Private Equity Investment Trusts (PEITs) are public companies whose shares are listed and traded on the London Stock Exchange. The term “PEITs” also refers generically to similar vehicles (which are not structured as investment trusts) and listed on London or other European Stock Exchanges. PEITs offer the opportunity to participate in private equity investments in mainly unlisted companies or portfolios of funds, without the need to be a very wealthy individual or institution.

There are two main types of PEIT:

1. Direct investment PEITs: invest in a portfolio of companies selected by a single manager alongside Limited Partnership institutional funds managed by the same manager.

2. Fund-of-funds PEITs: invest in a portfolio of direct investment funds, which themselves invest in individual companies. Funds-of-funds aim to diversify across a range of the best available private equity managers.

Some PEITs also invest in both direct investments and funds, offering a hybrid of the two approaches set out above. In a few cases, the PEIT owns the private equity manager.

London-listed PEITs are supervised by boards of directors, the majority of whom are independent, in order to protect shareholders’ interests. Investment trusts, if they meet certain criteria, pay no corporation tax on capital gains but must distribute most of their net income in each financial year.

A PEIT’s objective is usually to provide shareholders with long term capital appreciation, rather than dividend growth.

Each PEIT, like each private equity firm, has its own investment strategy relating to geography, size and type of investment, etc.

PEITs vary considerably in the number of their own holdings, ranging from a specialist direct investment PEIT with a handful of portfolio companies in one country to a fund-of-funds PEIT with holdings in over 300 private equity funds worldwide.

PEITs continually invest and reinvest; they have no fixed lifespan. Proceeds from the sale of assets are retained for reinvestment, rather than being distributed to investors, which would trigger taxable gains. This, together with the long term horizon of private equity, means PEITs are best suited to long term holding, rather than frequent trading.

In Europe there are about 80 investable listed private equity companies, with market capitalisation of £28 bn (€35 bn), of which £10 bn are London-listed companies. PEITs should not be confused with Venture Capital Trusts (VCTs), which offer targeted tax advantages to investors but must follow stringent regulations as to the size and nature of the companies in which VCTs can invest. Such companies are generally embryonic businesses.