NB Private Equity Partners Limited: Interim Results
25/09/2024 07:01
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Results for the Six Months to 30 June 2024 driven by 4.3% Uplift From Private
Valuations
25 September 2024
NB Private Equity Partners (NBPE), the $1.3bn(1) listed private equity
investment company managed by Neuberger Berman, today announces its results
for the six months to 30 June 2024.
Highlights from six months to 30 June 2024
* Net Assets of $1.3 bn - NAV per share of $27.87 (£22.05) a return of 1.0%
in the six months
* Performance driven by 4.3% increase in private company valuations (ex-FX),
which have been partially offset by continued volatility in quoted holdings
and foreign exchange headwinds
* Positive operating performance continues with 11% aggregate weighted average
LTM revenue growth and 16% aggregate LTM EBITDA growth from private
companies(2) * Robust investment activity: $72 million invested in new and
follow-on investments in the six months
* $126 million of proceeds received during the first six months of the year
* 1H 2024 dividend of $0.47 per share paid in February 2024
* Well positioned to take advantage of investment opportunities with $386
million of cash / liquid investments and undrawn credit line available
As of 30 June 2024 YTD 1 Year 3 years 5 years 10 years
NAV TR (USD)* Annualised 1.0% 1.4% 7.1% 2.3% 70.5% 11.3% 174.8% 10.6%
MSCI World TR (USD)* Annualised 12.0% 20.8% 23.8% 7.4% 78.8% 12.3% 153.2% 9.7%
Share price TR (GBP)* Annualised (1.8%) 11.7% 31.1% 9.5% 75.7% 11.9% 297.4% 14.8%
FTSE All-Share TR (GBP)* Annualised 7.4% 13.0% 23.9% 7.4% 30.9% 5.5% 77.8% 5.9%
*Reflects cumulative returns over the time periods shown and are not
annualised.
Peter von Lehe, Managing Director and Head of Investment Solutions and
Strategy at Neuberger Berman commented:
“Our NAV per share at 30 June 2024 was $27.87, translating to a NAV total
return of 1.0% in the six months. Positive performance of our private
companies continued and appreciated in value by 4.3% on a constant currency
basis, offset by quoted holdings and foreign exchange headwinds. We’ve
invested more than $70 million so far this year and our liquidity position
remains strong, with total realisations for the first six months of the year
of $126 million. We expect to continue to be active during the second half of
the year, while maintaining balance sheet strength.”
Paul Daggett, Managing Director at Neuberger Berman, continued:
“We are pleased with the positive operating performance of our portfolio
companies which we believe reflects the high-quality nature of the underlying
assets. The companies in the portfolio generated weighted average LTM revenue
growth of 11% and LTM EBITDA growth of 16%. We think this performance can be
attributed to the active ownership of our underlying private equity managers,
who continue to drive operational enhancements and revenue growth, both
organically and through M&A, in a still challenging market environment. We
believe the portfolio remains well positioned, supported by our two key themes
of long-term secular growth and companies with lower expected cylicality.”
Chairman’s statement for the six months to 30 June 2024
NBPE ended the period with net assets of $1.3bn ($27.87 per share), reporting
a NAV total return of 1.0% in the first six months of 2024. Performance was
driven by a 4.3% constant currency return from our private companies. This was
partially offset by weaker performance from our quoted holdings and foreign
exchange headwinds.
Continued underlying revenue & EBITDA growth and portfolio well positioned
NBPE focuses on investing in companies that benefit from two key themes:
long-term secular growth trends, and / or lower expected cyclicality. The
portfolio is performing well, reporting weighted average LTM revenue and LTM
EBITDA growth of 11% and 16%, respectively at 30 June 2024. This continued
strong underlying growth and resilience from many of NBPE’s private
companies underscores the value of our focus, with our private companies
continuing to drive positive performance overall, driven by operational
enhancements, EBITDA growth and M&A, despite a challenging environment.
$72 million of new investments against $126 million of realisations through 30
June 2024 with new investments this year off to good starts
During the first six months of the year NBPE invested $72 million in new and
follow-on investments. Two of the new investments were in the healthcare
industry, Zeus, a medical device component manufacturer alongside EQT, and
Benecon, a company focused on health insurance alongside TA Associates. The
third new investment was FDH Aero, a parts distributor in the aerospace and
defense industry alongside Audax Private Equity.
Despite a subdued private equity exit environment, NBPE received cash proceeds
of $126 million during the first six months of the year which includes
transactions which were announced in 2023, but closed in 2024.
Approximately 84% of these realisations were from equity co-investments and a
structured equity security, as the result of full exits, partial liquidity and
sales of quoted holdings. The remaining 16% of realisations in the first six
months were from legacy income investments. Subsequent to this reporting
period, NBPE received a further $25 million from a partial liquidity event in
Action. Together with additional proceeds during July and August, total
realisation proceeds for the first eight months of 2024 were $158 million.
These realisations compare to $171 million for the whole of 2023.
Remaining highly selective and continuing to evaluate new opportunities
NBPE today has 97% of fair value invested in direct equity and is the only
London listed private equity investment company solely dedicated to investing
in direct equity co-investments. One of the benefits of NBPE’s co-investment
model is the ability to remain highly selective and make investments on a
deal-by-deal basis, without the need for long-term unfunded commitments. The
Board believes this is a significant advantage in today’s investing
environment. NBPE builds its portfolio company by company, with the Manager
picking what it believes to be the best opportunities from the pipeline of
opportunities sourced from its $115bn global Private Equity platform.
Maintaining balance sheet strength is a core focus for the Board, and we
expect the pace of new investments to remain balanced with the overall level
of realisations, and considered in the light of other capital needs, including
dividends and share buybacks.
Ongoing commitment to the dividend
The Board maintained the 2024 dividend at 2023 levels. Semi-annual dividends
of $0.47 were paid in February and August 2024, bringing total dividends paid
to shareholders since 2013 to approximately $360 million. The Board remains
committed to the Company’s policy of targeting an annualised dividend yield
of 3% of NAV or greater, giving shareholders the opportunity to participate
directly in the performance of the underlying portfolio.
Strong balance sheet and simplification of capital structure
At 30 June 2024, NBPE had total available liquidity of $386 million ($176
million cash and liquid investments and $210 million undrawn credit line) and
at 30 June 2024 NBPE’s investment level was 100%, at the lower end of its
target range of 100% - 110%.
As previously announced, NBPE intends to repay the 2024 ZDP final entitlement
of £65 million (~$82 million at 30 June 2024) at maturity in October 2024,
simplifying the Company’s capital structure.
Discount remains wide while market volatility persists
Following a period of positive share price performance and improving sentiment
more generally for listed private equity in late 2023, the environment for the
first half of this year has been more uncertain with concerns centered around
slowing economies. NBPE’s share price has not been immune to the volatility
in the market, resulting in a negative 1.8% total return for the six month
period to June 2024.
Discounts across the listed private equity sector remain unsatisfactorily
wide. The Board believes that NBPE’s current discount of approximately 26%
presents a compelling opportunity for investors looking to buy into a high
quality, diversified portfolio of direct private equity co-investments
alongside leading private equity managers in a capital and fee efficient
manner.
The Board has supported the efforts for a change in the cost disclosure regime
alongside the London Stock Exchange, other fund managers, brokers and
parliamentarians and is heartened by the recent FCA announcement that
investment trusts have been temporarily exempted from Packaged retail and
insurance-based investment products (“PRIIPs”) and associated EU Law. This
announcement is a helpful development for the Listed Investment Company sector
as a whole and specifically for NBPE and we are encouraged by this first step
on the road to longer term reform.
Portfolio of performing companies selected under the manager’s
‘all-weather’ investment approach is well positioned for a range of
environments
While the current macro and geopolitical environment remains uncertain, there
is cause for optimism with inflation moderating and central banks beginning to
lower interest rates. This potential shift in monetary policy could provide a
boost to economic activity and investor sentiment. We have already seen this
to some extent, with the Russell 2000 index multiples rebounding and now
exceeding 2019 levels. However, private equity valuations have not experienced
the same increase, as PE funds maintain a long-term perspective on price
multiples, similar to their approach in 2022 and 2023.
We believe active private equity ownership in today’s environment remains an
advantage and NBPE’s portfolio companies are continuing to drive LTM revenue
and EBITDA growth, demonstrating the strength of our investment portfolio and
the benefits of our co-investment approach and advantages of our strategy.
Investment Manager’s review
NBPE’s investment portfolio appreciated in value by $51 million during the
first six months of 2024. Performance was driven by the portfolio’s private
companies (93% of direct equity fair value), which delivered an overall return
of 4.3% in constant currencies, while headwinds from quoted holdings (7% of
direct equity fair value) and foreign exchange detracted from performance.
Taken together, NBPE’s NAV total return was 1.0% for the first six months of
the year, but with continued strong operating performance in many of NBPE’s
underlying companies.
Value gains driven by a number of core positions
The largest gains, measured in terms of dollar appreciation, were broadly
spread across the consumer, technology, industrial and financial sectors. The
largest ten investments by dollar value appreciation increased in value by $57
million during the first half relative to their combined year end valuations.
These value increases were driven by a number of positive underlying company
developments including organic growth driven by new store rollouts or customer
wins, strong renewals and bookings activity, and by M&A. The largest ten
negative value drivers in terms of dollar value, depreciated by $25 million
relative to their 2023 year end valuations in aggregate. Negative performance
was largely driven by highly specific factors in certain consumer, technology,
and business services companies, but broadly the result of an overall
operating environment that remained difficult, particularly for companies with
large consumer end-markets
or an ultimate reliance on consumer demand. Despite some positive momentum,
these investments largely faced weaker demand or slower recoveries, while some
companies reported inventory challenges and price compression.
Operational improvements and M&A continue to drive EBITDA growth
NBPE’s portfolio is focused on companies with resilient business models,
with many providing mission-critical products or services or being leaders in
their respective end-markets. Strong underlying growth and operational
improvements continue to drive performance, despite a challenging operating
environment. As at 30 June 2024, on a weighted average basis, the portfolio
generated LTM revenue and EBITDA growth of 10.6% and 16.2%, respectively,
which also includes the impact from M&A in the portfolio. Approximately 20% of
the portfolio by fair value grew LTM revenues in excess of 20%, with 41% of
the portfolio by fair value growing LTM EBITDA in excess of 20%.
Industrials, consumer and financial services (55% of fair value in aggregate)
were the strongest growing sectors with LTM revenue growth in excess of 10%
and LTM EBITDA growth in excess of 15%, on a weighted average basis; within
industrials and financial services, M&A contributed meaningfully to the
overall growth, in addition to organic growth and operational enhancements.
Private equity managers also continue to drive synergies and cost savings
through integration of previous M&A transactions, and this also contributed to
growth. Business services (12% of fair value) was the only sector in the
portfolio that saw negative LTM revenue and LTM EBITDA growth, primarily
driven by lower volumes, slower recoveries and more challenging macro
environments. In addition, there were certain companies in other parts of the
portfolio, that reported softer revenue growth, primarily as a result of
headwinds from macro challenges and depressed volumes, which in some cases had
been offset by new business wins.
Overall, underlying LTM EBITDA growth remains strong, driven by a number of
factors including a deep focus on operational improvements, favourable trends
in raw material and freight costs, and M&A. Portfolio company optimisation is
a continued focus by private equity managers, whether that is through
improving planning, inventory management, sales and marketing, systems or
talent in order to drive substantive operational improvements. We believe
these initiatives have contributed meaningfully to overall portfolio LTM
EBITDA growth and are occurring as part of private equity managers’ value
creation plans.
Valuation multiple increased slightly relative to year end as companies
continue to grow
As of 30 June 2024, the weighted average EV/LTM EBITDA multiple was 15.2x(3).
Multiples have declined by approximately two turns since 2021, however, they
now appear to have stablised, with the aggregate multiple increasing slightly
versus December 2023.
The weighted average Net Debt/LTM EBITDA multiple was 5.4x(4), a slight
increase relative to the prior period.
$72 million of total new and follow on investment activity
During the first six months of 2024, NBPE deployed approximately $63 million
into three new platform investments and an additional $9 million to other new
and follow-on investments. $25 million was invested in Benecon, a healthcare
company which is a developer and manager of self-funded medical benefit
programs for small and medium sized businesses in the U.S.. Benecon’s model
allows for more efficient self funding of medical benefits programs, which
effectively lowers healthcare costs for employer groups and members. We
believe this was an attractive opportunity to invest in a large, underserved
market with high barriers to entry in a company with multiple levers for value
creation and strong operating performance. Additionally, we believe healthcare
cost reduction is particularly relevant today and this was an opportunity to
partner with TA Associates on a mid-life co-investment transaction. TA is a
private equity sponsor with deep experience in US healthcare and a strong
long-term track record.
NBPE invested $13 million into Zeus, a healthcare company focused on
fluoropolymer tubing for medical devices and select industrial applications.
The company’s components enable the delivery of minimally invasive
interventional procedures which is an area with strong secular tailwinds. Zeus
is a market leader with considerable barriers to entry which provides
mission-critical components for medical devices in a specific niche that
requires high precision products. Historically, the company has generated
strong operating performance and we believe future R&D and active ownership
could drive significant innovation, growth and increased profitability for the
company. The investment was made alongside EQT Partners, a global private
equity firm, with a 30-year track record across multiple investment
strategies.
The final new investment in the first six months of 2024 was a $25 million
investment in FDH Aero, a leading parts distributor to the aerospace and
defense industry. The company has a leading market position and high barriers
to entry, which has driven historic organic growth, augmented by a thoughtful
acquisition strategy. The mid-life co-investment was made alongside Audax
Private Equity, a leading private equity firm focused on middle-market
companies which are positioned to accelerate growth, using Audax’s buy and
build approach. The equity investment will be used to support organic and
inorganic growth initiatives.
Portfolio realisations continue in a challenging environment for exit activity
demonstrating the quality of assets and portfolio resilience
During the first six months of 2024, NBPE received $126 million of
realisations. $65 million was received from equity investments from three full
sales, two of which were announced during 2023 but which closed in 2024 and an
additional $40 million was received from NBPE’s PIK preferred position in
Cotiviti. Additional realisations primarily consisted of partial sales of
quoted holdings, where exposure continues to decline. Approximately $21
million was received from legacy fund and income investments, consisting
primarily of realisations from the NB Private Credit Opportunities Program and
NB Specialty Finance Program, the latter of which has now fully liquidated.
Going forward, the NB Private Credit Opportunities Program will be the primary
source of realisations from income investments, and we expect this exposure to
continue to reduce over time (currently 2% of fair value). Subsequent to this
reporting period in July, NBPE received an additional $25 million from Action,
consisting primarily of proceeds received as a result of an option for a
partial liquidity event, where the Manager elected to take a measured amount
of liquidity for portfolio construction reasons.
Competition for high-quality investments remains high; private equity managers
focused on liquidity options
Despite the persistence of a number of challenges, including macro
uncertainty, geopolitical tensions, elevated interest rates and volatility in
the public markets, we believe there are also a number of positive dynamics at
play in the private equity market environment. The market remains well
capitalised and debt availability is high, while the cost of debt has
generally decreased in recent months as spreads compress and with base rates
now declining. With the demand for liquidity from private equity limited
partners continuing, it is possible that deal activity and exits could
increase in the short to medium term (although this has now been a long
ongoing possibility) and lower borrowing costs should provide a tailwind for
transaction activity. Sponsors are actively pursuing multiple avenues for full
and partial liquidity in their portfolios, and the demand for partial
liquidity solutions in particular may continue to present opportunities for
NB’s co-investment model.
In terms of investment activity, overall deal activity has increased versus
2023 but remains below other recent years. The demand for high-quality
companies remains particularly strong, with valuations for these businesses
highly competitive. In part due to the competitive pricing in the market, we
continue to believe M&A will be a significant source of value creation for
private equity managers as managers look to create value in their companies by
growing and diversifying businesses, while lowering the total entry cost of
their positions.
High-quality assets growing strongly and well-positioned for possible
liquidity; remaining highly selective for new investments while prioritising
balance sheet strength
The underlying portfolio is performing well, driven by the strong LTM EBITDA
growth and a focus on operational enhancements and M&A in the portfolio. While
a challenging environment exists for certain companies in the portfolio, we
believe overall, the portfolio is well-positioned in a mature set of highly
attractive assets. Even though the opportunity for exits remains constrained,
underlying private equity managers are generally focused on ways of returning
capital to their investors. With an average age of the
portfolio of 4.9 years (see vintage year diversification on following page),
we think a number of companies have the potential to benefit from potential
liquidity.
We believe the portfolio is invested in many market leading, mission-critical
businesses where overall portfolio operating metrics continue to grow, and
private equity managers continue to seek ways to drive value at the underlying
company level. We continue to evaluate new investment opportunities for NBPE,
but remain highly selective, seeking what we believe to be the best assets for
the portfolio from the available opportunity set. We will continue to balance
new investments with the pace of realisations and other capital needs while
maintaining a strong balance sheet.
Supplementary information
Geography 30-Jun-24
North America 75%
Europe 24%
Asia / Rest of World 1%
Total Portfolio 100%
Industry 30-Jun-24
Consumer / E-commerce 25%
Tech, Media & Telecom 22%
Industrials / Industrial Technology 17%
Financial Services 13%
Business Services 12%
Healthcare 5%
Other 4%
Energy 1%
Total Portfolio 100%
Vintage Year 30-Jun-24
2016 & Earlier 11%
2017 20%
2018 16%
2019 14%
2020 14%
2021 15%
2022 3%
2023 2%
2024 5%
Total Portfolio 100%
Note: numbers may not sum due to rounding.
Top 30 companies
Company Name Vintage Lead Sponsor Sector Fair Value ($m) % of FV
Action 2020 3i Consumer 91.5 7.1%
Osaic 2019 Reverence Capital Financial Services 62.7 4.9%
Solenis 2021 Platinum Equity Industrials 58.2 4.5%
BeyondTrust 2018 Francisco Partners Technology / IT 42.0 3.2%
Branded Cities Network 2017 Shamrock Capital Communications / Media 40.1 3.1%
Monroe Engineering 2021 AEA Investors Industrials 38.3 3.0%
Business Services Company* 2017 Not Disclosed Business Services 37.2 2.9%
True Potential 2022 Cinven Financial Services 34.4 2.7%
Kroll 2020 Further Global / Stone Point Financial Services 31.4 2.4%
Marquee Brands 2014 Neuberger Berman Consumer 30.8 2.4%
Staples 2017 Sycamore Partners Business Services 30.7 2.4%
GFL (NYSE: GFL) 2018 BC Partners Business Services 29.7 2.3%
Constellation Automotive 2019 TDR Capital Business Services 29.6 2.3%
Fortna 2017 THL Industrials 28.7 2.2%
Viant 2018 JLL Partners Healthcare 27.2 2.1%
Stubhub 2020 Neuberger Berman Consumer 26.6 2.1%
FDH Aero 2024 Audax Group Industrials 25.3 2.0%
Agiliti 2019 THL Healthcare 25.3 2.0%
Benecon 2024 TA Associates Healthcare 24.9 1.9%
Engineering 2020 NB Renaissance / Bain Capital Technology / IT 24.8 1.9%
AutoStore (OB.AUTO) 2019 THL Industrials 24.5 1.9%
Solace Systems 2016 Bridge Growth Partners Technology / IT 24.4 1.9%
Addison Group 2021 Trilantic Capital Partners Business Services 23.8 1.8%
USI 2017 KKR Financial Services 23.2 1.8%
Auctane 2021 Thoma Bravo Technology / IT 22.5 1.7%
Excelitas 2022 AEA Investors Industrials 21.9 1.7%
Qpark 2017 KKR Transportation 20.6 1.6%
Renaissance Learning 2018 Francisco Partners Technology / IT 19.4 1.5%
Exact 2019 KKR Technology / IT 19.3 1.5%
Bylight 2017 Sagewind Partners Technology / IT 18.6 1.4%
Total Top 30 Investments $957.7 74.1%
*Undisclosed company due to confidentiality provisions.
Statement of principal risks and uncertainties
The principal risks and uncertainties of the Company include external risks,
investment and strategic risks, financial risks and operational risks. These
risks, and the way in which they are managed, are described in more detail
under the heading ‘Risk Management and Principal Risks’ in the Company’s
annual report for the year ended 31 December 2023. The Company’s principal
risks and uncertainties have not changed overall since the date of that
report; however, the Board has identified heightened risk related to the
overall economic
and investment environment as well as sovereign and geo-political factors,
which could impact investment valuations in future periods. The Board also
continues to discuss and evaluate efforts taken over time to address the
discount including buybacks, the investor relations programme, shareholder
engagement and communication, and capital allocation. The Board monitors the
Company’s discount in conjunction with these efforts.
Statement of directors’ responsibilities
The directors confirm that to the best of our knowledge:
* the unaudited interim consolidated financial statements have been prepared
in conformity with U.S. generally accepted accounting principles, as required
by DTR 4.2.4R of the Disclosure Guidance and Transparency rules;
* the Interim Financial Report and Consolidated Financial Statements meets the
requirements of an interim financial report, together with the statement of
principal risks and uncertainties above, includes a fair review of the
information required by DTR 4.2.7R and DTR 4.2.8R of the Disclosure Guidance
and Transparency Rules and includes:
(a) an indication of important events that have occurred during the first six
months of the financial year and their impact on the financial statements; and
a description of the principal risks and uncertainties for the remaining six
months of the year; and
(b) a description of related party transactions that have taken place in the
first six months of the current financial year and that have materially
affected the financial position or performance of the Company during that
period; and any changes in the related party transactions described in the
last annual report that could do so. Please refer to Note 10 of the unaudited
interim consolidated financial statements.
The directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company’s website, and
for the preparation and dissemination of financial statements. Legislation in
Guernsey governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
By order of the Board
William Maltby
Chairman
John Martyn Falla
Director
Date: 24 September 2024
Independent Review Report to NB Private Equity Partners Limited
Conclusion
We have been engaged by NB Private Equity Partners Limited (the "Company") to
review the consolidated financial statements in the half-yearly financial
report for the six months ended 30 June 2024 of the Company and its
subsidiaries (together, the "Group"), which comprises the consolidated balance
sheet, consolidated condensed schedule of investments, consolidated statement
of operations and changes in net assets, consolidated statement of cash flows
and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to
believe that the consolidated financial statements in the half-yearly
financial report for the period ended 30 June 2024 do not give a true and
fair view of the financial position of the Group as at 30 June 2024 and of its
financial performance and its cash flows for the six month period then ended,
in accordance with U.S. generally accepted accounting principles and the
Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial
Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity (“ISRE (UK) 2410”) issued by the
Financial Reporting Council for use in the UK. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. We read the other information contained in the half-yearly
financial report and consider whether it contains any apparent misstatements
or material inconsistencies with the information in the consolidated financial
statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Scope of review section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410. However future events or conditions may cause the the Group
and the Company to cease to continue as a going concern, and the above
conclusions are not a guarantee that the the Group and the Company will
continue in operation.
Independent Review Report to NB Private Equity Partners Limited (Continued)
Directors’ responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
interim financial report in accordance with the DTR of the UK FCA.
The consolidated financial statements included in this interim report have
been prepared in accordance with U.S. generally accepted accounting
principles.
In preparing the half-yearly financial report, the directors are responsible
for assessing the the Group and the‘Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless liquidation is imminent.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the consolidated financial statements in the half-yearly financial report
based on our review. Our conclusion, including our conclusions relating to
going concern, are based on procedures that are less extensive than audit
procedures, as described in the scope of review paragraph of this report.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Company in accordance with the terms of our
engagement letter to assist the Company in meeting the requirements of the DTR
of the UK FCA. Our review has been undertaken so that we might state to the
Company those matters we are required to state to it in this report and for no
other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company for our review work,
for this report, or for the conclusions we have reached.
Rachid Frihmat
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants
Guernsey
24 September 2024
Assets 2024 2023
Investments at fair value:
Private equity investments
Cost of $749,058,303 at 30 June 2024 and $780,503,840 at 31 December 2023 $ 1,292,846,293 $ 1,321,345,503
Government obligations
Cost of $120,368,907 at 30 June 2024 and $115,157,505 at 31 December 2023 120,375,758 115,181,468
Cash and cash equivalents 55,752,761 50,617,431
Other assets 2,066,042 2,336,264
Distributions and sales proceeds receivable from investments 284,004 333,138
Total assets $ 1,471,324,858 $ 1,489,813,804
Liabilities and share capital
Liabilities:
ZDP Share liability $ 81,424,886 $ 80,428,778
Credit facility loan 90,000,000 90,000,000
Payables to Investment Manager and affiliates 4,771,534 4,895,272
Accrued expenses and other liabilities 4,141,039 6,975,041
Net deferred tax liability 24,877 24,877
Total liabilities $ 180,362,336 $ 182,323,968
Share capital:
Class A Shares, $0.01 par value, 500,000,000 shares authorised,
49,388,127 shares issued and 46,237,719 shares outstanding at 30 June 2024 $ 493,882 $ 496,530
49,653,014 shares issued and 46,502,606 shares outstanding at 31 December 2023
Class B Shares, $0.01 par value, 100,000 shares authorised,
10,000 shares issued and outstanding 100 100
Additional paid-in capital 486,140,004 491,555,393
Retained earnings 811,550,911 822,682,245
Less cost of treasury stock purchased (3,150,408 shares) (9,248,460) (9,248,460)
Total net assets of the controlling interest $ 1,288,936,437 $ 1,305,485,808
Net assets of the noncontrolling interest $ 2,026,085 $ 2,004,028
Total net assets $ 1,290,962,522 $ 1,307,489,836
Total liabilities and net assets $ 1,471,324,858 $ 1,489,813,804
Net asset value per share for Class A Shares and Class B Shares $ 27.87 $ 28.07
Net asset value per share for Class A Shares and Class B Shares (GBP) £ 22.05 £ 22.02
Net asset value per 2024 ZDP Share (Pence) 128.83 126.18
The accompanying notes are an integral part of the consolidated financial
statements.
Unfunded Private Equity ((1))
Private equity investments Cost Fair Value Commitment Exposure
2024
Direct equity investments
NB Alternatives Direct Co-investment Program A $ 33,124,662 $ 18,930,024 $ 17,102,040 $ 36,032,064
NB Alternatives Direct Co-investment Program B 68,271,762 159,541,439 19,131,472 178,672,911
NB Renaissance Programs 14,725,431 28,387,704 5,134,552 33,522,256
Marquee Brands 26,591,034 30,810,097 3,410,816 34,220,913
Direct equity investments (()(2)(3)) 567,809,218 1,019,522,947 2,690,984 1,022,213,931
Total direct equity investments $ 710,522,107 $ 1,257,192,211 $ 47,469,864 $ 1,304,662,075
Income Investments
NB Credit Opportunities Program $ 20,033,226 $ 29,917,835 $ 5,000,000 $ 34,917,835
Income investments 10,916,047 573,921 - 573,921
Total income investments $ 30,949,273 $ 30,491,756 $ 5,000,000 $ 35,491,756
Fund investments $ 7,586,923 $ 5,162,326 $ 5,292,801 $ 10,455,127
Total investments $ 749,058,303 $ 1,292,846,293 $ 57,762,665 $ 1,350,608,958
2023
Direct equity investments
NB Alternatives Direct Co-investment Program A $ 43,905,518 $ 19,573,022 $ 17,102,040 $ 36,675,062
NB Alternatives Direct Co-investment Program B 74,332,209 170,167,212 19,340,324 189,507,536
NB Renaissance Programs 10,587,835 23,890,095 9,603,804 33,493,899
Marquee Brands 26,047,730 30,573,581 3,410,816 33,984,397
Direct equity investments (()(2)(3)) 534,272,602 979,327,044 2,529,601 981,856,645
Total direct equity investments $ 689,145,894 $ 1,223,530,954 $ 51,986,585 $ 1,275,517,539
Income Investments
NB Credit Opportunities Program $ 25,043,808 $ 37,927,794 $ 11,981,976 $ 49,909,770
NB Specialty Finance Program 8,259,427 7,750,000 15,000,000 22,750,000
Income investments 48,817,095 44,326,526 - 44,326,526
Total income investments $ 82,120,330 $ 90,004,320 $ 26,981,976 $ 116,986,296
Fund investments $ 9,237,616 $ 7,810,229 $ 5,318,896 $ 13,129,125
Total investments $ 780,503,840 $ 1,321,345,503 $ 84,287,457 $ 1,405,632,960
((1):) Private equity exposure is the sum of fair value and unfunded commitment.
((2):) Includes direct equity investments into companies and co-investment vehicles.
((3):) This includes investment(s) above 5% of net asset value. See Note 3.
The accompanying notes are an integral part of the consolidated financial
statements.
Investment Description Geography Industry Cost Fair Value
2024
Government obligations
Treasury Bill 0% 7/9/2024 USA Sovereign $ 12,665,057 $ 12,665,223
Treasury Bill 0% 7/23/2024 USA Sovereign 15,150,922 15,151,314
Treasury Bill 0% 8/6/2024 USA Sovereign 12,433,837 12,434,751
Treasury Bill 0% 8/20/2024 USA Sovereign 14,890,240 14,890,836
Treasury Bill 0% 8/27/2024 USA Sovereign 19,833,251 19,834,138
Treasury Bill 0% 9/3/2024 USA Sovereign 24,766,041 24,767,498
Treasury Bill 0% 10/31/2024 USA Sovereign 20,629,559 20,631,998
Total government obligations $ 120,368,907 $ 120,375,758
2023
Government obligations
Treasury Bill 0% 1/18/2024 USA Sovereign $ 12,966,797 $ 12,969,450
Treasury Bill 0% 2/6/2024 USA Sovereign 27,810,903 27,818,058
Treasury Bill 0% 2/29/2024 USA Sovereign 14,869,685 14,872,800
Treasury Bill 0% 4/2/2024 USA Sovereign 5,004,141 5,003,623
Treasury Bill 0% 4/16/2024 USA Sovereign 15,010,757 15,010,671
Treasury Bill 0% 5/9/2024 USA Sovereign 15,009,923 15,009,866
Treasury Bill 0% 5/23/2024 USA Sovereign 24,485,299 24,497,000
Total government obligations $ 115,157,505 $ 115,181,468
The accompanying notes are an integral part of the consolidated financial
statements.
Fair Value Fair Value
Geographic diversity of private equity investments ( (1)) 2024 2023
North America $ 974,460,307 $ 961,966,491
Europe 304,597,477 319,680,132
Asia / rest of world 13,788,509 39,698,880
$ 1,292,846,293 $ 1,321,345,503
Industry diversity of private equity investments ((2)) 2024 2023
Consumer 24.7% 21.0%
Technology / IT 18.8% 18.2%
Industrials 17.2% 17.8%
Financial services 13.2% 11.9%
Business services 11.8% 12.1%
Healthcare 5.4% 9.3%
Communications / media 3.4% 3.3%
Diversified / undisclosed / other 2.6% 3.8%
Transportation 1.6% 1.4%
Energy 1.3% 1.2%
100.0% 100.0%
Asset class diversification of private equity investments ((3)) 2024 2023
Direct Equity Investments
Mid-cap buyout 46.6% 47.3%
Large-cap buyout 35.1% 32.2%
Special situation 12.2% 10.2%
Growth equity 3.4% 3.2%
Income investments 2.5% 6.8%
Growth / venture funds 0.2% 0.3%
100.0% 100.0%
((1):) Geography is determined by location of the headquarters of the underlying portfolio companies in funds and direct co-investments.
A portion of our fund investments may relate to cash or other assets or liabilities that they hold and for which we do not have adequate
information to assign a geographic location.
((2):) Industry diversity is based on underlying portfolio companies and direct co-investments which may be held through either
co-investments or NB-managed vehicles. Percentages are calculated based on the total portfolio value.
((3):) Asset class diversification is based on the net asset value of underlying fund investments and co-investments. Percentages are
calculated based on the total portfolio value.
The accompanying notes are an integral part of the consolidated financial
statements.
2024 2023
Interest and dividend income (net of foreign withholding taxes of $0 for 2024 and $2,263 for 2023) $ 5,744,303 $ 2,503,183
Expenses
Investment management and services $ 9,589,666 $ 10,536,415
Finance costs
Credit facility 4,612,825 4,286,358
ZDP Shares 1,749,787 1,602,405
Administration and professional fees 2,411,885 2,268,823
Total expenses $ 18,364,163 $ 18,694,001
Net investment loss $ (12,619,860) $ (16,190,818)
Tax expense 33,847 50,443
Net investment loss after taxes $ (12,653,707) $ (16,241,261)
Realised and unrealised gains
Realised gain on investments $ 19,792,210 $ 23,296,219
Net change in unrealised gain on investments,
net of tax expense of $0 for 2024 and $0 for 2023 3,613,145 52,959,982
Net realised and change in unrealised gain $ 23,405,355 $ 76,256,201
Net increase in net assets resulting from operations $ 10,751,648 $ 60,014,940
Less net increase in net assets resulting from operations
attributable to the noncontrolling interest (22,057) (77,017)
Net increase in net assets resulting from operations
attributable to the controlling interest $ 10,729,591 $ 59,937,923
Net assets at beginning of period attributable to the controlling interest $ 1,305,485,808 $ 1,327,266,223
Less dividend payment (21,860,925) (21,982,384)
Less cost of stock repurchased and cancelled (264,887 shares for 2024 and 250,024 shares for 2023) (5,418,037) (4,843,359)
Net assets at end of period attributable to the controlling interest $ 1,288,936,437 $ 1,360,378,403
Earnings per share for Class A Shares and Class B Shares of the controlling interest $ 0.23 $ 1.28
Earnings per share for Class A Shares and Class B Shares of the controlling interest (GBP) £ 0.18 £ 1.05
The accompanying notes are an integral part of the consolidated financial
statements.
2024 2023
Cash flows from operating activities:
Net increase in net assets resulting from operations
attributable to the controlling interest $ 10,729,591 $ 59,937,923
Net increase in net assets resulting from operations
attributable to the noncontrolling interest 22,057 77,017
Adjustments to reconcile net increase in net assets resulting from operations
to net cash provided by operating activities:
Realised gain on investments (19,792,210) (23,296,219)
Net change in unrealised gain on investments, net of tax expense (3,613,145) (52,959,982)
Contributions to private equity investments (6,919,909) (3,786,555)
Purchases of private equity investments (65,563,905) (13,517,184)
Distributions from private equity investments 78,475,517 26,865,484
Proceeds from sale of private equity investments 47,254,844 17,684,702
Purchases of government obligations (167,222,010) -
Proceeds from sale of government obligations 164,721,489 -
In-kind payment of interest income and change in accrued interest (4,685,921) (2,101,082)
Amortisation of finance costs 201,664 200,410
Amortisation of purchase premium/discount (OID), net (17,877) (17,693)
Change in other assets 101,803 (201,107)
Change in payables to Investment Manager and affiliates (123,738) 218,894
Change in current tax liability (3,091,972) 14,380
Change in accrued expenses and other liabilities 1,938,014 1,881,861
Net cash provided by operating activities $ 32,414,292 $ 11,000,849
Cash flows from financing activities:
Dividend payment $ (21,860,925) $ (21,982,384)
Stock repurchased and cancelled (5,418,037) (4,843,359)
Borrowings from credit facility - 30,000,000
Payments to credit facility - (20,000,000)
Net cash used in financing activities $ (27,278,962) $ (16,825,743)
Net increase (decrease) in cash and cash equivalents $ 5,135,330 $ (5,824,894)
Cash and cash equivalents at beginning of period 50,617,431 7,034,276
Cash and cash equivalents at end of period $ 55,752,761 $ 1,209,382
Supplemental cash flow information
Credit facility financing costs paid $ 4,493,092 $ 4,152,319
Taxes paid $ 3,127,931 $ 37,835
Taxes refunded $ 2,111 $ 1,772
The accompanying notes are an integral part of the consolidated financial
statements.
Note 1 – Description of the Group
NB Private Equity Partners Limited (the “Company”) and its subsidiaries,
collectively (the “Group”) is a closed-ended investment company registered
in Guernsey. The registered office is Floor 2, Trafalgar Court, St Peter Port,
Guernsey, GY1 4LY. The principal activity of the Group is to invest in direct
private equity investments by co-investing alongside leading private equity
sponsors in their core areas of expertise. The Company’s Class A Shares are
listed and admitted to trading on the Main Market of the London Stock Exchange
(“Main Market”) under the symbols “NBPE” and “NBPU” corresponding
to Sterling and U.S. dollar quotes, respectively. NBPE has a class of Zero
Dividend Preference (“ZDP”) Shares maturing in 2024 (see note 5) which is
listed and admitted to trading on the Specialist Fund Segment of the Main
Market of the London Stock Exchange (“Specialist Fund Segment”) under the
symbol “NBPS”.
The Group is managed by NB Alternatives Advisers LLC ("Investment Manager"), a
subsidiary of Neuberger Berman Group LLC (“NBG”), pursuant to an
Investment Management Agreement. The Investment Manager serves as the
registered investment adviser under the Investment Advisers Act of 1940.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
These consolidated financial statements present a true and fair view of the
financial position, profit or loss and cash flows and have been prepared in
conformity with U.S. generally accepted accounting principles (“U.S.
GAAP”) and are in compliance with the Companies (Guernsey) Law, 2008 (as
amended). All adjustments considered necessary for the fair presentation of
the consolidated financial statements for the periods presented have been
included. These consolidated financial statements are presented in U.S.
dollars.
The Group is an investment company and follows the accounting and reporting
guidance in the Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) Topic 946, Financial Services –
Investment Companies. Accordingly, the Group reflects its investments on the
Consolidated Balance Sheets at their estimated fair values, with unrealised
gains and losses resulting from changes in fair value reflected in net change
in unrealised gain (loss) on investments in the Consolidated Statements of
Operations and Changes in Net Assets. The Group does not consolidate
majority-owned or controlled portfolio companies. The Group does not provide
any financial support to any of its investments beyond the investment amount
to which it committed.
The Directors considered that it is appropriate to adopt a going concern basis
of accounting in preparing the consolidated financial statements. In reaching
this assessment, the Directors have considered a wide range of information
relating to present and future conditions including the balance sheets, future
projections, cash flows and the longer-term strategy of the business.
Note 2 – Summary of Significant Accounting Policies (Continued)
Principles of Consolidation
The consolidated financial statements include accounts of the Company
consolidated with the accounts of all its subsidiaries in which it holds a
controlling financial interest as of the financial statement date. All
inter-group balances have been eliminated.
The Company’s partially owned subsidiary, NB PEP Investments, LP
(incorporated) is incorporated in Guernsey.
The Company’s wholly-owned subsidiaries, NB PEP Holdings Limited, NB PEP
Investments I, LP, NB PEP Investments LP Limited and NB PEP Investments
Limited are incorporated in Guernsey.
The Company’s wholly-owned subsidiary, NB PEP Investments DE, LP is
incorporated in Delaware and operates in the United States.
Use of Estimates and Judgements
The preparation of the consolidated financial statements in conformity with
U.S. GAAP requires the Directors to make estimates and judgements that affect
the reported amounts of certain assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The following estimates and assumptions were used at 30 June 2024 and 31
December 2023 to estimate the fair value of each class of financial
instruments:
* Cash and cash equivalents - The carrying value reasonably approximates fair
value due to the short-term nature of these instruments.
* Government obligations - Further information on valuation is provided in the
Fair Value Measurements section below.
* Other assets - The carrying value reasonably approximates fair value.
* Distributions and sales proceeds receivable from investments - The carrying
value reasonably approximates fair value.
* ZDP Share liability - The carrying value reasonably approximates fair value
(see note 5).
* Credit Facility Loan - The carrying value reasonably approximates fair
value.
Note 2 – Summary of Significant Accounting Policies (Continued)
* Payables to Investment Manager and affiliates - The carrying value
reasonably approximates fair value.
* Accrued expenses and other liabilities - The carrying value reasonably
approximates fair value.
* Private equity investments – Further information on valuation is provided
in the Fair Value Measurements section below.
Fair Value Measurements
It is expected that most of the investments in which the Group invests will
meet the criteria set forth under FASB ASC 820 Fair Value Measurement and
Disclosures (“ASC 820”) permitting the use of the practical expedient to
determine the fair value of the investments. ASC 820 provides that, in valuing
alternative investments that do not have quoted market prices but calculate
net asset value (“NAV”) per share or equivalent, an investor may determine
fair value by using the NAV reported to the investor by the underlying
investment. To the extent ASC 820 is applicable to an investment, the
Investment Manager will value the Group’s investment based primarily on the
value reported to the Group by the investment or by the lead investor /
sponsor of a direct co-investment as of each quarter-end, as determined by the
investments in accordance with its own valuation policies.
ASC 820-10 Fair Value Measurements and Disclosure establishes a fair value
hierarchy that prioritises the inputs to valuation techniques used to measure
fair value. The hierarchy gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level 3
measurements). ASC 820-10-35-39 to 55 provides three levels of the fair value
hierarchy as follows:
Level 1: Quoted prices are available in active markets for
identical investments as of the
reporting date.
Level 2: Pricing inputs are other than quoted prices in active
markets, which are either directly or indirectly observable as of the
reporting date.
Level 3: Pricing inputs are unobservable for the investment
and include situations where there is little, if any, market activity for the
investment. The inputs used in the determination of the fair value require
significant management judgement or estimation.
Note 2 – Summary of Significant Accounting Policies (Continued)
Fair Value Measurements continued
Observable inputs refer broadly to the assumptions that market participants
would use in pricing the asset or liability, including assumptions about risk,
based on market data obtained from sources independent of the Group.
Unobservable inputs reflect the Group’s own assumptions about the
assumptions market participants would use in pricing the asset or liability
based on the information available. The inputs or methodology used for valuing
assets or liabilities may not be an indication of the risks associated with
investing in those assets or liabilities. The Group generally uses the NAV
reported by the investments as a primary input in its valuation utilising the
practical expedient method of determining fair value; however, adjustments to
the reported NAV may be made based on various factors, including, but not
limited to, the attributes of the interest held, including the rights and
obligations, any restrictions or illiquidity on such interest, any potential
clawbacks by the investments and the fair value of the investments' portfolio
or other assets and liabilities. Investments that are measured at fair value
using the NAV per share (or its equivalent) practical expedient are not
categorised in the fair value hierarchy.
Government Obligations
The fair value of U.S. Treasury Bills is based on dealer quotations. U.S.
Treasury Bills in this portfolio are categorised as Level 1 of the fair value
hierarchy.
Realised Gains and Losses on Investments
Purchases and sales of investments are recorded on a trade-date basis.
Realised gains and losses from sales of investments are determined on a
specific identification basis. For investments in private equity investments,
the Group records its share of realised gains and losses incurred when the
Investment Manager knows that the private equity investment has realised its
interest in a portfolio company and the Investment Manager has sufficient
information to quantify the amount. For all other investments, realised gains
and losses are recognised in the Consolidated Statements of Operations and
Changes in Net Assets in the year in which they arise.
Net Change in Unrealised Gains and Losses on Investments
Gains and losses arising from changes in value are recorded as an increase or
decrease in the unrealised gains or losses of investments based on the
methodology described above.
Note 2 – Summary of Significant Accounting Policies
(Continued)
Foreign Currency
Assets and liabilities denominated in foreign currencies are translated into
U.S. dollar amounts at the reporting date. Transactions denominated in foreign
currencies, including purchases and sales of investments, and income and
expenses, are translated into U.S. dollar amounts on the date of such
transactions. Adjustments arising from foreign currency transactions are
reflected in the net realised gain (loss) on investments and the net change in
unrealised gain (loss) on investments on the Consolidated Statements of
Operations and Changes in Net Assets.
The Group’s investments of which capital is denominated in foreign currency
are translated into U.S. dollars based on rates of exchange at the reporting
date. The cumulative effect of translation to U.S. dollars has decreased the
fair value of the Group’s foreign investments by $10,722,495 for the six
month period ended 30 June 2024. The cumulative effect of translation to U.S.
dollars increased the fair value of the Group’s foreign investments by
$2,309,843 for the six month period ended 30 June 2023.
The ZDP Shares are denominated in Sterling (see note 5 and note 6). The Group
has unfunded commitments denominated in currencies other than U.S. dollars. At
30 June 2024, the unfunded commitments that are in Euros and Sterling amounted
to €5,323,434 and £29,588, respectively (31 December 2023: €9,080,803
and £32,138). They have been included in the Consolidated Condensed Schedules
of Investments at the U.S. dollar exchange rates in effect at 30 June 2024 and
31 December 2023. The effect on the unfunded commitment of the change in the
exchange rates between Euros and U.S. dollars was a decrease in the U.S.
dollar obligations of $172,331 for 30 June 2024 and an increase in the U.S.
dollar obligations of $294,762 for 31 December 2023.
The effect on the unfunded commitment of the change in the exchange rates
between Sterling and U.S. dollars was a decrease in the U.S. dollar
obligations of $317 for 30 June 2024 and an increase in the U.S. dollar
obligations of $2,311 for 31 December 2023.
Investment Transactions and Investment Income
Investment transactions are accounted for on a trade-date basis. Investments
are recognised when the Group incurs an obligation to acquire a financial
instrument and assume the risk of any gain or loss or incurs an obligation to
sell a financial instrument and forego the risk of any gain or loss.
Investment transactions that have not yet settled are reported as receivable
from investment or payable to investment.
The Group earns interest and dividends from direct investments and from cash
and cash equivalents. The Group records dividends on the ex-dividend date, net
of withholding tax, if any,
Note 2 – Summary of Significant Accounting Policies (Continued)
and interest, on an accrual basis when earned, provided the Investment Manager
knows the information or is able to reliably estimate it. Otherwise, the Group
records the investment income when it is reported by the private equity
investments. Discounts received or premiums paid in connection with the
acquisition of loans are amortised into interest income using the effective
interest method over the contractual life of the related loan. Payment-in-kind
(“PIK”) interest is computed at the contractual rate specified in the loan
agreement for any portion of the interest which may be added to the principal
balance of a loan rather than paid in cash by the obligator on the scheduled
interest payment date. PIK interest is added to the principal balance of the
loan and recorded as interest income. Prepayment premiums include fee income
from securities settled prior to maturity date, and are recorded as interest
income in the Consolidated Statements of Operations and Changes in Net Assets.
For the six month period ended 30 June 2024, total interest and dividend
income was $5,744,303, of which $0 was dividends, and $5,744,303 was interest
income. For the six month period ended 30 June 2023, total interest and
dividend income was $2,503,183, of which $2,825 was dividends, and $2,500,358
was interest income.
Cash and Cash Equivalents
Cash and cash equivalents represent cash held in accounts at banks and liquid
investments with original maturities of three months or less. Cash equivalents
are carried at cost plus accrued interest, which approximates fair value. At
30 June 2024 and 31 December 2023, cash and cash equivalents consisted of
$55,752,761 and $50,617,431, respectively, held in operating accounts with
Bank of America Merrill Lynch and U.S. Bank. Cash equivalents are held for the
purpose of meeting short-term liquidity requirements, rather than for
investment purposes.
As of 30 June 2024 and 31 December 2023, the cash equivalents were
$34,805,658 and $14,858,215, respectively. Cash and cash equivalents are
subject to credit risk to the extent those balances exceed applicable Federal
Deposit Insurance Corporation (“FDIC”) or Securities Investor Protection
Corporation (“SIPC”) limitations.
Income Taxes
The Company is registered in Guernsey as an exempt company. The States of
Guernsey Income Tax Authority has granted the Group an exemption from Guernsey
income tax under the provision of the Income Tax (Exempt Bodies) (Guernsey)
Ordinance 1989 and the
Note 2 – Summary of Significant Accounting Policies (Continued)
Income Taxes continued
Group has been charged an annual exemption fee of £1,200 (2023: £1,200).
Generally, income that the Group derives from the investments may be subject
to taxes imposed by the U.S. or other countries and will impact the Group’s
effective tax rate.
In accordance with FASB ASC 740-10, Income Taxes, the Group is required to
determine whether its tax positions are more likely than not to be sustained
upon examination by the applicable taxing authority based on the technical
merits of the position. Tax positions not deemed to meet a
more-likely-than-not threshold would be recorded as a tax expense in the
current year.
The Group files tax returns as prescribed by the tax laws of the jurisdictions
in which it operates. In the normal course of business, the Group is subject
to examination by U.S. federal, state, local and foreign jurisdictions, where
applicable. The Group’s U.S. federal income tax returns are open under the
normal three-year statute of limitations and therefore subject to examination.
The Investment Manager does not expect that the total amount of unrecognised
tax benefits will materially change over the next twelve months.
Investments made in entities that generate U.S. source investment income may
subject the Group to certain U.S. federal and state income tax consequences. A
U.S. withholding tax at the rate of 30% may be applied on the Group’s
distributive share of any U.S. sourced dividends and interest (subject to
certain exemptions) and certain other income that the Group receives directly
or through one or more entities treated as either partnerships or disregarded
entities for U.S. federal income tax purposes.
Investments made in entities that generate business income that is effectively
connected with a U.S. trade or business may subject the Group to certain U.S.
federal and state income tax consequences. Generally, the U.S. imposes
withholding tax on effectively connected income at the highest U.S. rate
(generally 21%). In addition, the Group may also be subject to a branch
profits tax which can be imposed at a rate of up to 23.7% of the after-tax
profits treated as effectively connected income associated with a U.S. trade
or business. As such, the aggregate U.S. tax liability on effectively
connected income may approximate 44.7% given the two levels of tax.
The Group recognises a tax benefit in the consolidated financial statements
only when it is more likely than not that the position will be sustained upon
examination by the relevant taxing authority based on the technical merits of
the position. To date, the Group has not provided any reserves for taxes as
all related tax benefits have been fully recognised. Although the Investment
Manager believes uncertain tax positions have been adequately assessed, the
Investment Manager
Note 2 – Summary of Significant Accounting Policies (Continued)
Income Taxes continued
acknowledges that these matters require significant judgement and no assurance
can be given that the final tax outcome of these matters will not be
different. Deferred taxes are recorded to reflect the tax benefit and
consequences of future years’ differences between the tax basis of assets
and liabilities and their financial reporting basis. The Group records a
valuation allowance to reduce deferred tax assets if it is more likely than
not that some portion or all of the deferred tax assets will not be realised.
Management subsequently adjusts the valuation allowance as the expected
realisability of the deferred tax assets changes such that the valuation
allowance is sufficient to cover the portion of the asset that will not be
realised. The Group records the tax associated with any transactions with U.S.
or other tax consequences when the Group recognises the related income (see
note 7).
Shareholders in certain jurisdictions may have individual income tax
consequences from ownership of the Group's shares. The Group has not accounted
for any such tax consequences in these consolidated financial statements. For
example, the Investment Manager expects the Group and certain of its non-U.S.
corporate subsidiaries to be treated as passive foreign investment
corporations (“PFICs”) under U.S. tax rules. For this purpose, the PFIC
regime should not give rise to additional tax at the level of the Group or its
subsidiaries. Instead, certain U.S. investors in the Group may need to make
tax elections and comply with certain U.S. reporting requirements related to
their investments in the PFICs in order to potentially manage the adverse U.S.
tax consequences associated with the regime.
Forward Foreign Exchange Contracts
Forward foreign exchange contracts are reported on the balance sheets at fair
value and included either in other assets or accrued expenses and other
liabilities, depending on each contract’s unrealised position (appreciated /
depreciated) relative to its notional value as of the end of the reporting
periods. See note 6.
Forward foreign exchange contracts involve elements of market risk in excess
of the amounts reflected on the consolidated financial statements. The Group
bears the risk of an unfavourable change in the foreign exchange rate
underlying the forward foreign exchange contract, if any contract exists, as
well as risks from the potential inability of the counterparties to meet the
terms of their contracts.
Note 2 – Summary of Significant Accounting Policies (Continued)
Dividends to Shareholders
The Company aims to pays dividends semi-annually to shareholders upon approval
by the Board of Directors subject to the passing of the ZDP Cover Test (see
note 5) and the solvency test under Guernsey law. Liabilities for dividends to
shareholders are recorded on the ex-dividend date.
The Company may declare dividend payments from time to time. Prior to each
dividend announcement, the Board reviews the appropriateness of the dividend
payment in light of macro-economic activity, the financial position of the
Company, and other factors. The Company targets an annualised dividend yield
of 3.0% or greater on NAV which has been paid out semi-annually.
Operating Expenses
Operating expenses are recognised when incurred. Operating expenses include
amounts directly incurred by the Group as part of its operations, and do not
include amounts incurred from the operations of the Group's investments. These
operating expenses are included in administration and professional fees on the
Consolidated Statement of Operations.
Carried Interest
Carried interest amounts due to the Special Limited Partner (an affiliate of
the Investment Manager, see note 10) are computed and accrued at each period
end based on period-to-date results in accordance with the terms of the Third
Amended and Restated Limited Partnership Agreement of NB PEP Investments LP
(Incorporated). For the purposes of calculating the incentive allocation
payable to the Special Limited Partner, the value of any fund investments made
by the Group in other Neuberger Berman Funds (“NB Funds”) in respect of
which the Investment Manager or an affiliate receives a fee or other
remuneration shall be excluded from the calculation.
Note 3 – Investments
The Group invests in a diversified portfolio of direct private equity
companies (see note 2). As required by ASC 820, financial assets and
liabilities are classified in their entirety based on the lowest level of
input that is significant to the fair value measurement. The Group has
assessed these positions and concluded that all private equity companies not
valued using the practical expedient, with the exception of marketable
securities, are classified as either Level 2 or Level 3 due to significant
unobservable inputs. Marketable securities distributed from a private equity
company are classified as Level 1. The Group values equity securities that are
traded on a national securities
Note 3 – Investments (Continued)
exchange at their last reported sales price. There were two marketable
securities held by the Group as of 30 June 2024 and 31 December 2023.
The following table details the Group’s financial assets and liabilities
that were accounted for at fair value as of 30 June 2024 and
31 December 2023 by level and fair value hierarchy.
Assets (Liabilities) Accounted for at Fair Value
Investments
measured at
As of 30 June 2024 Level 1 Level 2 Level 3 net asset value (1) Total
Common stock $ 2,768,828 $ 5,476,680 $ - $ - $ 8,245,508
Government obligations 120,375,758 - - - 120,375,758
Private equity companies - 4,520 147,091,161 1,137,505,104 1,284,600,785
Totals $ 123,144,586 $ 5,481,200 $ 147,091,161 $ 1,137,505,104 $ 1,413,222,051
Investments
measured at
As of 31 December 2023 Level 1 Level 2 Level 3 net asset value (1) Total
Common stock $ 6,784,603 $ 6,556,933 $ - $ - $ 13,341,536
Government obligations 115,181,468 - - - 115,181,468
Private equity companies - 235,297 206,759,351 1,101,009,319 1,308,003,967
Totals $ 121,966,071 $ 6,792,230 $ 206,759,351 $ 1,101,009,319 $ 1,436,526,971
(1) Certain investments that are measured at fair value using the NAV per
share (or its equivalent) practical expedient have not been categorised in the
fair value hierarchy. The fair value amounts presented in this table are
intended to permit reconciliation of the fair value hierarchy to the amounts
presented in the Consolidated Condensed Schedules of Investments.
Significant investments:
At 30 June 2024, the Group’s share of the following underlying private
equity company exceeded 5% of net asset value.
Note 3 – Investments (Continued)
Fair Value as a
Fair Value Percentage of
Company (Legal Entity Name) Industry Country 2024 net asset value
3i 2020 Co-investment 1 SCSp (Action) Consumer/Retail Netherlands $ 91,479,922 7.10%
(LP Interest)
At 31 December 2023, the Group’s share of the following underlying private
equity company exceeded 5% of net asset value.
Fair Value as a
Fair Value Percentage of
Company (Legal Entity Name) Industry Country 2023 net asset value
3i 2020 Co-investment 1 SCSp (Action) Consumer/Retail Netherlands $ 85,631,976 6.56%
(LP Interest)
The following table summarises the changes in the fair value of the Group’s
Level 3 private equity investments for the six month period ended 30 June
2024.
(dollars in thousands)
For the Period Ended 30 June 2024
Total Private
Large-cap Mid-cap Special Growth/ Income Equity
Buyout Buyout Situations Venture Investments Investments
Balance, 31 December 2023 $ 43,314 $ 99,598 $ 8,191 $ 11,331 $ 44,325 $ 206,759
Purchases of investments and/or
contributions to investments - - - - - -
Realised gain (loss) on investments - 6,033 - - 2,599 8,632
Changes in unrealised gain (loss) of
investments still held at the reporting date 3,034 2,307 (3,462) (1,233) (5,852) (5,206)
Changes in unrealised gain (loss) of
investments sold during the period - (5,928) - - - (5,928)
Distributions from investments - (16,666) - - (40,500) (57,166)
Transfers into level 3 - - - - - -
Transfers out of level 3 - - - - - -
Balance, 30 June 2024 $ 46,348 $ 85,344 $ 4,729 $ 10,098 $ 572 $ 147,091
There were no transfers into Level 3. There were no transfers out of Level 3.
Note 3 – Investments (Continued)
The following table summarises changes in the fair value of the Company’s
Level 3 private equity investments for the year ended 31 December 2023.
(dollars in thousands)
For the Year Ended 31 December 2023
Total Private
Large-cap Mid-cap Special Growth/ Income Equity
Buyout Buyout Situations Venture Investments Investments
Balance, 31 December 2022 $ 38,312 $ 84,149 $ 13,383 $ 19,789 $ 40,147 $ 195,780
Purchases of investments and/or
contributions to investments - 278 - - - 278
Realised gain (loss) on investments - 353 312 13 4,815 5,493
Changes in unrealised gain (loss) of
investments still held at the reporting date 5,002 (280) (4,538) (3,972) (637) (4,425)
Changes in unrealised gain (loss) of
investments sold during the period - 64 (245) (13) - (194)
Distributions from investments - (353) (721) (13) - (1,087)
Transfers into level 3 - 15,387 - - - 15,387
Transfers out of Level 3 - - - (4,473) - (4,473)
Balance, 31 December 2023 $ 43,314 $ 99,598 $ 8,191 $ 11,331 $ 44,325 $ 206,759
Investments were transferred into Level 3 as management’s fair value
estimate included significant unobservable inputs. Investments were
transferred out of Level 3 into Level 2.
Note 3 – Investments (Continued)
The following table summarises the valuation methodologies and inputs used for
private equity investments categorised in Level 3 as of 30 June 2024.
(dollars in thousands)
Impact to
Fair Value Valuation from an
Private Equity Investments 30 June 2024 Valuation Methodologies Unobservable Inputs (1) Ranges (Weighted Average) (2) Increase in Input (3)
Direct equity investments
Large-cap buyout $ 46,348 Market Comparable Companies LTM EBITDA 12.9x-23.0x (15.3x) Increase
Market Comparable Companies NTM EBITDA 21.5x Increase
Mid-cap buyout 85,344 Escrow Value Escrow 1.0x Increase
Market Comparable Companies LTM Net Revenue 4.0x Increase
Market Comparable Companies LTM EBITDA 11.0x-13.5x (12.0x) Increase
Special situations 4,729 Market Comparable Companies LTM EBITDA 11.2x Increase
Growth / venture 10,098 Market Comparable Companies LTM Revenue 1.8x-2.5x (2.0x) Increase
Market Comparable Companies LTM EBITDA 25.3x Increase
Income investments 572 Market Comparable Companies LTM EBITDA 9.6x Increase
Total $ 147,091
(1) LTM means Last Twelve Months, EBITDA means
Earnings Before Interest Taxes Depreciation and Amortisation, NTM means Next
Twelve Months.
(2) Inputs weighted based on fair value of
investments in range.
(3) Unless otherwise noted, this column
represents the directional change in the fair value of Level 3 investments
that would result from an increase to the corresponding unobservable input. A
decrease to the unobservable input would have the opposite effect. Significant
increases and decreases in these inputs in isolation could result in
significantly higher or lower fair value measurements.
The following table summarises the valuation methodologies and inputs used for
private equity investments categorised in Level 3 as of 31 December 2023.
Note 3 – Investments (Continued)
(dollars in thousands)
Impact to
Fair Value Valuation from an
Private Equity Investments 31 December 2023 Valuation Methodologies Unobservable Inputs (1) Ranges (Weighted Average) (2) Increase in Input (3)
Direct equity investments
Large-cap buyout $ 43,314 Market Comparable Companies LTM EBITDA 12.8x Increase
Market Comparable Companies LTM Revenue 23.0x Increase
Market Comparable Companies NTM EBITDA 20.0x Increase
Mid-cap buyout 99,598 Escrow Value Escrow 1.0x Increase
Market Comparable Companies LTM EBITDA 8.8x-15.0x (13.4x) Increase
Special situations 8,191 Market Comparable Companies LTM EBITDA 9.4x Increase
Market Comparable Companies LTM Net Revenue 1.0x Increase
Growth / venture 11,331 Market Comparable Companies LTM Net Revenue 1.8x-2.5x (1.9x) Increase
Market Comparable Companies LTM EBITDA 27.2x Increase
Income investments 44,325 Market Comparable Companies LTM EBITDA 9.6x-11.9x (11.6x) Increase
Total $ 206,759
(1) LTM means Last Twelve Months, EBITDA means Earnings
Before Interest Taxes Depreciation and Amortisation, Boed means Barrels of oil
equivalent per day
(2) Inputs weighted based on fair value of investments in
range.
(3) Unless otherwise noted, this column represents the
directional change in the fair value of Level 3 investments that would result
from an increase to the corresponding unobservable input. A decrease to the
unobservable input would have the opposite effect. Significant increases and
decreases in these inputs in isolation could result in significantly higher or
lower fair value measurements.
Since 31 December 2023, there have been no changes in valuation
methodologies within Level 2 and Level 3 that have had a material impact on
the valuation of private equity investments.
In the case of direct equity investments and income investments, the
Investment Manager does not control the timing of exits but at the time of
investment, typically expects investment durations to be meaningfully shorter
than fund investments. Therefore, although some fund and direct investments
may take 10-15 years to reach final realisation, the Investment Manager
expects the majority of the Group’s invested capital in the current
portfolio to be returned in much shorter timeframes. Generally, fund
investments have a defined term and no right to withdraw. In the case of fund
investments, fund lives are typically ten years; however, a series of
extensions often mean the lives can extend significantly beyond this. It
should be noted that the Group’s fund investments are legacy assets,
non-core to the current strategy and are in realisation mode.
Note 4 – Credit Facility
As of 30 June 2024, a subsidiary of the Company had a $300.0 million secured
revolving credit facility (the “MassMutual Facility”) with Massachusetts
Mutual Life Insurance Company (“MassMutual”). The ten year borrowing
availability period of the MassMutual Facility expires on 23 December 2029,
while the MassMutual Facility matures on 23 December 2031. For the six month
period ended 30 June 2024 and the year ended 31 December 2023, the borrowings
drawn from the MassMutual Facility were NIL and $120,000,000, respectively,
and the payments to the MassMutual Facility were NIL and $30,000,000,
respectively. The outstanding balances of the MassMutual Facility were
$90,000,000 at 30 June 2024 and 31 December 2023.
Under the MassMutual Facility, the Group is required to meet certain portfolio
concentration tests and certain loan-to-value ratios not to exceed 45% through
23 December 2027 with step-downs each year thereafter until reaching 0% on 23
December 2029 and through maturity. In addition, the MassMutual Facility
limits the incurrence of loan-to-value ratios above 45%, additional
indebtedness, asset sales, acquisitions, mergers, liens, portfolio asset
assignments, or other matters customarily restricted in such agreements. The
MassMutual Facility defines change in control as a change in the Company’s
ownership structure of certain of its subsidiaries or the event in which the
Group is no longer managed by the Investment Manager or an affiliate. A change
in control would trigger an event of default under the MassMutual Facility. At
30 June 2024, the Group met all requirements under the MassMutual Facility.
The MassMutual Facility is secured by a security interest in the cash flows
from the underlying investments of the Group.
Under the MassMutual Facility, the interest rate through 30 June 2023 was
calculated as the greater of either LIBOR or 1% plus 2.875% per annum. On 30
June 2023 the MassMutual Facility was amended for the interest rate
calculation from greater of either LIBOR or 1% plus 2.875% to SOFR plus 2.875%
per annum, subject to a credit spread adjustment. The amended Credit Facility
agreement results in no material economic changes to the facility.
The Group is required to pay a commitment fee calculated as 0.55% per annum on
the average daily balance of the unused facility amount. The Group is subject
to a minimum utilisation of 30% of the facility size, or $90.0 million,
beginning eighteen months after the closing date or 23 June 2021. If the
minimum utilisation is not met, the Group is required to pay the amount of
interest that would have been accrued on the minimum usage amount less any
outstanding advances. As of 30 June 2024, the Group met the minimum
utilisation requirement, only the commitment fee applied.
Note 4 – Credit Facility (Continued)
The following table summarises the Group’s finance costs incurred and
expensed under the MassMutual Facility for the six month periods ended 30 June
2024 and 2023.
30 June 2024 30 June 2023
Interest expense $ 3,857,987 $ 170,305
Undrawn commitment fees 583,917 580,708
Servicing fees and breakage costs 39,000 17,236
Amortisation of capitalised debt issuance costs 131,921 131,196
Minimum utilisation fees - 3,386,913
Total Credit Facility Finance Costs $ 4,612,825 $ 4,286,358
As of 30 June 2024 and 31 December 2023, unamortised capitalised debt issuance
costs (included in Other assets on the Consolidated Balance Sheets) were
$1,980,282 and $2,112,203, respectively. Capitalised amounts are being
amortised on a straight-line basis over the terms of the applicable credit
facility.
Note 5 – Zero Dividend Preference Shares (“ZDP Shares”)
As of 30 June 2024, there were 50,000,000 ZDP Shares (the “2024 ZDP
Shares”) outstanding at a Gross Redemption Yield of 4.25%. The 2024 ZDP
Shares were issued pursuant to the Initial Placing and Offer for Subscription
at a price per 2024 ZDP Share of 100 pence. The holders of the 2024 ZDP
Shares will have a final capital entitlement of 130.63 pence on the repayment
date of 30 October 2024.
The 2024 ZDP Shares rank prior to the Class A and Class B Shares in respect
of repayment of the final entitlement. However, they rank behind any
borrowings that remain outstanding. They carry no entitlement to income and
their entire return takes the form of capital. The 2024 ZDP Shares require the
Company to satisfy their respective ZDP Cover Test (the “Test”) prior to
taking certain actions. In summary, the Test requires that for the 2024 ZDPs
the Gross Assets divided by the liabilities adjusting for the final 2024 ZDP
liabilities should be greater than 2.75. The details of the restrictions and
the Tests are set out in the ZDP Prospectus. Unless the Test is satisfied, the
Company is not permitted to pay any dividend or other distribution out of
capital reserves. A voluntary liquidation or winding-up of the Company would
require ZDP Shareholder approval where such winding-up is to take effect prior
to the relevant ZDP repayment date. As of 30 June 2024, the Company was in
compliance with the ZDP Cover Test.
Note 5 – Zero Dividend Preference Shares (“ZDP Shares”) (Continued)
The following table reconciles the liability for ZDP Shares, which
approximates fair value, for the six month period ended 30 June 2024 and the
year ended 31 December 2023.
ZDP Shares Pounds Sterling U.S. Dollars
Liability, 31 December 2022 £ 60,521,167 $ 72,800,912
Net change in accrued interest on 2024 ZDP Shares 2,570,123 3,141,388
Currency conversion - 4,486,478
Liability, 31 December 2023 £ 63,091,290 $ 80,428,778
Net change in accrued interest on 2024 ZDP Shares 1,322,037 1,680,044
Currency conversion - (683,936)
Liability, 30 June 2024 £ 64,413,327 $ 81,424,886
The total liability balance related to the 2024 ZDP Shares was £64,413,327
(equivalent of $81,424,886) and £63,091,290 (equivalent of $80,428,778) as of
30 June 2024 and 31 December 2023, respectively.
As of 30 June 2024, the 2024 ZDP Shares were the only outstanding ZDP share
class.
ZDP Shares are measured at amortised cost. Capitalised offering costs are
being amortised using the effective interest rate method. The unamortised
balance of capitalised offering costs of the 2024 ZDP Shares at 30 June 2024
was $46,408 and the unamortised balance of capitalised offering costs of the
2024 ZDP Shares at 31 December 2023 was $116,151.
Note 6 – Forward Foreign Exchange Contracts
The Group currently does not employ specific hedging
techniques to reduce the risks of adverse movements in securities prices,
currency exchange rates and interest rates; however, the investments may
employ such techniques. While hedging techniques may reduce certain risks,
such transactions themselves may entail other risks. Thus, while the
investments may benefit from the use of these hedging mechanisms,
unanticipated changes in securities prices, currency exchange rates or
interest rates may result in poorer overall performance for the investments
than if they had not entered into such hedging transactions. The Group may
utilise forward foreign
Note 6 – Forward Foreign Exchange Contracts (Continued)
currency contracts to hedge, in part, the risk associated with the Sterling
contractual liability for the issued ZDP Shares (see note 5).
As of 30 June 2024 and 31 December 2023, the Group did not hold any active
forward foreign currency contracts.
Note 7 – Income Taxes
The Group is exempt from Guernsey tax on income derived from non-Guernsey
sources. However, certain of its underlying investments generate income that
is subject to tax in other jurisdictions, principally the United States
(“U.S.”). The Group has recorded the following amounts related to such
taxes:
30 June 2024 30 June 2023
Current tax expense $ 33,847 $ 50,443
Deferred tax expense - -
Total tax expense $ 33,847 $ 50,443
30 June 2024 31 December 2023
Gross deferred tax assets $ 6,934,094 $ 6,934,094
Valuation allowance (6,934,094) (6,934,094)
Net deferred tax assets - -
Gross deferred tax liabilities (24,877) (24,877)
Net deferred tax liabilities $ (24,877) $ (24,877)
Current tax expense (benefit) is reflected in Net investment income/(loss) and
deferred tax expense (benefit) is reflected in Net change in unrealised
gain/(loss) on the Consolidated Statements of Operations and Changes in Net
Assets. Net deferred tax liabilities are related to net unrealised gains and
gross deferred tax assets, offset by a valuation allowance, are related to
unrealised losses on investments held in entities that file separate tax
returns.
The Group has no gross unrecognised tax benefits. The Group is subject to
examination by tax regulators under the three-year statute of limitations
Note 8 – Earnings (Loss) per Share
The computations for earnings (loss) per share for the six month periods ended
30 June 2024 and 2023 are as follows:
Note 8 – Earnings (Loss) per Share Continued
2024 2023
Net increase (decrease) in net assets resulting from operations
attributable to the controlling interest $ 10,729,591 $ 59,937,923
Divided by weighted average shares outstanding for
Class A Shares and Class B Shares of the controlling interest 46,282,625 46,742,619
Earnings (loss) per share for Class A Shares and
Class B Shares of the controlling interest $ 0.23 $ 1.28
Note 9 – Share Capital, Including Treasury Stock
Class A Shareholders have the right to vote on all resolutions proposed at
general meetings of the Company, including resolutions relating to the
appointment, election, re-election and removal of Directors. The Company’s
Class B Shares, which were issued at the time of the initial public offering
to a Guernsey charitable trust, whose trustee is First Directors Limited
(“Trustee”), usually carry no voting rights at general meetings of the
Company. However, in the event the level of ownership of Class A Shares by
U.S. residents (excluding any Class A Shares held in treasury) exceeds 35% on
any date determined by the Directors (based on an analysis of share ownership
information available to the Company), the Class B Shares will carry voting
rights in relation to "Director Resolutions" (as such term is defined in the
Company's articles of incorporation). In this event, Class B Shares will
automatically carry such voting rights to dilute the voting power of the Class
A Shareholders with respect to Director Resolutions to the extent necessary to
reduce the percentage of votes exercisable by U.S. residents in relation to
the Director Resolutions to not more than 35%. Each Class A Share and Class B
Share participates equally in profits and losses. There have been no changes
to the legal form or nature of the Class A Shares nor to the reporting
currency of the Company’s consolidated financial statements (which will
remain in U.S. dollars) as a result
of the Main Market quote being in Sterling as well as U.S. dollars. Additional
paid-in capital (“APIC”) is the excess amount paid by shareholders over
the par value of shares. The Company’s APIC is included on the Consolidated
Balance Sheets.
The following table summarises the Company’s shares at 30 June 2024 and 31
December 2023.
Note 9 – Share Capital, Including Treasury Stock (Continued)
30 June 2024 31 December 2023
Class A Shares outstanding 46,237,719 46,502,606
Class B Shares outstanding 10,000 10,000
46,247,719 46,512,606
Class A Shares held in treasury - number of shares 3,150,408 3,150,408
Class A Shares held in treasury - cost $ 9,248,460 $ 9,248,460
The Company currently has shareholder authority to repurchase shares in the
market, the aggregate value of which may be up to 14.99% of the Class A Shares
in issue (excluding Class A Shares held in treasury) at the time the authority
is granted; such authority will expire on the date which is 15 months from the
date of passing of this resolution or, if earlier, at the end of the Annual
General Meeting (“AGM”) of the Company held in June 2025. The maximum
price which may be paid for a Class A Share is an amount equal to the higher
of (i) the price of the last independent trade and (ii) the highest current
independent bid, in each case, with respect to the Class A Shares on the
relevant exchange (being the Main Market).
The Company entered into a share buyback agreement with Jefferies
International Limited (“Jefferies”) on 5 October 2022, subject to
renewals.
For the six month period ended 30 June 2024, the Company purchased and
cancelled a total of 264,887 shares of its Class A stock (0.57% of the issued
and outstanding shares as of 31 December 2023) pursuant to general authority
granted by shareholders of the Company and the share buy-back agreement with
Jefferies International Limited. For the year ended 31 December 2023, the
Company purchased and cancelled a total of 258,424 shares of its Class A stock
(0.55% of the issued and outstanding shares as of 31 December 2022).
Note 10 – Management of the Group and Other Related Party
Transactions
Management and Guernsey Administration
The Group is managed by the Investment Manager for a management fee calculated
at the end of each calendar quarter equal to 37.5 basis points (150 basis
points per annum) of the fair value of the private equity and opportunistic
investments. For purposes of this computation, the fair value is reduced by
the fair value of any investment for which the Investment Manager is
separately compensated for investment management services. The Investment
Manager is not entitled to a management fee on: (i) the value of any fund
investments held by the Company in NB Funds in
Note 10 – Management of the Group and Other Related Party Transactions
(Continued)
respect of which the Investment Manager or an affiliate receives a fee or
other remuneration; or (ii) the value of any holdings in cash and short-term
investments (the definition of which shall be determined in good faith by the
Investment Manager, and shall include holdings in money market funds (whether
managed by the Investment Manager, an affiliate of the Investment Manager or a
third party manager)). For the six month periods ended 30 June 2024 and 2023,
the management fee expenses were $9,589,666 and $10,536,415, respectively, and
are included in Investment management and services on the Consolidated
Statement of Operations and Changes in Net Assets. As of 30 June 2024 and
2023, Investment Management fees payable to the Investment Manager and its
affiliates were $4,771,534 and $5,396,266, respectively. If the Company
terminates the Investment Management Agreement without cause, the Company
shall pay a termination fee equal to: seven years of management fees, plus an
amount equal to seven times the mean average incentive allocation of the three
performance periods immediately preceding the termination, plus all
underwriting, placement and other expenses borne by the Investment Manager or
affiliates in connection with the Company’s Initial Public Offering.
Administration and professional fees include fees for Directors, independent
third party accounting and administrative services, audit, tax, and assurance
services, trustee, legal, listing and other items. The Group pays to Ocorian
Administration (Guernsey) Limited (“Ocorian”), an affiliate of the
Trustee, a fee for providing certain administrative functions relating to
certain corporate services and Guernsey regulatory matters affecting the
Group. Fees for these services are paid as invoiced by Ocorian. The Group paid
Ocorian $66,304 and $54,552 for the six month periods ended 30 June 2024 and
2023, respectively, for such services. The Group also paid MUFG Capital
Analytics LLC, an independent third party fund administrator, $650,000
($325,000 quarterly) for each of the six month periods ended 30 June 2024 and
2023. These fees are included in Administration and professional fees on the
Consolidated Statements of Operations and Changes in Net Assets.
Directors’ fees are paid in Sterling and they are based on each Director’s
position on the Company’s Board. Directors' fees are subject to an annual
increase equivalent to the annual rise in the Guernsey retail price index,
subject to a 1% per annum minimum. For the six month period ended 30 June
2024, Directors’ fees were as follows: Chairman received £94,847 annually
(£23,712 quarterly), Chairman of the Audit Committee received £70,847
annually (£17,712 quarterly), Senior Independent Director received £65,347
annually (£16,337 quarterly), Chairman of the NRC and MEC Committees received
£65,347 annually (£16,337 quarterly), and Non-Executive Directors each
received £59,847 annually (£14,962 quarterly). As of 30 June 2024, an
additional fee was assessed in the amount of £11,509 annually and payable to
two Directors (£5,754 each) for serving as directors of the Guernsey
Subsidiaries of the Company. At 30 June 2024, the beneficial interests of the
Directors in the issued share capital of the Company was 145,695 ordinary
shares.
Note 10 – Management of the Group and Other Related Party Transactions
(Continued)
For the six month periods ended 30 June 2024 and 2023, the Group paid the
independent directors a total of $270,489 (of which $7,283 related to services
provided to the Guernsey Subsidiaries of the Company) and $217,040 (of which
$8,736 related to services provided to the Guernsey Subsidiaries of the
Company), respectively.
Related Parties
In order to execute on its investing activities, the Investment Manager may
create an intermediary entity for tax, legal, or other purposes. These
intermediary entities do not charge management fees nor incentive allocations.
Additionally, the Group may co-invest with other entities with the same
Investment Manager as the Group.
Special Limited Partner’s Non-controlling Interest in Subsidiary
An affiliate of the Investment Manager is a Special Limited Partner in a
consolidated partnership subsidiary. At 30 June 2024 and 31 December 2023, the
non-controlling interest of $2,026,085 and $2,004,028, respectively,
represented the Special Limited Partner’s capital contribution to the
partnership subsidiary and income allocation.
The following table reconciles the carrying amount of net assets, net assets
attributable to the controlling interest and net assets attributable to the
non-controlling interest at 30 June 2024 and 31 December 2023.
Controlling Interest Noncontrolling Interest Total
Net assets balance, 31 December 2022 $ 1,327,266,223 $ 1,947,323 $ 1,329,213,546
Net increase (decrease) in net assets
resulting from operations 27,069,151 56,705 27,125,856
Dividend payment (43,843,309) - (43,843,309)
Cost of stock repurchased and cancelled (258,424 shares) (5,006,257) - (5,006,257)
Net assets balance, 31 December 2023 $ 1,305,485,808 $ 2,004,028 $ 1,307,489,836
Net increase (decrease) in net assets
resulting from operations 10,729,591 22,057 10,751,648
Dividend payment (21,860,925) - (21,860,925)
Cost of stock repurchased and cancelled (264,887 shares) (5,418,037) - (5,418,037)
Net assets balance, 30 June 2024 $ 1,288,936,437 $ 2,026,085 $ 1,290,962,522
Carried Interest
The Special Limited Partner is entitled to a carried interest in an amount
that is, in general, equal to 7.5% of the Group’s consolidated net increase
in net assets resulting from operations, adjusted by
Note 10 – Management of the Group and Other Related Party Transactions
(Continued)
withdrawals, distributions and capital contributions, for a fiscal year in the
event that the Group’s internal rate of return for such period, based on the
NAV, exceeds 7.5%. For the purposes of this computation, the value of any
private equity fund investment in NB Funds in respect of which the Investment
Manager or an affiliate receives a fee or other remuneration shall be excluded
from the calculation of the incentive allocation payable to the Special
Limited Partner. If losses are incurred for a period, no carried interest will
be earned for any period until the subsequent net profits exceed the
cumulative net losses. Carried interest is also accrued and paid on any
economic gain that the Group realises on treasury stock transactions. Carried
interest is accrued periodically and paid in the subsequent year. As of 30
June 2024 and 31 December 2023, carried interest of nil was accrued,
respectively.
Private Equity Investments with NBG Subsidiaries
The Group holds limited partner interests in private equity fund investments
and direct investment programs that are managed by subsidiaries of NBG
(“NB-Affiliated Investments”). NB-Affiliated Investments will not result
in any duplicative NBG investment management fees and carry charged to the
Group. Below is a summary of the Group’s positions in NB-Affiliated
Investments.
NB-Affiliated Investments (dollars in millions) Fair Value ((1)) Committed Funded Unfunded
2024
NB-Affiliated Programs
NB Alternatives Direct Co-investment Programs $ 178.5 $ 275.0 $ 238.8 $ 36.2
NB Renaissance Programs 28.4 41.2 36.1 5.1
Marquee Brands 30.8 30.0 26.6 3.4
NB Credit Opportunities Program 29.9 50.0 45.0 5.0
Total NB-Affiliated Investments $ 267.6 $ 396.2 $ 346.5 $ 49.7
2023
NB-Affiliated Programs
NB Alternatives Direct Co-investment Programs $ 189.7 $ 275.0 $ 238.6 $ 36.4
NB Renaissance Programs 23.9 41.2 31.6 9.6
Marquee Brands 30.6 30.0 26.6 3.4
NB Credit Opportunities Program 37.9 50.0 38.0 12.0
NB Specialty Finance Program 7.7 50.0 35.0 15.0
Total NB-Affiliated Investments $ 289.8 $ 446.2 $ 369.8 $ 76.4
.
((1):) Fair value does not include distributions. At 30 June 2024 and 31 December 2023, the total distributions from
NB-Affiliated Investments were $506.3 and $472.1, respectively.
Note 11 – Risks and Contingencies
Market Risk
The Group’s exposure to financial risks is both direct (through its holdings
of assets and liabilities directly subject to these risks) and indirect
(through the impact of these risks on the overall valuation of its private
equity companies). The Group's private equity companies are generally not
traded in an active market, but are indirectly exposed to market price risk
arising from uncertainties about future values of the investments held. Each
fund investment of the Group holds a portfolio of investments in underlying
companies. These portfolio company investments vary as to type of security
held by the underlying partnership (debt or equity, publicly traded or
privately held), stage of operations, industry, geographic location and
geographic distribution of operations and size, all of which may impact the
susceptibility of their valuation to market price risk.
Market conditions for publicly traded and privately held investments in
portfolio companies held by the partnerships may affect their value in a
manner similar to the potential impact on direct co-investments made by the
Group in privately held securities. The fund investments of the Group may also
hold financial instruments (including debt and derivative instruments) in
addition to their investments in portfolio companies that are susceptible to
market price risk and therefore may also affect the value of the Group's
investment in the partnerships. As with any individual investment, market
prices may vary from composite index movements.
Additionally, the Group’s investments in non-USD denominated investments may
result in foreign exchange losses caused by devaluations and exchange rate
fluctuations.
Credit Risk
Credit risk is the risk of losses due to the failure of a counterparty to
perform according to the terms of a contract. The Group may invest in a range
of debt securities directly or in funds which do so. Until such investments
are sold or are paid in full at maturity, the Group is exposed to credit risk
relating to whether the issuer will meet its obligations when the securities
come due.
The cash and other liquid securities held can subject the Group to a
concentration of credit risk. The Investment Manager attempts to mitigate the
credit risk that exists with cash deposits and other liquid securities by
regularly monitoring the credit ratings of such financial institutions and
evaluating from time to time whether to hold some of the Group's cash and cash
equivalents in U.S. Treasuries or other highly liquid securities.
The Group’s investments are subject to various risk factors including market
and credit risk, interest rate and foreign exchange risk, inflation risk, and
the risks associated with investing in private securities. Non‐U.S. dollar
denominated investments may result in foreign exchange losses caused by
devaluations and exchange rate fluctuations. In addition, consequences of
political, social,
Note 11 – Risks and Contingencies (Continued)
economic, diplomatic changes, or public health condition may have disruptive
effects on market prices or fair valuations of foreign investments.
Liquidity Risk
Liquidity risk is the risk that the Group will not be able to meet its
obligations as they fall due. The Investment Manager mitigates this risk by
monitoring the sufficiency of cash balances and availability under the Credit
Facility (see note 4) to meet expected liquidity requirements for investment
funding and operating expenses.
Contingencies
In the normal course of business, the Group enters into contracts that contain
a variety of representations and warranties which provide general
indemnifications. The Group’s maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the
Group that have not yet occurred. The Investment Manager expects the risk of
loss to be remote and does not expect these to have a material adverse effect
on the consolidated financial statements of the Group.
Note 12 – Financial Highlights
The following ratios with respect to the Class A Shares and Class B Shares
have been computed for the six month periods ended 30 June 2024 and 2023 and
the year ended 31 December 2023:
Per share operating performance For the Six Month Period Ended For the Year Ended For the Six Month Period Ended
(based on average shares outstanding during the year) 30 June 2024 31 December 2023 30 June 2023
Beginning net asset value $ 28.07 $ 28.38 $ 28.38
Net increase in net assets resulting from operations:
Net investment income (loss) (0.27) (0.67) (0.35)
Net realised and unrealised gain (loss) 0.50 1.25 1.63
Dividend payment (0.47) (0.94) (0.47)
Stock repurchased and cancelled 0.04 0.05 0.05
Ending net asset value $ 27.87 $ 28.07 $ 29.24
Total return For the Six Month Period Ended For the Year Ended For the Six Month Period Ended
(based on change in net asset value per share) 30 June 2024 31 December 2023 30 June 2023
Total return before carried interest 0.96% 2.22% 4.69%
Carried interest - - -
Total return after carried interest 0.96% 2.22% 4.69%
Net investment income (loss) and expense ratios For the Six Month Period Ended (Annualised) For the Year Ended For the Six Month Period Ended (Annualised)
(based on weighted average net assets) 30 June 2024 31 December 2023 30 June 2023
Net investment income (loss), excluding carried interest (1.96%) (2.36%) (2.46%)
Expense ratios:
Expenses before interest and carried interest 1.98% 2.36% 2.58%
Interest expense 0.86% 0.48% 0.26%
Carried interest - - -
Expense ratios total 2.84% 2.84% 2.84%
Note 12 – Financial Highlights (Continued)
Net investment income (loss) is interest income earned net of expenses,
including management fees and other expenses consistent with the presentation
within the Consolidated Statements of Operations and Changes in Net Assets.
Expenses do not include the expenses of the underlying private equity
investment partnerships.
Individual shareholder returns may differ from the ratios presented based on
differing entry dates into the Group.
Note 13 – Subsequent Events
On 30 August 2024, the Group paid a dividend of $0.47 per Ordinary Share to
shareholders of record on 25 July 2024.
The Investment Manager and the Board of Directors have evaluated events
through 24 September 2024, the date the financial statements are available to
be issued and have determined there were no other subsequent events that
require adjustment to, or disclosure in, the financial statements.
For further information, please contact:
NBPE Investor Relations +44 (0) 20 3214 9002
Luke Mason NBPrivateMarketsIR@nb.com
Kaso Legg Communications +44 (0)20 3882 6644
Charles Gorman nbpe@kl-communications.com
Luke Dampier
Charlotte Francis
About NB Private Equity Partners Limited
NBPE invests in direct private equity investments alongside market leading
private equity firms globally. NB Alternatives Advisers LLC (the “Investment
Manager”), an indirect wholly owned subsidiary of Neuberger Berman Group
LLC, is responsible for sourcing, execution and management of NBPE. The vast
majority of direct investments are made with no management fee / no carried
interest payable to third-party GPs, offering greater fee efficiency than
other listed private equity companies. NBPE seeks capital appreciation through
growth in net asset value over time while paying a bi-annual dividend. LEI
number: 213800UJH93NH8IOFQ77
About Neuberger Berman
Neuberger Berman is an employee-owned, private, independent investment manager
founded in 1939 with over 2,800 employees in 26 countries. The firm manages
$481 billion of equities, fixed income, private equity, real estate and hedge
fund portfolios for global institutions, advisors and individuals. Neuberger
Berman’s investment philosophy is founded on active management, fundamental
research and engaged ownership. The PRI identified the firm as part of the
Leader’s Group, a designation awarded to fewer than 1% of investment firms
for excellence in environmental, social and governance practices. Neuberger
Berman has been named by Pensions & Investments as the #1 or #2 Best Place to
Work in Money Management for each of the last ten years (firms with more than
1,000 employees). Visit www.nb.com for more information. Data as of June 30,
2024.
(1) Based on net asset value.
(2) Revenue and EBITDA growth: Past performance is no guarantee of future
results. Fair value as of 30 June 2024. Growth rate data includes both organic
growth and growth from M&A transactions in the portfolio. The data is subject
to the following adjustments: 1) Excludes public companies, Marquee Brands and
other investments not valued on multiples of EBITDA. 2) Analysis based on 58
private companies. 3) The private companies included in the data represent
approximately 83% of the total direct equity portfolio by NAV. 4) The
following exclusions to the data were made: a) EBITDA growth of one company
(approximately 2% of value) was excluded from the data as the Manager believed
the EBITDA growth rate was an outlier due to an extraordinary high percentage
change b) one company (<1% of direct equity fair value) was excluded due to
noncomparable periods of revenue and/or EBITDA c) five companies (5% of direct
equity fair value) were held less than one year and excluded from the
portfolio company operating metrics data due to noncomparable periods of
revenue and/or EBITDA prior to private equity ownership. Where necessary,
estimates were used, which include pro forma adjusted EBITDA and other EBITDA
adjustments, pro forma revenue adjustments, run-rate adjustments for
acquisitions, and annualised quarterly operating metrics. Portfolio company
operating metrics are based on the most recently available (unaudited)
financial information for each company and are as reported by the lead private
equity sponsor to the Manager as of 23 September 2024, with LTM periods as of
30/6/24 and 31/3/24 and 30/6/23 and 31/3/23. LTM revenue and LTM EBITDA growth
rates are weighted by fair value.
(3) Valuation & Leverage: Past performance is no guarantee of future results.
Fair value as of 30 June 2024 and subject to the following adjustments. 1)
Excludes public companies, Marquee Brands and other investments not valued on
a multiple of EBITDA. 2) Based on 57 private companies which are valued based
on EV/EBITDA metrics. 3) The private companies included in the data represents
80% of direct equity investment fair value. 4) Companies not valued on
multiples of EBITDA (billings, revenue or other valuation metrics) are
excluded from valuation statistics. 5) Leverage statistics exclude companies
with net cash position and leverage data represents 80% of direct equity
investment fair value. Portfolio company operating metrics are based on the
most recently available (unaudited) financial information for each company and
are as reported by the lead private equity sponsor to the Manager as of 23
September 2024, based on reporting periods as of 30 June 2024 and 31 March
2024. EV and leverage data is weighted by fair value.
(4) Valuation & Leverage: Past performance is no guarantee of future results.
Fair value as of 30 June 2024 and subject to the following adjustments. 1)
Excludes public companies, Marquee Brands and other investments not valued on
a multiple of EBITDA. 2) Based on 57 private companies which are valued based
on EV/EBITDA metrics. 3) The private companies included in the data represents
80% of direct equity investment fair value. 4) Companies not valued on
multiples of EBITDA (billings, revenue or other valuation metrics) are
excluded from valuation statistics. 5) Leverage statistics exclude companies
with net cash position and leverage data represents 80% of direct equity
investment fair value. Portfolio company operating metrics are based on the
most recently available (unaudited) financial information for each company and
are as reported by the lead private equity sponsor to the Manager as of 23
September 2024, based on reporting periods as of 30 June 2024 and 31 March
2024. EV and leverage data is weighted by fair value.
This press release appears as a matter of record only and does not constitute
an offer to sell or a solicitation of an offer to purchase any security.
NBPE is established as a closed-end investment company domiciled in Guernsey.
NBPE has received the necessary consent of the Guernsey Financial Services
Commission. The value of investments may fluctuate. Results achieved in the
past are no guarantee of future results. This document is not intended to
constitute legal, tax or accounting advice or investment recommendations.
Prospective investors are advised to seek expert legal, financial, tax and
other professional advice before making any investment decision. Statements
contained in this document that are not historical facts are based on current
expectations, estimates, projections, opinions and beliefs of NBPE's
investment manager. Such statements involve known and unknown risks,
uncertainties and other factors, and undue reliance should not be placed
thereon. Additionally, this document contains "forward-looking statements."
Actual events or results or the actual performance of NBPE may differ
materially from those reflected or contemplated in such targets or
forward-looking statements