The trend of companies staying private for longer is not one that is likely to change any time soon and one team relieved by this is the one behind Monks Investment Trust. 
Currently, private companies only make up 1 per cent of the five FE Crown-rated trust’s portfolio but there is scope for this to increase in the future.
“I think we will move fairly slowly and conservatively on that but over time that percentage will increase to more like 5 per cent,” FE Alpha Manager Spencer Adair (pictured) said.
Traditionally companies have listed on the stock market to gain access to much-needed capital, whether it be to build a factory, design new products, buy shops or other capital-intensive ways of growth.
However, with the emergence of the internet, many businesses today don’t require as much cash because they are capital-lite.
Adair said: “It is 20 people in a dorm room coding. They need some personal hygiene, pizza and beer but they don’t actually need money in particular at the beginning.”
One example of a business that they have bought pre-initial public offering (IPO) is Spotify, which at the time was the main music-streaming company in the market.
“What we are looking for are businesses that we cannot replicate on the stock market,” the manager of the £1.7bn investment trust said.
“Companies are staying private for much longer at larger valuations. We are saying ‘that doesn’t bother us we can still own you’.”
As well as this idea that companies no longer need capital to start, there are other factors that make it easier to stay private for longer.
One is that there is less stringent regulation and hoops to jump through that need to be achieved before a company can list.
Another is that companies are not subject to huge swathes of inflows or outflows on the back of market sentiment and outside factors.
“It makes things easier in a way because if a company is listed every single day you get the share price moving up or down on largely random motions and pieces of news,” Adair said.
“People start to read things into that and interpret what these things are. Actually, if you find out the price of your company every six months or a year then that is fine – it does its job.”
He compared a listed company to buying and selling a house. Having bought his own in 2006, the manager said he is convinced that during the housing crash of 2008 he lost money.
“If I had been checking every single day what my house was worth I would be really depressed, but because I didn’t know and I only find out the true price once every 12 years it makes it easier to cope and make a decision,” he said.
“Quite a lot of the time these flashing lights are distracting and don’t really tell you anything about the true value of a business.”
One such thing that can be a distraction is quarterly reporting – something that listed US companies must conform to, although it is less of an issue in the UK.
“Quarterly reporting is brilliant if you are a farmer because there is a harvest and then spring and any business where the pace with which the earth moving around the sun is relevant to its cycle then absolutely we should have quarterly reporting,” Adair said.
However, for the 99 per cent of businesses not involved in agriculture, he said it is not relevant. Indeed, do Facebook, Apple or Netflix care which season they are in?
The manager noted: “It is an illusion of control, it is rearranging deckchairs on the Titanic. It doesn’t tell you anything it just makes lots of noise in the cycle.”
Instead, the manager said that for every stock brought into the Monks Investment Trust, they management team lay out what they believe are the vital signs of the company – he does, after all, have a degree in medicine from the University of St Andrews.
This allows the team to evaluate which part of the business they want to see progress in to make sure the company is either improving or getting worse.
“Every time we get a set of results we ask with our predetermined questions if there is any evidence that things are getting better or worse for the two or three factors that we think are really important,” Adair said.
“It is amazing when you do that that 97 per cent of the narrative that gets reported is irrelevant.”
He noted that a company that misses its target by one cent per share can see its share price fall by as much as 10 or 15 per cent in an immediate market reaction.
However, the business remains the same, he explained: “Twelve hours ago it was worth $2bn or $3bn more but because they missed by 1 cent per share it is suddenly worth billions less? It is not true. It is a false ceremony.”
Adair has run the £1.7bn Monks Investment Trust alongside Charles Plowden and Malcolm MacColl since the team took charge in 2015.
Since then, the trust has returned 85.73 per cent, the fifth-best in the IT Global sector, beating both the average peer and the FTSE World index.
Performance of trust vs sector & benchmark since manager start
Source: FE Analytics
The trust’s shares are on a 3.7 per cent premium to net asset value (NAV) and the trust is 6 per cent geared, although the manager said when appropriate he expects the long-term structural gearing to be around 10 per cent.
It has ongoing charges of 0.52 per cent, according to data from the Association of Investment Companies (AIC).