Strategies and Portfolio Roles · Investment Trusts

Private assets do not have a continuously observable exchange price. A reported NAV therefore depends on a valuation process whose timing and assumptions deserve close attention.

Understand the evidence behind the mark

Private company values may use recent transactions, comparable businesses and models of future cash flows. The exact method depends on the asset. A funding round may involve different rights from the shares held by the trust, so its headline valuation cannot always be copied directly.

Managers and boards should explain valuation governance and review triggers. The Scottish Mortgage material linked below provides one manager’s historical explanation of its process. It is an example to interrogate, not a universal timetable or endorsement.

Distinguish stability from certainty

A private asset value updated less frequently can appear smoother than a traded asset’s price. That does not prove lower economic risk. A lack of new observations can conceal changes that become visible only at a later valuation or transaction.

Imagine 30% of NAV consists of private assets. A hypothetical 20% reduction in that component would reduce total asset value by 6% before borrowing and other effects. Gearing can make the effect on ordinary shareholders larger.

Ask about the route to cash

A valuation is not an executable bid for the entire holding. Sale restrictions, ownership rights, company financing needs and market demand affect realizable proceeds. A forced sale can have different economics from a patient exit.

Read the valuation date, methods, sensitivity disclosures and subsequent events. Keep official NAV distinct from your stress scenario and identify which assumptions would need new evidence.

Try it yourself

Private assets are 40% of an unlevered portfolio. A stress scenario reduces their value by 15%. What is the direct portfolio effect?

Show the worked answer

The direct effect is a 6% reduction, with the other 60% unchanged. Borrowing, expenses and currency can alter the effect on shareholder NAV.

Further reading

Educational material, not a recommendation to buy or sell a fund. Numerical examples are hypothetical. This guide focuses on listed investment companies commonly called investment trusts in the UK. Product terms, access and tax treatment vary by jurisdiction.

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