Cur8 Capital’s Private Equity Thesis
Don't invest unless you're prepared to lose all the money you invest. This is a high-risk investment and you're unlikely to be protected if something goes wrong. Take 2 mins to see our risk warning.
Husain Laher
Private Equity Investment Manager
December 4, 2024 | 5 min read
Private Equity is a relatively common asset class in institutional investment circles – but not so much for the everyday investor.
Why do institutions like private equity so much? Because it is known to achieve above average returns consistently.
Here is a chart clearly showing how private equity has consistently outperformed the S&P 500 over all time durations.
However, private equity (also known as “PE”) is tricky to invest into as an investor. This is doubly so when you also have ethical and sharia-compliance criteria to adhere to as well.
This is where Cur8 Capital comes in. We’ve launched a private equity offering to our investors that unlocks access for a much larger set of folks. More on this later.
Let’s start with a simple definition:
PE is investing in non publicly traded companies, i.e. where the shares of these companies are not available on a general public stock exchange, like the LSE (London Stock Exchange) or the NYSE (New York Stock Exchange), which includes companies like Coca Cola and Tesla.
PE firms raise money from investors, typically the High Net Worth individuals, to purchase equity in a business, holding the investment for a period, typically between 3-7 years, before selling up for a profit.
Investment structures vary in form dependent upon various factors including risk tolerance, investment goals and market condition. Typical structures utilise significant amounts of interest-bearing non-sharia compliant debt:
You might also have heard the term “venture capital” thrown around alongside “private equity”.
The two asset classes are very much related, but also very distinct.
Venture capital looks to invest small amounts of equity in very early stage companies with high growth potential requiring capital to support their growth. It is typically considered high risk given the early stage of the business. Our EIS fund represents a Venture Capital fund, and you can find out more about it here.
On the other hand, private equity focuses more on established companies with a proven track record, operating in a market where there is growth potential. Financially the biggest difference is that PE companies are revenue generating and generally profit making.
So both VC and PE involves investment into private companies, but the type of company, and stage of its journey differ greatly.
There are a number of reasons why the High Net Worth Investors choose private equity. These include:
There are a number of key ways in which these returns are typically achieved, some of these include:
Once PE firms have fully optimised their position, they will start to implement their exit strategy, which is typically prescribed on initial acquisition.
This can be selling the business to another PE firm, a trade party / Merging with another company or an IPO at a larger valuation, due to an increased profit/revenue position or a greater valuation multiple (what the experts call multiple arbitrage)
The best and the biggest investors invest in an asset class that you don’t invest in.
Averaging over 33% of portfolios dedicated to PE
Why? – Above average returns
PE’s investment of £2.3m grows to £7.4m a 3.3x multiple, and 27% annualised RoR over a 5 year holding period
And this hasn’t appealed to ethical investors, because without the non sharia compliant debt, the returns are significantly impacted. In this scenario, without debt, a £6.8m investment will return PE £13m, a 2.0x multiple in comparison to a typical private equity 3.3x multiple.
This is why we are unlocking this asset class for everyday folks for the first time in a halal way.
Note – a number of assumptions have been incorporated into the above worked example.
Herein lies the phenomenon of how the rich become richer. PE is typically only accessible to institutional investors and high-net-worth individuals. This is influenced by PE investments requiring a significant amount of capital, which is considered to be high risk.
To alleviate this risk, most PE funds raise money from investors for a portfolio of businesses in order to diversify the risk.
Looking at McKinsey’s report (Mar-24), across Europe Private Equity is the only Asset class to have increased its year on year fundraising.
Given the financial structuring of most, if not all PE transactions including significant amounts of debt as illustrated in the worked example above (be it external debt or internally created loan notes to shareholders), PE is generally not sharia compliant due to this.
The PE fund may also support one or many businesses which are not considered sharia compliant due to their nature of services. This would then cause complications for the sharia compliant position of the wider fund.
This clearly creates barriers to your everyday Muslim investor, given the sharia position, the high investment amounts and the illiquidity. In addition, PE also comes with typically high fees and very complex investment structures.
Having completed on multiple acquisitions and realised some profitable exits in the Venture Capital side, we are now creating our first investment into private equity.
Cur8 Capital is offering a unique private equity investment opportunity which is sharia compliant within the UK pharmacy sector.
This investment is to create the pharmacy of the Future, where we have acquired a platform pharmacy under the Everest brand to carry out a Buy & Build PE strategy in the North of England, whilst implementing technological enhancements and automation to create the ‘Pharmacy of the Future’.
The Everest group are seasoned pharmacy operators who have experienced pharmacy portfolio acquisitions, portfolio management and exits in the UK over the last two decades.
Following our acquisition of the Everest platform pharmacy, to date, we have acquired a further 9 pharmacies within the first 6 months, and we are on track to acquire an additional 10 within the next 6 months. Clearly a strong start to the investment, with an even stronger pipeline of over 15 pharmacies in the short term.
You can learn more about Cur8 Capital’s Pharmacy of the Future Strategy below.
If you are a Muslim who is interested in investing in private equity, it is important to do your research and make sure that you are investing in a Sharia compliant fund.
Moonfare (2024) Why invest in private equity? Available at: https://www.moonfare.com/pe-masterclass/why-invest-in-pe
Plante Moran (2024) Private equity’s long-term performance can make it worth the risk. Available at: https://www.plantemoran.com/explore-our-thinking/insight/2024/07/private-equitys-long-term-performance-can-make-it-worth-the-risk
FS Investments (2024) Private equity outperformance. Available at: https://fsinvestments.com/fs-insights/chart-of-the-week-2024-6-14-private-equity-outperformance/
McKinsey & Company (2024) McKinsey’s private markets annual review. Available at: https://www.mckinsey.com/industries/private-capital/our-insights/mckinseys-private-markets-annual-review