Many people think of investing as buying shares in companies listed on a stock exchange, but there is a parallel universe of investments in private companies.

Worldwide, there are 39,000 private equity funds that invest in startups or established firms, aiming to grow the businesses so they can be floated on the stock market, or sold to a trade buyer or another investor.

Most of these funds require big sums to invest. On the London Stock Exchange though, there are 40 private equity funds whose shares can be bought easily like any other through a stockbroker.

We tipped one, the specialist early-stage investor Augmentum Fintech, in December. However, these funds operate across a broad range of sectors and countries, investing in companies either directly or through other private equity funds.

The market is remarkably polarised. On the one hand is the giant 3i Group, whose ￡18bn portfolio accounts for nearly half of the ￡39bn in the sector. Its share price stands at a huge 31pc premium above asset value, reflecting strong investor demand after it trebled shareholders’ money over the past five years.

The other 39 funds are rather neglected, their shares consistently stuck below net asset value (NAV) despite impressive long-term performance.

Although none comes close to 3i’s incredible 776pc shareholder return over 10 years, the average private equity ‘fund of funds’ hasn’t done badly with gains of 232pc while the average direct private equity fund achieved 275pc.

These figures compare well with global public stock markets and are much better than the FTSE All-Share index’s return of 65pc.

Despite this, private equity funds apart from 3i stand at an average 24pc discount to NAV.

There are several causes: painful memories of the 2008 global financial crisis, when some funds crashed; regulations that inflate these funds’ charges and make them appear prohibitively expensive; and suspicion of the three-to-six-month delay in valuing their assets.

The latter has led to fears that the funds could go over a ‘cliff edge’ if their stakes in unquoted companies are written down in the challenging economic environment.

City analysts believe this to be unlikely because private equity-backed firms have continued to grow profits, while the stock market rally at the end of last year gives them a positive yardstick by which to measure their businesses.

Private equity funds generate their returns by eventually selling stakes in their holdings, frequently on big uplifts to their previous valuation. Last year these ‘exits’ dropped off as buyers grew more cautious but could revive if interest rates fall and confidence returns.