In recent years, I have written about why private investors might want to invest in private assets and especially equity, usually through a publicly traded investment trust. In its simplest form, more high-growth companies are choosing to avoid the public markets and opt to stay private longer, with the help of private equity funds.

Therefore, if as an investor you want some exposure to these fastest-growing private companies, you are forced to consider the broad spectrum of money ranging from early-stage venture capital to buyout funds for mature companies.

I don’t want to underestimate the challenges. Private equity is plagued by excessive fees for clients. Share prices of even the most established and successful exchange-traded funds are heavily discounted to their net asset value. Those discounts show no signs of slowing down anytime soon.

Private capital has boomed in part due to its access to cheap money over the past decade, which has allowed for substantial leverage in many cases. That era is now coming to an end as debt servicing costs have skyrocketed and, anecdotally, I’m hearing from a lot of private equity types concerned about having to move IRRs (internal rates of return) from the high single digits to a medium or even high value.

The trick for investors will be understanding who has access to the right deals, which in turn will force managers to look for more adventurous proposals.

This latest trend – higher interest rates forcing higher returns needed to invest in risky private businesses – is a very real challenge and will separate the wheat from the chaff. For too long, PE professionals have said they are experts at running businesses, investing for growth and improving operating margins, as well as financial engineering, but now they will have to prove it. They will have to show very clearly how they can add value, with less debt and higher profitability thresholds.

I’m not sure all managers will pass this test and the trick for investors will be to understand who has access to the right deals, which in turn will force managers to look for more adventurous proposals, and not just rely on driven mega-proposals. for the debt. offers that include packages from recognized companies.

It is in this context that I am going to suggest three private equity or venture capital funds that are adventurous in their attitude towards business. They are on the fringes of the mainstream: easily accessible, publicly traded private equity funds such as Hg Capital Trust, Oakley Capital Investments or funds of funds such as Pantheon International or HarbourVest Global Private Equity. I have mentioned all of these in a previous column in PE and any could easily be part of a private investor’s portfolio.

The first of my boldest proposals is Literacy Capital. It has the distinction of being almost the only private equity fund listed on the London Stock Exchange (apart from 3i) to trade at near par and has even very recently traded at a premium. It occupies a very particular and attractive niche – investing in smaller, fast-growing but established, UK-focused companies, with deals typically ranging between £1m and £10m.

That focus on small deals in the UK is highly unusual among listed PE funds, but rest assured, this is not a venture capital operation. Most of the businesses in its portfolio are profitable or close to being profitable and are fairly established in their market.

Most listed private equity managers tend to look to continental Europe and focus more on deals in the £50m-plus range, many of them in the billions; Literacy Capital is happy to work with much smaller companies that you can scale. In effect, it is a kind of public family office for Paul Pindar (and his son), who founded Capita, a specialist in outsourcing.

He has had several very successful exits, including a recent one involving a pet food business that generated a huge investment multiple. The fund also has a clear ESG focus and donates a portion of its fees to a sister charity working to improve literacy in schools. If, like me, you believe there is a huge funding gap for non-tech growth businesses in the UK, in sectors as varied as recruitment and food, then this is the fund for you.

Continuing with the UK theme but going much further up the risk curve, it’s also worth looking at a listed venture capital called Forward Partners. If I had to make a list of all the investing niches I shouldn’t be in right now, this one would probably take the prize. Invest in early-stage companies, where funding has dried up in recent months. Its focus on the UK means it doesn’t really have much chance of landing local IPOs any time soon. It has also pitched e-commerce as a core area and, as a small fund, does not have the deep pockets of some of its larger venture capital peers. That means you need capital to help your portfolio businesses get through the next two or three years.

Not surprisingly, investors have taken a look at the portfolio and anticipated a huge cut in valuations, with the fund trading at a close to 70 per cent discount to net asset value. In my opinion, that’s deserved at this point because I’m not sure I trust any valuation of a private equity investment based on 2022 numbers or, frankly, even some 2023 numbers. So, Forward finds itself in a completely unfashionable situation, but if we look at its portfolio we will see that quite a few of its businesses look attractive, especially those in AI, where the UK has real strengths.

My last suggestion is another contender for that underdog status. Georgia Capital is one of the largest international investors in Georgia: not the American state but the charming republic located across from Russia (and two breakaway states).

I can instantly imagine the thoughts running through readers’ minds, but consider this: Georgia Capital has one of the most impressive track records I’ve seen in building private companies and then selling them or going public. It is investing in a booming economy and has a large stake in London-listed Bank of Georgia, which is also booming and has higher profitability than virtually any bank in the UK.

Compared to most emerging market private equity firms listed on the London market, it is a model of transparency and its management has taken pains to explain its PE business model. It was all in vain: the fund is trading at a 56 percent discount to its NAV, and that’s despite its share price rising 41 percent so far this year.

What unites these three London-listed funds is that they go beyond the private equity model by going places most big operators wouldn’t touch with a barge pole and generating real alpha by taking on big risks. That means smaller private growth companies in the case of Literacy Capital, early-stage technology companies in advanced or frontier markets with Georgia Capital.

They all have a proven track record of deals and exits, but are under the radar of most major UK investors, even those interested in off-market assets such as private equity. And I now own shares in all three, having trickled money into the funds over the past six months.

David Stevenson is an active private investor. Email: adventurer@ft.com. Twitter: @advinvestor.