan Kemp, Morningstar’s chief research and investment officer, says: “Private markets can offer a valuable illiquidity premium, broadening the range of investment options and potentially improving returns in the long run, but this premium isn’t guaranteed or constant.”

Have Private Equity Trusts Rewarded Investors for Taking More Risk?

Importantly, the averages for private equity trust performance hide a wide gulf between leaders and laggards. In some cases, the private equity trusts have not compensated investors for taking on the extra risk associated with investing in illiquid, unlisted companies. When it comes to beating their stated benchmarks, it’s also a mixed picture. Half of UK private equity trusts have seen higher volatility than global indexes, but on the positive side for investors building portfolios, correlations with the public stock market have been low.

The wide-ranging track records among private equity investment trusts highlight the importance of investors taking the time to closely investigate underlying strategies’ performance and factors such as correlations, volatility and fees before investing.

“The variation in returns from PE trusts is a demonstration that investment strategy and process are highly important,” says Daniel Haydon, a fund analyst at Morningstar.

What Are Private Equity Trusts?

Private equity investment trusts offer access to private assets that are normally not easily available to individual investors. These trusts trade on the London Stock Exchange like ordinary company stocks but typically hold unlisted or early-stage companies. They differ from global equity investment trusts like F&C Investment Trust FCIT, which predominantly own publicly-traded stocks.

While PE investment trusts have been publicly available in the UK for more than 50 years, they are still mainly held by institutional investors. Individual investors only account for 9% of private equity trust ownership, according to a 2025 Association of Investment Companies report. This is lower than for mainstream trust asset classes like global equities and UK equity income, where individual investor ownership is around 50%.

UK-listed private equity trusts hold about £45 billion in total assets, up 136% from £19 billion five years ago.

What Do Private Equity Trusts Invest In?

Private equity investment trusts invest in a wide range of underlying holdings. Some, like HgCapital Trust HGT—the third largest private equity investment trust with £2.46 billion in assets—Oakley Capital Investments OCI and Pantheon International PIN, offer a “fund of funds” strategy. HgCapital invests in private Hg funds that assist companies in achieving growth; Oakley invests in other Oakley funds with access to unquoted, profitable pan-European businesses; and in Pantheon’s case, the portfolio contains small/mid-market buyout and growth funds.

Others invest directly in unlisted companies and have highly concentrated strategies, holding more than the 10% limit set by UK regulators on open-end funds for one asset. The UK’s biggest investment trust, the £26.2 billion 3i Group III, for example, has a 70% holding in European retailer Action, where it is the majority shareholder.

There are also private equity investment trusts that focus on specific sectors and themes. Baker Steel Resources BSRT focuses on unlisted and less liquid natural resources companies, Augmentum Fintech AUGM invests in unquoted financial technology businesses, and one trust, Literacy Capital BOOK, takes on companies in management transition while also raising money for children’s education and literacy in the UK.

Given the range of holdings and strategies, Morningstar’s Haydon says they are “notoriously difficult” to benchmark, leading to a large spread in returns and making it more challenging for investors to compare performance within the group.

Mixed Long-Term Returns for Private Equity Trusts

The long track record of many private equity investment trusts provides investors with insight into how these strategies have performed over different market and economic cycles.

There are 25 private equity trusts listed on the London Stock Exchange, 18 of which have a 10-year return history. A table of private equity investment trusts that trade on the London Stock Exchange and their long-term returns can be found at the end of this article.

The six largest trusts have seen their investments grow by double-digit percentages for the past 10 years, with few negative annual returns to be seen. However, returns within the category are widely dispersed, which reflects not just the relative success of the funds, but also the variations in strategies.

The best performing trust was 3i Group, which has returned 26% on an annualized basis over 10 years; the worst was Schroders Capital Global Innovation Trust INOV, with a negative annualized return of 14.46%.

When it comes to overall performance, the private equity Morningstar Category that covers these trusts has returned an average of 9% a year over the last decade. In comparison, the Morningstar PB Global Unicorn Index increased 20% over 10 years annualized, while the Morningstar Global Markets Index grew by 13% annualized, and the Morningstar Global Developed Markets Core Bond Index had an average return of 2%.

When comparing returns posted by private equity investment trusts with the indexes against which they measure performance, it’s a mixed picture. The majority have seen long-term gains but only half have beaten their benchmarks.

Of the 18 private equity investment trusts with a 10-year track record, 12 have beaten the category average, while seven have beaten the Morningstar Global Markets Index.

For the six PE trusts that measure performance against the FTSE All-Share, a UK specific index with around 600 stocks, the results are strong. Five of the six have comfortably beaten the FTSE All-Share’s 7.62% annualized gain over the last 10 years, including HgCapital Trust’s 10 percentage point outperformance.

Three trusts use more global benchmarks such as MSCI World and FTSE All-World indexes, but these don’t flatter the returns picture: Only HarbourVest Global Private Equity HVPE outperformed, and with an annualized return of 1.74 percentage points above the 10-year average return of the FTSE All-World.

PE Trusts: A Stronger Two-Decade Return Profile?

Over a 20-year investment horizon, the performance figures for private equity trusts are stronger. But the dataset is much smaller: Only nine listed PE trusts have a track record that goes back that far. Six out of the nine posted returns ahead of the 10% annualized return of the Morningstar Global Markets Index for the past two decades.

Over 20 years, 3i was once again the best performer on an annualized basis, rising 15.85% and beating its benchmark, the FTSE 350, by 8.93 percentage points.

When compared with their respective benchmarks, only two funds out of the nine underperformed: JPEL Private Equity JPEL saw 20-year annualized returns six percentage points below the LPX Composite Index and EPE Special Opportunities ESO was nine percentage points below LPX Europe.

As with the 10-year returns, there’s a wide range, with the gap between the best and worst performer coming in at 20 percentage points.

Morningstar’s Haydon says solid 20-year returns on private equity investment trusts should be put in context of the low interest rate era, which lasted from the end of the global financial crisis to the end of 2021. The private equity sector in which these trusts invest historically used debt to finance buyouts of private companies and lower interest rates were a tailwind for the group. UK investment trusts, unlike their open-end fund counterparts, can also use gearing or borrowing in an attempt to enhance returns.

Private Equity Trusts Vs. Global Equity Trusts

Comparing private equity trusts with the performance of some of the largest global equity investment trusts suggests investors could have achieved high returns from a portfolio of listed stocks instead, and at a lower cost.

Over a 10-year period, the UK’s second biggest trust Scottish Mortgage SMT has beaten all but two of the listed private equity investment trusts: With an annualized return of 17.74%, this trust was just behind HgCapital’s 17.75% and 3i’s 26.39% return over 10 years. Over 20 years, Scottish Mortgage was in second place with an annualized return of 14.66% versus 3i’s 15.85%.

The performance of Scottish Mortgage, which has a Morningstar Medalist Rating of Silver, has been supercharged by the portfolio’s tech focus and early successful bets on Nvidia NVDA and Tesla TSLA. While the trust is categorized as a global equity vehicle, it also invests in unlisted assets. It currently holds 25% of its portfolio across 51 private companies and owns more than half the world’s top 10 most valuable unicorns.

The UK’s oldest investment trust, F&C, also offers another performance comparison: It’s a diversified global portfolio of more than 400 stocks. This Neutral-rated trust is a popular retail holding among UK investors and counts Nvidia, Microsoft MSFT, Meta META, Apple AAPL, and Amazon AMZN among top holdings. It also holds about 10% in private equity. Over 10 years this trust has posted annualized returns of 12%, and just below 10% over 20 years. Over 10 years its performance was better than the majority of the 19 private equity trusts, but over 20 years it lagged most of the PE trusts with a track record for the period.

Private Equity Trust Drawdowns and Volatility

Gauging how an investment fits into a portfolio requires more than just looking at overall returns. The volatility of those returns also matters in terms of an investor’s risk tolerance.

One way of assessing volatility is “drawdown,” the amount an investment declines in value from peak to trough. According to Morningstar data, private equity trusts as a group have not been more volatile than global markets, but like with returns, there is wide dispersion between individual investment trusts.

Roughly half the group saw a smaller drawdown—meaning less volatility by this measure—over five years than the Morningstar Global Markets Index, which saw a peak-to-trough decline of 16%.

Again, the drawdowns for the 22 trusts with five-year track records show a wide dispersion. The shallowest drawdown was on Augmentum Fintech, which had a maximum drawdown of 3.52% since 2020. 3i’s drawdown at 8.49% was also much lower than the average, despite its 10-year annualized return of 26.39% making it by far the best performer over the longer term.

The trust seeing the biggest drawdown was Schroders Capital Global Innovation Trust, with a peak-to-trough drawdown of 62.29%. The fund was also the group’s worst long-term performer, down 14.46% on an annualized basis over 10 years.

How Correlated Are Private Equity Trusts With Public Markets?

Another measure investors to consider is how the return profile of private equity trusts compares with other asset classes. A fully diversified portfolio would ideally contain assets that don’t move in sync, which reduces the volatility of portfolio returns. Correlation, or the extent to which assets move in tandem, is key here.

When measuring correlation, a reading of 1 suggests perfect positive correlation—meaning the two investments tend to move in the same direction—and -1 represents perfect negative correlation. A reading of zero means the investments don’t have a direct relationship in performance.

Morningstar data shows that private equity trusts have lower correlation with both stocks and bonds than these markets have with each other.

Based on net asset value returns over 10 years, the average correlation between the private equity investment trusts and the Morningstar Global Market Index was a positive 0.36, with individual trusts ranging from 0.01 for JZ Capital Partners JZCP and 0.48 for LMS Capital LMS. The category has an average positive correlation of 0.25 with global bonds as measured by the Morningstar Global Developed Markets Core Bond Index.

In contrast, the correlation between the global markets stock index and the global bonds index was 0.43. This suggests that private equity trusts have a lower correlation with listed equities than listed equities have with the bond market, which are included in diversified portfolios together because of their low correlation.

Private equity trusts also show moderate positive correlation with the Morningstar UK Index, at 0.36, and the Morningstar US Market Index, at 0.31. With significant overlap of stocks in these indexes and the global markets index, the UK and US indexes have correlated significantly with global markets and each other, ranging between 0.79 and 0.98.

According to Nick Britton, research director at the Association of Investment Companies, says “sensitivity to interest rates and the business cycle” could explain positive correlation between private and public equities.

The trusts are also showing varying correlation with their respective benchmarks. HgCapital has the highest correlation over 10 years, at 0.49, while JPEL Private Equity’s 0.24 correlation is the lowest.