Half-year Report
22/02/2024 07:02
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RNS Number : 0097E Pantheon International PLC 22 February 2024
For immediate release
The information contained in this announcement is restricted and is not for
publication, release or distribution in the United States of America, Canada,
Australia (other than to persons who are both wholesale clients and
professional or sophisticated investors in Australia), Japan, the Republic of
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distribution is or may be unlawful.
PANTHEON INTERNATIONAL PLC
INTERIM REPORT FOR THE SIX MONTHS ENDED 30 NOVEMBER 2023
The full Interim Report and Accounts can be accessed via the Company's website
at www.piplc.com (http://www.piplc.com) or by contacting the Company Secretary
by telephone on +44 (0)333 300 1950.
Pantheon International Plc
(the "Company" or "PIP")
Pantheon International Plc, a FTSE 250 investment trust that provides access
to an actively-managed global and diversified portfolio of private
equity-backed companies, today publishes its Interim Report and Accounts for
the six months ended 30 November 2023.
Corporate activity
· Capturing value for PIP's shareholders:
o Launch of up to £200m share buyback programme to take advantage of the
wide discount on PIP's shares and invest in PIP's own portfolio during the
financial year to 31 May 2024. During the half year to 30 November 2023,
£157m was invested in share buybacks, including a £150m tender offer which
was completed in October 2023.
· Optimised capital structure for more flexibility and robustness
because of the longer, staggered debt maturity profile and more diversified
funding sources:
o During the period, PIP agreed a new £500m equivalent credit facility to
replace the previous credit facility and Credit Suisse as one of the lenders.
o Following the period end, PIP agreed a private placement of US$150m of
loan notes, structured over different maturities of five, seven and ten years,
with five high quality North American investors.
o The refinancing and the private placement have increased the number of
PIP's credit counterparties from three to ten within two separate highly
liquid markets.
Performance update
· PIP's share price increased by 8.1% during the period and it was
up by 20% for the calendar year 2023.
· NAV per share grew by 3.1% during the half year. Valuation gains
in the portfolio and NAV accretion from share buybacks were partially offset
by unfavourable currency movements, given that PIP's portfolio is
predominantly USD-denominated. Currency movements tend to balance out over the
long term.
· PIP has a strong long-term track record. Annualised NAV per share
growth over the last 10 years was 13.8%. The NAV performance beats the public
market benchmarks over the last three, five and ten years and since the
Company's inception in 1987.
Annualised performance as at 30 NOVEMBER
2023
1 yr 3 yrs 5 yrs 10 yrs Since inception(1)
NAV per share (stated net of fees) 1.5% 14.9% 12.2% 13.8% 12.0%
Ordinary share price 8.7% 8.2% 7.5% 11.1% 10.8%
FTSE All-Share, Total Return 1.8% 8.4% 4.9% 5.1% 7.3%
MSCI World, Total Return (Sterling) 6.8% 9.5% 10.7% 11.7% 8.3%
(1) Inception in September 1987.
NAV per share vs. market performance
1 yr 3 yrs 5 yrs 10 yrs Since inception
Versus FTSE All-Share, Total Return -0.3% +6.5% +7.3% +8.7% +4.7%
Versus MSCI World, Total Return (Sterling) -5.3% +5.4% +1.5% +2.1% +3.7%
Share price vs. market performance
1 yr 3 yrs 5 yrs 10 yrs Since inception
Versus FTSE All-Share, Total Return +6.9% -0.2% +2.6% +6.0% +3.5%
Versus MSCI World, Total Return (Sterling) +1.9% -1.3% -3.2% -0.6% +2.5%
Portfolio update
· Annualised EBITDA and revenue growth of 19% and 18% respectively
in PIP's underlying portfolio company investments over the past five financial
years, indicating the strength and resilience of these companies and
underpinning our confidence in PIP's reported NAV.
· PIP's loss ratio for all investments, realised and unrealised,
made over the last 10 years is low at 2.4%(1).
· Weighted average uplift from fully realised exits was 17% and the
weighted average uplift since 2012 has been 30%. The average cost multiple on
exit realisations was 2.5 times during the half year, and that figure since
2012 has been 3.0 times. The cost multiple on the existing portfolio, as
implied by the current NAV, is 1.6 times. These figures point to the
significant embedded value in PIP's portfolio.
· PIP's portfolio has remained cash-generative during the period
with net cash inflow from the portfolio of £30m.
(1) Loss ratio is calculated by the sum of 1) the loss made in the realised
investments which have exited below cost and 2) the difference between the
unrealised value and the cost on the unrealised investments which are held at
below the cost, divided by the aggregate investment costs of all investments
Financial position update
· As at 30 November 2023, PIP had access to net available cash of
£24m in addition to its multi-currency revolving £500m credit facility of
which £121m was drawn at the period end.
· The proceeds of the US$150m private placement loan notes have
been used to repay the existing drawings on the credit facility. As such,
the issuance of the privately placed loan notes has not resulted in a
significant change in PIP's leverage. As at 31 January and following the
issuance of the privately placed loan notes, PIP's net debt to NAV, excluding
the Asset Linked Note, is conservative at 5.5%.
Company update
· Zoe Clements and Rahul Welde were appointed to the Board of PIP,
providing additional expertise in private equity investment, corporate
finance, marketing and audit.
Commenting on the half year, John Singer CBE, Chair of PIP, said: "The past
six months have clearly been an extremely busy period for PIP, which included
a substantial share buyback programme of up to £200m, involving a tender
offer, and a reworking of our capital structure. These activities are enabling
us to fulfil our purpose, which remains to deliver excellent risk-adjusted
long-term capital appreciation to a growing shareholder base of institutions
and individuals, through easier access to diversified and well selected
private companies, while offering the daily liquidity of a quoted stock. We
will continue our dialogue with a wide group of shareholders and ensure that
we put their interests first."
Commenting on PIP, Jie Gong, Partner at Pantheon and Co-lead Manager of PIP,
said: "PIP has been designed to provide an "all weather", high quality
portfolio that can withstand macroeconomic volatility and market cycles. The
majority of PIP's portfolio is invested in buyouts of profitable and
differentiated businesses, with technology and healthcare companies making up
a considerable slice of PIP's exposure. Our preference is to "lean in" to the
dynamic parts of the economy, while avoiding cyclical businesses, and this
underpins our strategy in generating stable, attractive risk-adjusted returns
over the long term."
Commenting on the private equity market, Helen Steers, Partner at Pantheon and
Co-lead Manager of PIP, said: "Market dislocation offers good opportunities
for those investors that have the capital and the expertise to take advantage
of them, and we have seen new deal activity starting to tick up towards the
end of 2023. We believe that Pantheon's reputation as an established and a
reliable partner through market cycles will continue to serve us well for
securing high quality deal flow from private equity managers on behalf of
PIP."
A video of John Singer CBE discussing corporate activity during the half year
and a video of the team at Pantheon discussing PIP's half-year results are
available on PIP's website at www.piplc.com (http://www.piplc.com) .
LEI: 2138001B3CE5S5PEE928
For more information please contact:
Pantheon
Helen Steers / Vicki Bradley +44 (0)20 3356 1800
pip.ir@pantheon.com (mailto:pip.ir@pantheon.com)
Jie Gong +65 6027 1060
Investec Bank plc +44 (0)20 7597 4000
Joint Corporate Broker
Tom Skinner (Corporate Broking)
Lucy Lewis (Corporate Finance)
J.P. Morgan Cazenove +44 (0)203 493 8000
Joint Corporate Broker
William Simmonds (Corporate Finance)
Montfort Communications +44 (0)7738 912267
Gay Collins / Pippa Bailey / Isabel Garnon
PIP@montfort.london (mailto:PIP@montfort.london)
Follow PIP on LinkedIn:
https://www.linkedin.com/company/pantheon-international-plc
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Important Information
A copy of this announcement will be available on the Company's website at
www.piplc.com (http://www.piplc.com/) Neither the content of the Company's
website, nor the content on any website accessible from hyperlinks on its
website for any other website, is incorporated into, or forms part of, this
announcement nor, unless previously published by means of a recognised
information service, should any such content be relied upon in reaching a
decision as to whether or not to acquire, continue to hold, or dispose of,
securities in the Company.
CHAIR'S STATEMENT
Authenticity, relevance for Shareholders and differentiation
Key Statistics
+3.1% NAV per share growth in the half year
+12.0% Average annual NAV per share growth since inception
+3.8% NAV accretion from share buybacks
+8.1% Share price change in the half year
+10.8% Average annual share price growth since inception
£157m Shares repurchased during the half year
Corporate activity
- Initiation of three-stage process, following consultation with
shareholders.
- Launch of up to £200m share buyback programme in FY24 to invest in
our own portfolio at an attractive discount.
- Optimised PIP's capital structure to support long-term investment
strategy.
CHAIR'S STATEMENT
The past six months have clearly been an extremely busy period for PIP. I
would like to thank my fellow Board members and the PIP management team for
the energy and teamwork which have ensured the success of various initiatives.
Even more importantly, I would like to express my gratitude to you, our
shareholders, an increasing number with whom I have established an ongoing
dialogue, who have given us constructive suggestions, feedback and
encouragement as we have continued our journey during this period.
After working in recent years with our Manager on reshaping our investment
strategy - the increase in direct company investments to 54% of PIP's NAV
being one example - this year's work on the portfolio and related capital
allocation was accompanied by a heavy programme of activity to implement our
PIP corporate strategy, as I set out in last year's Annual Report. The first
phase of this corporate strategy included a substantial share buyback
programme of up to £200m, involving a tender offer, and a reworking of our
capital structure. These activities have emphatically not been carried out for
their own sake, but rather to enable us to fulfil our purpose, which remains
to deliver excellent risk-adjusted long-term capital appreciation to a growing
shareholder base of institutions and individuals, through easier access to
diversified and well selected private companies, while offering the daily
liquidity of a quoted stock. Let me address what we did, but also what our
objectives were, and the eventual outcomes.
Increase in our direct company investments to 54% of PIP's NAV
Our Three-Step Corporate Programme
As discussed in my Chair's Statement in August 2023, after personal meetings
with many shareholders, and working with the Board and the Team, we announced
this three-step process of corporate activity, with the first step being a
buyback programme for up to £200m for the financial year ending 31 May 2024.
As I explained at the time, buybacks are not the universal panacea to reduce
discounts between NAV and share price in stock markets. However large, used as
a one-off event, they tend to disappoint as a long-term solution to this
issue. Thus, we conceived of this programme to meet multiple objectives.
Primarily, this was a way of allocating a portion of capital to an existing,
high-quality portfolio that we know extremely well, and where we benefit both
from value creation on the purchase, given the discount, and from the eventual
future NAV uplifts which we regularly experience. Warren Buffett has stated
his belief that not doing this would amount to "economic illiteracy"!
Secondly, we wanted to send a signal to the market of our deeply held
conviction in the value of PIP's investment portfolio. Thirdly, by
incorporating a tender offer into this process, we were able to offer those
shareholders who wanted to obtain liquidity for all or part of their
shareholding the opportunity to do so through an egalitarian process open to
all. Finally, according to data provided by Peel Hunt, buyback activity does
reduce discount volatility, which is a deterrent to certain potential
investors in our sector.
1 Step One
As an update, since August last year, PIP has bought back 56,760,264 shares
for a total amount of £172.4m(1), at an average price of 303.7 pence per
share, representing an average 36% discount to NAV. The most important element
was a £150m reverse tender offer completed on 19 October 2023, at which time
PIP purchased 49.2m shares at a strike price of 305.0p per share, representing
a weighted average discount of 35% to the then prevailing NAV per share. Given
the overall buyback budget of up to £200m, PIP has £27.6m left for buybacks
for the remainder of this financial year. In carrying out these transactions,
we feel satisfied that the multiple objectives set out above were met, and it
was particularly gratifying to receive such an outpouring of positive feedback
from you, our shareholders, when the tender was announced on 25 September
2023.
2 Step Two
As I said in last year's Annual Report, a one-off large buyback is
insufficient to meet our objectives. Our next step will set out a clear
continuing buyback mechanism to be implemented over the next financial year,
beginning June 2024. This is an extension to our capital allocation policy of
dedicating a proportion of the Company's net portfolio cash flow to share
buybacks. As a transparent Board, we will share details of this policy with
you nearer to the time of implementation, as I have consistently stated since
setting out our strategy.
3 Step Three
To achieve our long-term ambitions for narrowing the discount further, we have
been working on ideas to stimulate further demand for our shares at a price
that more accurately reflects the NAV per share. It would be very easy to
excuse inactivity on this front by blaming everything on cyclical causes
resulting from the ebb and flow seen through different market environments -
such as cycles in global M&A volumes, or periods of indigestion such as we
saw following the record-breaking year of new investment trust launches in
2021, followed by the rapid rise of interest rates and worsening macroeconomic
conditions in 2022. Our sector was disproportionately penalised during that
latter "risk-off" environment.
Financial year Discount
May 2019 20%
May 2020 28%
May 2021 21%
May 2022 35%
May 2023 41%
Nov 2023 38%
But as promised, we have been taking various initiatives during this period to
understand how we might deal with the non-cyclical causes.
- On the marketing side we have continued work on segmentation of the global
market, and, through our Marketing Sub-Committee, have set up the process for
choosing our marketing agency partner to carry this work forwards.
- Our due diligence work on the marketing side has uncovered various "distrust
factors" surrounding the Listed Private Equity sector which appear to be
holding back demand for our sector's excellent products, which should form a
long-term holding of every portfolio. Several issues are listed below. Clearly
many need to be solved through joint actions and communications by the private
equity sector as a whole. Indeed much of the feedback from shareholders after
the tender suggested working with other members of the sector to explore joint
solutions. If concerted action were to be agreed upon, it would need to be on
the basis of each contributing to meet the needs of this sector's existing and
potential shareholders in ways appropriate to that Trust. We intend to work
with our peers in the sector to try and help educate and to dispel some of the
myths surrounding Private Equity.
- There can be no doubt that the closed-end fund sector, particularly trusts
that invest in alternatives with necessarily higher costs and therefore fees,
has been severely held back in the UK by the lack of a level playing field
regarding the disclosure of those costs. Helen Steers, our Co-Lead Manager,
has been working closely for some time with a large group of interested
parties across the closed-end fund industry who do seem, at last, to be making
their voices heard within government and elsewhere. We must be optimistic and
keep our fingers crossed that the regulations evolve such that we disclose
costs, rather than double count.
Creating a more flexible capital structure
Other important corporate actions during the last six months involved PIP's
refinancing of its revolving credit facilities, and a landmark private
placement of long-dated loan notes. These actions were planned in the first
half of 2023 as a sequence, and the execution work took place in the second
half with the closing of the private placement in January 2024. These moves
were made to further increase PIP's flexibility and balance sheet strength as
a holistic part of our overall journey, not in order to increase our overall
leverage, which has not changed as a result of the refinancing and the
subsequent private placement. PIP's net debt (excluding the ALN) to NAV ratio
as at 31 January 2024 of 5.5% is conservative as an absolute figure given the
robustness of NAV, and broadly in line with peers. Our strategic thinking as
we worked on our refinancing plans was as follows:
- While needing to replace Credit Suisse, a major lender in the previous
credit facility, the refinancing and private placement have increased the
number of credit counterparties from three to 10 within two separate highly
liquid markets. As a consequence, PIP is now much better placed to replace any
particular credit counterparty that faces a similar situation to Credit Suisse
in the future.
- The refinancing and private placement reflect our Board's intention to use
PIP's balance sheet in a more considered manner than in the past. Our
conservative approach resulted in excessive cash balances which caused cash
drag for PIP, with a meaningfully negative effect on NAV performance. As a
Board, we spend a lot of time considering the balance between capital
efficiency, return enhancement and balance sheet prudence. I will elaborate
further on the calibration of our balance sheet strategy as we discuss the new
discount-based buyback mechanism in the months ahead.
- In putting together the new financing package, we have not speculated on the
trajectory of interest rates nor attempted to "time the market". Having said
that, there was considerable work conducted on interest rate scenario analysis
before the decision was made. Based on today's 3-month US interest forward
rate, the all-in revolving credit facility rate would become 6.5% in the
second half of 2025 and beyond, based on the projected floating base rate and
assuming the same interest spread as today, which is very close to the blended
coupon achieved on the privately placed loan notes.
We are maintaining the figure of
3.9x
financing cover of undrawn commitments
Bearing in mind all these considerations, in October 2023 PIP signed an
agreement with lenders for a new £500m equivalent multi-tranche,
multi-currency revolving credit facility, which replaced the existing £500m
equivalent credit facility, and removed Credit Suisse as a lender. In addition
to the Credit Suisse exposure de-risking, the refinancing secured a more
flexible and diverse capital structure, strengthening the balance sheet. The
facility has an uncommitted accordion option, and it has a covenant package
which is more favourable than before. Despite the significant change in the
interest rate environment, the blended margin of the revolving credit facility
is only modestly higher than the prior credit facility, having increased by 46
basis points.
On 12 January 2024, PIP completed a private placement of $150m (£118m
equivalent) of loan notes structured over maturities of five, seven and 10
years, with a 6.9-year weighted average maturity. The loan notes were three
times oversubscribed and purchased by five sophisticated North American
institutional investors with considerable in-house knowledge of the private
equity asset class, as they also invest in private equity funds from their
balance sheets. These loan notes have a blended coupon rate of 6.49%, whereas
the revolving credit facility has an all-in rate(2) of 7.56% for the one-year
tranche and 8.26% for the three-year tranche. The privately placed loan notes
repaid the revolving credit facility drawings by the equivalent amount, and
hence there is no change in PIP's overall leverage after the private
placement.
We believe we have met the objectives we set ourselves, with the debt
replacement being done not only at a lower cost, but also over longer,
staggered maturities which reduce repayment risk. It should be reassuring for
us all that this capital structure gives access to two separate liquidity
markets with relatively small correlation to each other: global banks located
in the UK & Europe, and insurer and pension investors in North America.
Given the significant volatility of the banking market over the past 18
months, it is reassuring to know that we now have the benefit of being able to
access the private placement market in the future, taking advantage of
whichever market is offering the most attractive terms, if and when liquidity
is required.
PIP's share price and NAV performance over the last six months
The beginning of 2023 was the near nadir of market sentiment towards
investment trusts, and in particular private equity investment trusts. It is
hard to imagine that, only one year earlier, the investment trust sector
overall celebrated a record-breaking year of annual new issuances - twice that
of the preceding five-year average.
Against this backdrop, I am particularly pleased to report that PIP's share
price increased by 8.1% during the six months being reported on, and for the
calendar year 2023 it was up by 20%. The discount on PIP's ordinary shares
decreased from 41% as at 31 May 2023 to 38% as at 30 November 2023. Although
it is encouraging to see the discount closing, these are still early days
regarding the three-step corporate programme outlined earlier, and the
discount is still too wide at 34% at the time of writing. While it is
impossible to find objective data to explain this share price increase, I
would like to think that it is a healthy mix of consistency in performance;
our strategic corporate activity; and the suitability of PIP's risk profile
for all macroeconomic climates.
Turning to NAV and portfolio performance, against a background of still
considerable market volatility, the highlights can be summarised as follows.
During the six months to 30 November 2023, PIP's NAV per share grew by 3.1%.
Over 70% of PIP's portfolio is invested in buyouts, and they generated
positive returns during the period, along with the growth and special
situations segments. The small-to-mid buyout segment, which represents nearly
half of our portfolio, showed a NAV growth of 1% for this six-month period
ended 30 November 2023, compared with 10% for the prior six months ended 31
May 2023. The venture portion of PIP's portfolio was the only negative
growth strategy during the six months ended November 2023, but it accounts for
only 3% of PIP's exposure. Overall, the valuation gains in the portfolio were
1.4%, on top of which share buybacks added 3.8% to the NAV. Just over
three-quarters of PIP's portfolio is USD denominated, and therefore adverse
currency movements, due to the strengthening of sterling against the dollar,
offset the valuation gains. However, in our experience, currency movements
tend to balance out over the long term. PIP's impressive long-term track
record has remained intact with its NAV outperforming the public market
benchmarks over the last three, five and ten years, and since the company's
inception in 1987.
NAV per share progression(4)
May 2023 Valuation gains(3) Investment income(3) FX impact(3) Share buybacks Expenses and taxes(4,5) November 2023
462.4p 6.4p 1.8p (7.5p) 17.5p (4.1p) 476.5p
+1.4p +0.4% (1.6%) +3.8% (0.9%) +3.1%
1 As of 21 February 2024.
(2) Based on SOFR of 5.31% as at 15 February 2024
(3) PIP's valuation policy for private equity funds is based on the latest
valuations reported by the managers of the funds in which PIP has holdings. In
the case of PIP's valuation as at 30 November 2023, 89% of reported valuations
are dated 30 September 2023 or later.
(4) Figures are stated net of movements associated with the ALN share of the
reference portfolio.
(5) Taxes relate to withholding taxes on investment distributions.
This last point highlights our emphasis on long-term outperformance through
the cycle. Our NAV performance is the accumulation of value in investments
made over many vintage years, of which 2023 investments comprised only a small
percentage. And these new investments would inevitably be held at cost during
2023 and would have no impact on NAV movement one way or the other. I
therefore felt it would be helpful for shareholders to look at specific
variables that are relevant for long-term performance and see how they
performed during this six-month period.
- Valuations. While many public market investors were expecting a large drop
in private equity valuations during 2023, translating into a sharp dip in
Listed Private Equity NAV performance, this has not happened. While PIP's NAV
growth for the reported six-month period appears somewhat muted at 3.1%, the
figures show the inherent conservatism of our managers and reflect the fact
that they did not write companies up to the levels being indicated by booming
public market comparables in 2021. Therefore while public market comparables
sank in 2022 and 2023, our managers did not have to make significant
write-downs, given also the very healthy growth in EBITDA which forms an
important part of those valuations. And the 17% average uplift on exit value
in a difficult six-month period ended November 2023 gives confidence -
especially as these 30 September valuations do not allow for the Q4 rally in
public stocks.
- EBITDA growth. The 19% growth in annualised EBITDA of our underlying
investments over the past five financial years, and 18% revenue growth during
that same period, indicate the maintenance of growth and margins in the
portfolio that support those valuations which we are reporting to you. This
level of EBITDA growth means that valuations can be maintained even if the
multiples used in those valuations are being lowered to reflect this point in
the cycle.
- Direct investments. These continue to constitute the majority of our NAV,
giving further comfort around the valuations because of the closer
relationship that we have with these companies.
- PIP low-risk characteristics. We are keen to maintain the low-risk profile
embedded in our portfolio, strategy and capital structure. For investments
made over the past ten years, our loss ratio(5) (including not just absolute
losses incurred upon realisation of investments, but also the gap between
unrealised values and cost for those positions marked below cost, which may be
reversable) is still only 2.4%. A second good sign is that we are maintaining
the figure of 3.9x financing cover of undrawn commitments, as defined
previously. This provides great reassurance for us and our shareholders at a
time when distributions of £111.5m represent a historic low of 9% of the
portfolio value, and the call rate is at 19%.
2.5x 17% 19% Extremely low 2.4%
average multiple upon exit realisation in the six months ended November 2023, average uplift on exit value in the six months ended November 2023, and annualised EBITDA growth(6) over the past five financial years loss ratio(5) over 10 years…without having sacrificed healthy long-term NAV
and growth
3.0x 30% 18%
long-term average since 2012 long term average since 2012 annualised revenue growth(6) over the past five financial years
(5) Loss ratio is calculated by the sum of (1) the loss made in the realised
investments which have exited below cost and (2) the difference between the
unrealised value and the cost on the unrealised investments which are held at
below the cost, divided by the aggregate investment costs of all investments.
(6) Source: Bloomberg. Five-year annualised figures are derived from
underlying annual performance growth data.
These six months of portfolio management and corporate activity have created
one of the busiest periods in memory for the PIP Board and management team -
often involving three formal meetings a week as a result of the compressed
time schedules. I am so lucky to be surrounded by such an experienced,
enthusiastic and willing group of colleagues who have worked seamlessly -
together with other members of the broader Pantheon Group team- to deliver
these results for our shareholders, whilst strictly respecting governance "red
lines". It was therefore very gratifying to hear, first, the strong positive
feedback from shareholders regarding the tender offer, but also to receive the
Investment Trust Board of the Year award from Citywire in October - not for
the corporate actions per se, but rather for the independence we have shown as
a Board, and for listening to, and then acting on, our shareholders' wishes -
always putting our shareholders' interests first.
The Board's and the Manager's interests continue to be closely aligned with
PIP's shareholders, as the Board Directors collectively own 3.7m shares in the
Company, valued at the time of writing at £11.9m, while 18 Partners of
Pantheon collectively held a further 1.8m shares as at 31 December, 2023,
which were valued at £5.7m at the time of writing. And, finally, on the topic
of the Board, I am delighted to report that the two new Directors whom I
mentioned in my last report, Zoe Clements and Rahul Welde, were elected to our
Board at the AGM last October, and are actively bringing their experience and
skills (an essential element of the diversity I promised) to our Board and
Committees. We continue to monitor needs for Director recruitment at and
between Nominations Committee meetings.
Outlook
The private equity investment trust sector is highly valued by investors I
have spoken to for its ability to provide long term capital gains and its
highly democratising characteristics, yet challenges remain. Cyclical
pressures, which created 40-50% discounts to NAV in the market, will reverse,
helping to reduce those discounts. But to achieve the discount (or premium)
levels the sector deserves and dreams of requires a rerating to stimulate new
demand, as described in step three above. That in turn requires work by
private equity General Partners ("GPs") and investment trusts together to
provide clear and simple explanations of what we do and how we do it to the
other two players in our chain - namely wealth managers and investors in
general.
My conversations with the latter have exposed constant misunderstandings,
mistrust and recurring questions. Here are just a few examples of the
questions, and I hope in future communications to be able to expand on these:
Q. Isn't investing in public markets and private equity similar enough to
expect common methodologies and outcomes on areas covering valuations, fees
etc.
A. Actually, in my view they are highly dissimilar. Public markets link
capital with companies (which in turn have their own relatively protected
management teams) in a two-partner relationship where "active vs passive"
normally refers purely to the selection process between investor and company.
In private equity, the creation of a triangle by adding a value-adding partner
to the other two components (such as general partners, investment trusts,
operating and specialist partners) means that capital passes to companies via
those partners who always work actively with a portfolio company and its
incentivised and hard-driven management team to achieve a specific strategic
and business plan in a defined period to create value for shareholders. The
track record of alpha generation, operating expertise, skills and resources,
as well as the investment strategy, are therefore vital criteria for an
investor to help choose their value-adding partner who then takes
responsibility for the creation of gains in those companies. Here we use
attribution calculations, key person analysis and other methods for assessing
the likelihood of continuing alpha-generation by those partners' firms.
Given this very different business model, valuations of portfolio companies
can be undertaken by the value-adding GP directly based on their assessments
of each company's business plan - including the impact of macroeconomic and
microeconomic factors that may impair or enhance the anticipated value and
market multiples used for calculating those valuations. Business and strategic
plans are changed actively by the value-adding partner to enhance or transform
the business. But this is very different to the rationale for sector valuation
sentiment of public markets. And this is why many investors and commentators
are mystified by the strong evidence of continuing healthy uplifts to final
valuations before company exits, which have been shown over decades by private
equity investment trusts like PIP. Costs, in turn, will inevitably be higher
because of the value-adding team, but the upper two quartile GPs continue to
produce returns net of fees which significantly beat global indices of other
assets, and therefore show a very positive return on those additional costs.
Q. Aren't private equity managers greedy, putting their own interests first?
A. Undoubtedly there will always be self-interested operators in the world,
but we need to explain the power of alignment of interest not only between
private equity managers and portfolio company management teams, but also
between the former and their investors which uniquely empowers the
outperformance of this asset class. Private equity managers' compensation is
not determined by a performance fee that is related to unrealised value.
Instead, their ongoing management fees are a function of the invested cost of
investments, and their carried interest (performance fee) is earned only after
the portfolio companies are exited from the fund. Their interests are aligned
with ours, and therefore with yours.
Q. Isn't the era of cheap leverage and good private equity returns is over?
A. Long-term sustainable capital gains have never been made by private equity
managers who rely predominately on leverage or multiple arbitrage for their
portfolio capital gains. Neither one of these drivers is under their control.
The only driver which is under their control is EBITDA growth - which explains
PIP's focus on EBITDA growth in our portfolio companies and why I emphasise
the 18% EBITDA growth in the past six months which our PIP portfolio showed in
what would be considered a tough year for growth. This EBITDA growth element
is particularly important in small to medium-sized businesses which provide
the growth element for a very large part of the private equity market -
including our own. The alpha-focused creators of value will continue to show
market-beating returns.
18% EBITDA growth in the last six months…in what would be considered a tough
year for growth
Q. Isn't private equity too risky - even taking higher returns into
consideration?
A. As an example within our sector, PIP's risk containment ethos in the
construction and selection of assets means we can show an extremely low 2.4%
loss rate over ten years without having sacrificed healthy long-term NAV
growth.
These represent just a sample of the information-sharing work ahead, but let
us turn finally to PIP itself, and its anticipated future.
An advantage of my, and my colleagues', personal maturing process is that we
have lived through several cycles, and know well those moments of darkness and
gloom before dawn returns. Because of the fast-changing external environment
we have been facing, sadly one is never in a position to say anything sensible
about timing. However, the data that I have seen recently suggests that rays
of sunshine are on their way. For deals involving debt, the cost and
availability of this is improving as spreads are compressing, and there is
markedly increased single-lender capability compared with the several lenders
needed until recently in order to get a deal done. More generally, the large
pricing gaps are narrowing as pressure to buy and sell at a GP level is
increasing. Despite all the continuing macroeconomic and geopolitical
challenges, the business model for growth in portfolio companies of all sizes
has very frequently involved add-on acquisitions of other companies, and this
has driven activity in PIP's underlying investments as well.
However, to explain my confidence in PIP's future (and my own PIP
shareholding!) I return to my opening words regarding authenticity, relevance
and differentiation.
Regarding authenticity, staying true to one's values and culture, even if the
exit environment stays sticky - and according to Pitchbook.com, in 2023,
average PE holding periods in the USA recently breached 6.4 years - our heavy
focus on active value-added investments and continuing EBITDA growth puts us
in a very good position. Another example is GP-led secondaries where pressure
is rising to provide liquidity for some investors while allowing GPs to
continue building companies. We continue to be invited to participate in these
deals both because of our close relationships with those GPs as partners, and
our investment team's capability to work within a deal's tight timeframe.
Regarding relevance, we aim to be relevant at all points of the cycle, but
especially in a world of macroeconomic and microeconomic turbulence where
EBITDA growth needs to be sustained through well-stewarded companies to
produce the long-term gains with carefully measured risk which PIP can offer.
And differentiation through the capital allocation and corporate actions
described above, which are carefully designed to produce consistent
above-market returns within a low-risk investing framework - is guided by
extensive, hands-on private equity experience at Board level (which the
majority of our Directors possess), and our Manager Pantheon as well. I
believe that this private equity experience will be required more and more, in
addition to governance skills, in an increasingly complex private equity
world. With our values and culture, our strength in these areas, and the
continued support of our shareholders (for which my Board and I would like to
thank you warmly once again), we remain confident that these will continue to
guide the journey forward in the service of shareholders' interests.
PIP's Strategic Report has been approved by the Board and should be read in
its entirety by shareholders.
JOHN SINGER CBE
Chair
21 February 2024
Annualised performance as at 30 NOVEMBER 2023
1 yr 3 yrs 5 yrs 10 yrs Since inception*
NAV per share 1.5% 14.9% 12.2% 13.8% 12.0%
Ordinary share price 8.7% 8.2% 7.5% 11.1% 10.8%
FTSE All-Share 1.8% 8.4% 4.9% 5.1% 7.3%
MSCI World, Total Return (Sterling) 6.8% 9.5% 10.7% 11.7% 8.3%
NAV per share vs. public market performance
1 yr 3 yrs 5 yrs 10 yrs Since inception*
Versus FTSE All-Share, Total Return -0.3% 6.5% 7.3% 8.7% 4.7%
Versus MSCI World, Total Return (Sterling) -5.3% 5.4% 1.5% 2.1% 3.7%
Share price relative performance
1 yr 3 yrs 5 yrs 10 yrs Since inception*
Versus FTSE All-Share, Total Return 6.9% -0.2% 2.6% 6.0% 3.5%
Versus MSCI World, Total Return (Sterling) 1.9% -1.3% -3.2% -0.6% 2.5%
* Inception in September 1987.
Key Performance Indicators
What this is How PIP has performed Link to our strategic objectives Examples of related factors that we monitor
Performance
Five-year cumulative total shareholder return Total shareholder return constitutes the return to investors, after taking 30 Nov 2021 • PIP's ordinary shares had a closing price of 294.0p at the half year end • Maximise shareholder returns through long-term capital growth. • Rate of NAV growth relative to listed markets.
into account share price movements (capital growth) and, if applicable, any
89.1% (31 May 2023: 272.0p). This was an 8% increase compared with the prior
43.4% dividends paid during the period.
financial year end. PIP share price increased by 20%
30 Nov 2022
44.7% between 1 January 2023 and 31 December 2023. • Promote better market liquidity and narrow the discount by building demand • Trading volumes for the Company's shares.
for the Company's shares.
The Board's strategy is to deliver returns for shareholders through the growth
in NAV and not through the payment of dividends.
30 Nov 2023 • Narrowing of share price discount following
• Share price discount to NAV.
43.4% significant progress in implementing PIP's financial year 2024 share buyback
programme of up to £200m.
• Share price discounts to NAV have remained wide in the listed private
equity sector. Despite the improvement in PIP's share price during the period,
the discount on PIP's shares was 38% as at the half year end (31 May 2023:
41%). The median discount for listed private equity peers(1) as at the same
date was 39% (May 2023: 39%).
NAV per share growth(2) during the six-month period NAV per share reflects the attributable value of a shareholder's holding in 6M to Nov 2021 • NAV per share increased by 14.1p during the period to 476.5p (31 May 2023: • Investing in high performing private companies alongside and through • Valuations provided by the underlying private equity managers.
PIP. The provision of consistent long-term NAV per share growth is central to
22.1% 462.4p). This was an increase of 3.1% compared to the prior financial year top-tier private equity managers globally, to maximise long-term capital
3.1% our strategy.
end. growth.
• Fluctuations in currency exchange rates.
6M to Nov 2022
NAV per share growth in any period is shown net of foreign exchange movements
• Uplifts from share buybacks contributed +3.8% to NAV per share growth • Containing costs and risks by constructing a well-diversified portfolio in
and all costs associated with running the Company. 4.0% during the period. a cost-efficient manner.
• Tax efficiency of investments.
The NAV is robustly calculated and the balance sheet is audited by PIP's 6M to Nov 2023 • PIP's NAV per share outperformed the MSCI World by 1.6% over the interim
auditors.
period. • Effect of financing (cash drag) on performance.
3.1%
• Ongoing charges relative to NAV growth and listed private equity peer
group.
Portfolio investment return(2) during the six-month period Portfolio investment return measures the total movement in the valuation of 6M to Nov 2021 • Modest increase in underlying portfolio valuation against a backdrop of • Maximise shareholder returns through long-term capital growth. • Performance relative to listed markets and private equity peer group.
the underlying companies and funds comprising PIP's portfolio, expressed as a
market volatility.
1.5% percentage of the opening portfolio value, before taking foreign exchange 19.7%
effects and other expenses into account.
.
• Valuations provided by private equity managers.
• PIP's portfolio is actively managed and focuses on resilient, high-growth
6M to Nov 2022 sectors.
0.9%
6M to Nov 2023
1.5%
Liquidity
Net portfolio cash flow(2) during the six-month period Net portfolio cash flow is equal to distributions less capital calls to 6M to Nov 2021 • PIP's portfolio generated £112m (six months to 30 November 2022: £112m) • Maximise long-term capital growth through • Relationship between outstanding
finance investments, and reflects the Company's capacity to finance calls from
of distributions versus £82m of calls (six-month period to 30 November 2022:
£30m existing investment commitments. £121m £78m). ongoing portfolio renewal while controlling financing risk. commitments and NAV.
PIP manages its maturity profile through a mix of primaries, secondaries and 6M to Nov 2022 • In addition, the Company made new commitments of £15m (six months to 30 • Portfolio maturity and distribution rates by vintage.
co-investments to ensure that its portfolio remains cash generative at the
November 2022: £303m) during the year, which was fully drawn at the time of
same time as maximising the potential for growth. £34m purchase (30 November 2022: £183m).
• Commitment rate to new investment opportunities.
6M to Nov 2023 • As at 30 November 2023, PIP's portfolio had a weighted average age of 5.0
years(3) (31 May 2023: 4.8 years).
£30m
Undrawn coverage ratio(4) The undrawn coverage ratio is the ratio of available financing and 10% of 30 Nov 2021 • The current undrawn coverage ratio reflects lower cash balances and modest • Flexibility in portfolio construction, allowing the Company to select a • Relative weighting of primary, secondary and co-investments in the
private equity assets to undrawn commitments. The undrawn coverage ratio is an
usage of PIP's credit facility. mix of manager-led secondaries, co-investments, and primaries, and vary portfolio.
88% indicator of the Company's ability to meet outstanding commitments, even in 120%
investment pace, to achieve long-term capital growth.
the event of a market downturn.
• The optimisation of PIP's balance sheet will enable the Company to further • Level of undrawn commitments relative to gross assets.
30 Nov 2022 enhance its performance, by allowing PIP to lean into attractive opportunities
across market cycles and by reducing cash drag.
102%
• Trend in distribution rates.
• PIP's undrawn coverage ratio remains healthy.
30 Nov 2023
• Ability to access debt markets on favourable terms.
88%
• The vintage diversification of unfunded commitments helps PIP manage
future capital calls.
(1) Peer group comprised: Abrdn Private Equity Opportunities Trust, CT Private
Equity Trust PLC, HarbourVest Global Private Equity Ltd, ICG Enterprise Trust
PLC.
(2) Excludes valuation gains and/or cash flows associated with the ALN.
(3) Excludes the portion of the reference portfolio attributable to the ALN.
(4) Outstanding commitments relating to funds outside their investment period
(>13 years old) were excluded from the calculation as there is a low
likelihood of these being drawn.
INVESTMENT POLICY
Our investment policy is to maximise capital growth with a carefully managed
risk profile.
The Company's policy is to make unquoted investments. It does so by
subscribing to investments in new private equity funds ("primary investment"),
buying secondary interests in existing private equity funds ("secondary
investment"), and acquiring direct holdings in unquoted companies
("co-investments"), usually either where a vendor is seeking to sell a
combined portfolio of fund interests and direct holdings or where there is a
private equity manager, well known to the Company's Manager, investing on
substantially the same terms.
The Company may, from time to time, hold quoted investments as a consequence
of such investments being distributed to the Company from its fund investments
as the result of an investment in an unquoted company becoming quoted. In
addition, the Company may invest in private equity funds which are quoted. The
Company will not otherwise normally invest in quoted securities, although it
reserves the right to do so should this be deemed to be in the interests of
the Company.
The Company may invest in any type of financial instrument, including equity
and non-equity shares, debt securities, subscription and conversion rights and
options in relation to such shares and securities, and interests in
partnerships and limited partnerships and other forms of collective investment
schemes. Investments in funds and companies may be made either directly or
indirectly, through one or more holding, special purpose or investment
vehicles in which one or more co-investors may also have an interest.
The Company employs a policy of over-commitment. This means that the Company
may commit more than its available uninvested assets to investments in private
equity funds on the basis that such commitments can be met from anticipated
future cash flows to the Company and through the use of borrowings and capital
raisings where necessary.
The Company's policy is to adopt a global investment approach. The Company's
strategy is to mitigate investment risk through diversification of its
underlying portfolio by geography, sector and investment stage. Since the
Company's assets are invested globally on the basis, primarily, of the merits
of individual investment opportunities, the Company does not adopt maximum or
minimum exposures to specific geographic regions, industry sectors or the
investment stage of underlying investments.
In addition, the Company adopts the following limitations for the purpose of
diversifying investment risk:
- No holding in a company will represent more than 15% by value of the
Company's investments at the time of investment (in accordance with the
requirement for approval as an investment trust which applied to the Company
in relation to its accounting periods ended on and before 30 June 2012).
- The aggregate of all the amounts invested by the Company (including
commitments to or in respect of) in funds managed by a single management group
may not, in consequence of any such investment being made, form more than 20%
of the aggregate of the most recently determined gross asset value of the
Company and the Company's aggregate outstanding commitments in respect of
investments at the time such investment is made.
- The Company will invest no more than 15% of its total assets in other
UK-listed closed-ended investment funds (including UK-listed investment
trusts).
The Company may invest in funds and other vehicles established and managed or
advised by Pantheon or any Pantheon affiliate. In determining the
diversification of its portfolio and applying the Manager's diversification
requirement referred to above, the Company looks through vehicles established
and managed or advised by Pantheon or any Pantheon affiliate.
The Company may enter into derivatives transactions for the purposes of
efficient portfolio management and hedging (for example, hedging interest
rate, currency or market exposures).
Surplus cash of the Company may be invested in fixed interest securities, bank
deposits or other similar securities.
The Company may borrow to make investments and typically uses its borrowing
facilities to manage its cash flows flexibly, enabling the Company to make
investments as and when suitable opportunities arise, and to meet calls in
relation to existing investments without having to retain significant cash
balances for such purposes. Under the Company's Articles of Association, the
Company's borrowings may not at any time exceed 100% of the Company's NAV.
Typically, the Company does not expect its gearing to exceed 30% of gross
assets. However, gearing may exceed this in the event that, for example, the
Company's future cash flows alter.
The Company may invest in private equity funds, unquoted companies or special
purpose or investment holding vehicles which are geared by loan facilities
that rank ahead of the Company's investment. The Company does not adopt
restrictions on the extent to which it is exposed to gearing in funds or
companies in which it invests.
OPTIMISING PIP'S CAPITAL STRUCTURE
We aim to build a sustainable, diverse and flexible capital structure that can
support PIP's long-term investment strategy.
As part of this, during the period PIP agreed a new £500m equivalent
multi-currency revolving credit facility ("credit facility") provided by five
relationship lenders, replacing the previous credit facility and Credit Suisse
as a lender. In addition, following the period end, PIP secured a private
placement of US$150m of loan notes, structured over different maturities.
As a result of these actions, PIP has successfully diversified its financing
counterparties, expanded its sources of liquidity and reduced refinancing
risk. New investments and calls on undrawn commitments will be funded
primarily by distributions and, where appropriate, short-term drawdowns from
the credit facility.
Managing our financing cover
We regularly stress test PIP's balance sheet against a range of scenarios and
market conditions to ensure that it is well positioned for the long term. We
manage PIP to ensure that it has sufficient liquidity to finance its undrawn
commitments, which represent capital committed to funds but yet to be drawn by
the private equity managers, as well as to take advantage of new investment
opportunities. A critical part of this exercise is ensuring that the undrawn
commitments do not become excessive relative to PIP's private equity portfolio
and available financing. We achieve this by managing PIP's investment pacing
as well as constructing its portfolio to ensure the right balance of exposure
to primaries, manager-led secondaries and co-investments.
As at 30 November 2023, PIP had net available cash(1) balances of £24m (31
May 2023: £63m).
In addition to these cash balances, PIP also has access to a £500m equivalent
credit facility, split as follows:
- Facility A: £400m, expiring in October 2026 with an ongoing option to
extend, by agreement, the maturity date by 364 days at a time; and
- Facility B: £100m, expiring in October 2024.
Using exchange rates as at 30 November 2023, the credit facility amounted to a
sterling equivalent of £485m, of which £365m remained undrawn as at the
period end.
With £24m of net available cash and an undrawn credit facility of £365m, PIP
had £389m of available financing as at 30 November 2023 (31 May 2022: £554m)
which, along with the value of the private equity portfolio, provides
comfortable cover of 3.9 times (31 May 2023: 3.7 times) relative to undrawn
commitments for funds within their investment periods.
Another important measure is the undrawn coverage ratio, which is the ratio of
available financing and 10% of private equity assets to undrawn commitments.
The undrawn coverage ratio is a key indicator of the Company's ability to meet
outstanding commitments, even in the event of a market downturn, and was 88%
as at 30 November 2023 (31 May 2023: 98%)(2).
Minimal gearing level
As at 30 November 2023, PIP had £121m drawn down under the credit facility
and £29m remaining on the Asset Linked Note. Taken in conjunction with PIP's
net available cash, this results in a conservative net debt(3) to NAV ratio of
4.3%. The net debt to NAV ratio already reflects share buybacks that the
Company undertook in October 2023, using a combination of operating cash flow
and drawdowns from the credit facility.
Following the period end, PIP announced that it had agreed a private placement
of US$150m of loan notes ("the loan notes") structured over different
maturities of five, seven and 10 years. The transaction provides PIP with
access to long-term funding at a blended US Dollar coupon of 6.49%, which is
cheaper than the all-in interest cost currently payable on the revolving
credit facility. The loan notes were three times oversubscribed at this
pricing point and purchased by five high-quality North American institutional
investors.
The proceeds of this issuance will be used to repay the existing drawings on
the credit facility, resulting in additional liquidity capacity. As at 31
January 2024 and following the issuance of the loan notes, PIP's net debt(3)
to NAV was 5.5%.
Undrawn commitments by vintage(4)
PIP's undrawn commitments were £761m as at 30 November 2023 (31 May 2023:
£857m). Of the £761m undrawn commitments as at the period end, £45m relate
to funds that are more than 13 years old and therefore, outside their
investment periods. Generally, when a fund is past its investment period, it
cannot make any new investments and only draws capital to fund follow-on
investments or to pay expenses. As a result, the rate of capital calls by
these funds tends to slow dramatically.
2023 18%
2022 33%
2021 18%
2020 3%
2019 6%
2018 4%
2017 3%
2014 - 2016 6%
2010 - 2013 3%
2009 and earlier 6%
(1) The available cash and loan figure excludes the current portion payable
under the Asset Linked Note, which amounted to £1.3m as at 30 November 2023.
(2) Excludes outstanding commitments relating to funds outside their
investment period (>13 years old), amounting to £45.1m as at 30 November
2023 (31 May 2023: £48.2m).
(3) Net debt calculated as borrowings (excluding the outstanding balance of
the Asset Linked Note) less net available cash. The ALN is not considered in
the calculation of gross borrowings or the loan-to-value ratio, as defined in
PIP's credit facility and note agreements. If the ALN is included, net debt to
NAV was 5.5% as at 30 November 2023, and 6.7% as at 31 January 2024.
(4) Includes undrawn commitments attributable to the reference portfolio
related to the ALN.
MANAGER'S REVIEW
OUR MARKET
Resilience and strength
Helen Steers and Jie Gong, Partners at Pantheon and Co-lead managers of PIP,
reflect on how the private equity industry and PIP are positioned in the
current macroeconomic environment and what they believe lies ahead.
Looking back over the past two years, what have been your biggest takeaways?
The volatility in public markets over the past 24 months has been particularly
striking, reflecting major geopolitical and macroeconomic events and investor
uncertainty. In 2022, the year started off relatively benignly but ended in a
very different place as a result of the onset of the Russia-Ukraine war, the
energy crisis, the unwinding of quantitative easing, high inflation in
developed economies and the ensuing succession of interest rate hikes.
In 2023, we saw the pendulum start to swing back, with the impact of higher
interest rates and lower energy prices helping inflation to recede, enabling
central banks to pause rate rises, and leading to predictions of a "soft
landing". Markets began to factor in rate cuts, and most major share indices
recorded double digit gains for the year, helped by a strong, albeit lopsided
rally in November and December. The so-called "Magnificent Seven" (Apple,
Microsoft, Alphabet, Amazon, Tesla, Nvidia and Meta) share prices grew by an
average of 111% in 2023, compared with 8% for the other constituents of the
S&P 500 index. As we entered 2024, investors worried about whether the US
Federal Reserve and other central banks could keep rates high enough to slow
the economy and continue to reduce inflation, without causing a recession, and
whether the recovery in public markets would widen further.
In private markets, the last two years have been marked by the end of
decades-long low interest rates, resulting in rising deal financing costs, and
a slowdown in Mergers & Acquisitions (M&A) activity, reduced
deal-making and slow fundraising. However, the cooling of the market should be
put in context. Deal flow may be much lower compared with the exceptionally
high levels of activity registered in 2021, but it is in line with
pre-pandemic levels. In 2022 and 2023 we have seen the best managers continue
to execute new transactions, build value in portfolio companies, achieve exits
at substantial uplifts, and successfully fundraise. In fact, in this market
cycle, change and disruption can create opportunities for the best
operationally focused private equity investors, while others who have relied
on historically low interest rates to generate returns, may suffer
disproportionately.
Recent performance in private equity has been impacted by rate hikes and lower
valuation multiples, although company earnings have held up better than many
observers might have expected. Despite short-term volatility, private equity
returns continue to be resilient over the long term, and outperform public
markets on a consistent basis. In more difficult economic periods, dispersion
of returns between private equity managers increases, and those that focus on
investing in companies that offer opportunities for improving operating
performance and increasing growth differentiate themselves from the "financial
engineers". This highlights the importance of both manager selection and deal
selection, when the market becomes more challenging and a bifurcation emerges
between the top tier operators and the rest.
How is PIP positioned in this environment?
Given the significant changes that have taken place during the last two years,
investors are looking for stability, liquidity and predictability. PIP has
been designed to provide an "all weather", high-quality portfolio that can
withstand macroeconomic volatility and market cycles. The majority of PIP's
portfolio is invested in buyouts, which are mature, well-established
businesses. Profitable technology and healthcare companies make up a
considerable slice of PIP's exposure, therefore growth has not been sacrificed
for the sake of resilience and stability. Our preference is to "lean in" to
the dynamic parts of the economy, while avoiding highly cyclical businesses,
and this underpins our focus on generating appropriate risk-adjusted returns
over the long term.
PIP's portfolio has performed well over the past 18 months, which is a
testament to the strength of the underlying companies, that have been
deliberately selected for their resilience and cross-cyclical characteristics.
Overall, the levels of debt in our portfolio companies are appropriately
managed and much of it has been hedged. This is just one of the many proactive
risk management tools used by our private equity managers.
Another important factor in the resilience of the portfolio is that many of
our companies are able to pass their costs on to their customers efficiently
because of the differentiated must-have products and services that they offer.
For example, software-as-a-service (SaaS) providers have the advantage that
their clients cannot do without these essential business tools, and price
increases can be implemented immediately. PIP's private equity managers are
also doing a huge amount of work to contain costs in their underlying
companies, obtain better terms from suppliers and drive through change.
Notably, they are using technology for a variety of purposes, such as
improving productivity and making efficiency gains, and for better risk
management. We can really see the effects of these actions shining through in
the continued EBITDA growth of PIP's underlying companies. We are heartened by
fact that the average EBITDA growth of PIP's buyout portfolio in the last five
years is a robust 19%, despite the many external shocks we have witnessed in
the last five years including a global pandemic, an inflation shock, a rise in
interest rates to the highest level for two decades, and the outbreak of
conflicts in Europe and the Middle East.
Market dislocation offers good opportunities for those investors that have the
capital and the expertise to take advantage of them, and we have seen new deal
activity starting to pick up towards the end of 2023. Whereas some private
equity managers might not have recognised the impetus for change and value
creation in their portfolios, we have seen, during our many years of
experience in the industry that, in more difficult times such as these, the
best private equity managers perform even better than their less experienced
peers, and tend to achieve even greater outperformance over public markets
than in more settled times. This is because they have both the operational
expertise and the "muscle memory" to remember what happened before. Although
no crisis generally repeats itself, experienced investors retain the learnings
from those previous crises which they can adapt and apply to their portfolios.
An evolving private equity secondary market (US$bn)(3)
2018 2019 2020 2021 2022 2023
Manager-led secondaries 23 26 32 68 48 51
Traditional fund secondaries 49 54 28 66 55 63
Total secondary transactions volume 72 80 60 134 103 114
The size of the companies matters as well. We focus predominantly on small and
mid-sized businesses where there is plenty of "low-hanging fruit" for
fundamental value creation, as these are often businesses that have not been
owned by private equity before. In many cases they are family-owned businesses
with succession issues, or those that have been around for decades but have
not had the benefit of professional management, or there is latent growth that
hasn't been capitalised upon by the incumbent management. We think that this
demonstrates the power of unleashing private equity on a mid-sized business.
Also one of the reasons why we haven't seen valuation impairments in PIP's
underlying portfolio versus what people might have expected is because our
managers are investing in companies that are benefiting from fundamental
long-term trends that are not going to go away. For example, they are backing
businesses that are tapping into the opportunities arising from automation and
digitalisation, ageing demographics and sustainability. These are all
multi-year trends and not "fashionable" investment fads that could end up
being discarded tomorrow. Part of our detailed investment due diligence
process includes gaining a full understanding of the investment rationale and
the expected exit routes for these businesses. While healthy public markets
are important for the economy overall, we are not dependent on initial public
offerings (IPOs) for exits. Typically, PIP's underlying portfolio companies
are sold to trade buyers or to other private equity managers that might be
larger or have a different set of skills and networks. There are record levels
of dry powder (US$1.5tn(1)) in our industry, which is capital that has been
raised and is available to invest but has not yet been deployed, however, a
majority of this is concentrated among the largest buyout funds. This capital
sitting above us at the mega end of the market is good for PIP as these
managers can buy our smaller portfolio companies.
As a result of the current macroeconomic environment, exits and distributions
remained low in 2023. In times like these, the private equity secondaries
market can really come to the fore and in 2023, it recorded its second biggest
year on record for deal volume which was US$114bn(2). Manager-led secondaries
are when the private equity managers themselves instigate deals in order to
provide liquidity options for the investors in their funds. They can consist
of either multi-asset portfolios or single-asset secondaries. We focus on
single-asset secondaries and they are attractive to investors like PIP because
they are often "trophy" companies that the private equity manager believes
have significant runway for additional value uplift from a lengthened period
of ownership by the same manager. The development of single-asset secondaries
is relatively new but we believe that they are here to stay and are an example
of how private equity is always renewing and reinventing itself, and finding
new ways to add value.
This type of secondaries transaction accounted for 44%(3) of all secondary
transactions in 2023, with the remainder being traditional fund sales.
However, not all manager-led deals are created equal. With an increasingly
large volume of deals entering the secondary market, it is up to an
experienced investor like Pantheon to be extremely selective regarding asset
quality and manager quality, as well as the alignment of interest between the
manager and new investors. We believe that Pantheon's scale, investment
capacity and specialist expertise, combined with the global reach enabled by
our broader private equity platform and deep industry relationships, positions
us well to capitalise on the opportunities that we are seeing in the market on
behalf of PIP.
PIP also gains exposure to direct company investments via co-investments.
Sourced predominantly from the managers that we have backed on a primary basis
on the Pantheon platform, and typically without any fee or carried interest
being charged, co-investments are economically very advantageous as an
investment strategy.
Private equity managers select their co-investment partners based on several
criteria. Large and sophisticated co-investors, such as Pantheon, have an
opportunity to differentiate themselves and source greater deal flow relative
to smaller and less sophisticated co-investors. This has particularly been the
case since the heightened levels of public market volatility began in 2022.
Pressures on valuations in the public markets over this period have resulted
in a "denominator effect" that has caused many traditional co-investment
investors to pull away from new private equity transactions as they manage
their relative exposure to private assets versus public assets. By contrast,
Pantheon has remained in the market supporting private equity managers as new
transactions are evaluated and completed. We believe that Pantheon's
reputation as an established and a reliable co-investment partner through
market cycles will continue to serve us well for securing high-quality deal
flow from private equity managers.
All of our co-investment opportunities pass through a "double quality filter",
since each opportunity has first been evaluated by a private equity manager,
who themselves have passed our rigorous manager selection hurdles. The
opportunity is then subjected to our own detailed due diligence process,
carried out by our dedicated co-investment team, who will confirm, among other
things, that the deal is a good fit for the manager. Entry valuation continues
to be the biggest reason for a deal to be screened out at the stage that it is
brought to the investment committee, although a number of other factors are
also considered, including the resilience of the company's end market,
competitive differentiation and revenue quality.
Co-investment deal flow volume gradually recovered in the second half of 2023
as the macro environment improved. As with all of our deals, selectivity
remains key and the approval rate in 2023 in terms of number of deals - from
pre-qualified deals entering into the pipeline for our review to those
completed - was just 10% (compared to the last ten-year average of 15%).
You spoke about trends and, without doubt, a major topic in 2023 was the
development and use of Artificial Intelligence ("AI"). What impact could AI
have on PIP's portfolio in 2024?
AI is an exciting and transformational technology breakthrough, and we are
already seeing the use of AI tools in everyday life. For example, in areas
such as written content and image production, AI can produce this much faster
and for a fraction of the cost of more traditional methods. Most people will
also have experienced AI "chatbots" that augment and enhance online customer
service. AI is being used to predict demand patterns more accurately, and
therefore to forecast revenues and associated costs more dynamically. In our
opinion, the full fruits of AI application are going to develop in front of
our eyes, not just in 2024 but over a longer time horizon. According to
research, the global AI market size is expected to grow 37% every year from
2023 to 2030 and will contribute over US15tn to the global economy by 2030(4).
We believe that the use of AI is going to affect almost every sector. Clearly
it is disrupting the technology sector but we're seeing it in healthcare as
well, particularly in the developed world where there is a focus on reducing
costs and improving efficiency. We expect it to become even more effective
than it is already in areas such as the interpretation of diagnostic scans and
drug discovery. There's been a huge trend of moving away from globalisation
and shifting towards more onshoring, which is resulting in supply chains
becoming more complicated. AI could be a perfect solution for managing them in
a more intelligent and efficient way. Another interesting area will be
education. We are sure that there are areas that we haven't even thought of
yet - we are just scratching the surface!
We are encouraged by our private equity managers' keenness to embrace AI and
their thirst for knowledge about it. Of course, this doesn't come as a
surprise given how nimble private equity managers are and their ability to
apply and adapt the latest technology to the needs of their portfolio
companies. While we are seeing capital pouring into the development of AI
itself, PIP doesn't generally participate in early stage venture
opportunities. However, PIP's portfolio companies are focused on the
application of new AI tools because of the long-term benefits that they can
bring. They may have an initial cost overlay but the payback for productivity
and efficiency will be palpable during the years to come.
What are your expectations for 2024 from PIP's perspective?
We are now finding ourselves at a confluence of different factors. We have
emerged from ten years of monetary expansion and historically low interest
rates. At the same time, there are the after-effects of the COVID-19 pandemic,
the trend towards deglobalisation and substantial geopolitical risk. This is a
late cycle period that is ushering in a new era. Having said that, by the end
of 2023, the major economies had outperformed the start of the year forecasts
by considerable margins and the year ended at a much higher point in terms of
public market confidence.
Of course, we do not have a crystal ball but we believe that the worst of the
interest rate threat is behind us, albeit the path to a "soft landing" may be
bumpy and unpredictable. Nevertheless, the indications are that optimism is
starting to return to the market, and the buyer-seller price expectation gap
is narrowing, which should result in a more active M&A environment and
therefore a renewed flow of private equity transactions. This should give a
boost to the muted exit environment that we have experienced over the past 18
months. And there really is pent-up demand: numerous companies in PIP's
portfolio are ripe for sale because our managers, who can choose when and how
to exit their portfolio companies, have held onto them in order to continue to
build value and position them for the right buyer.
Private equity assets under management ("AUM") have been growing year on year
and are forecast to reach US$8.5tn by 2028, representing an annualised growth
rate of 10% from 2022 to 2028(5). Therefore, we have cautious hope for the
year ahead in terms of the private equity market, as well as the broader
economic environment. We also have confidence in the strength and health of
PIP's portfolio and that it has the right ingredients to continue to achieve
its aim of generating public market-beating returns for shareholders over the
long term.
(1) Source: Preqin, February 2024.
(2) Source: Evercore Private Capital Advisory, FY 2023 Secondary Market Survey
Results - Highlights, January 2024.
(3) Source: Evercore Private Capital Advisory, FY 2023 Secondary Market Survey
Results - Highlights, January 2024.
(4) Source: Hostinger Tutorials, 27 AI Statistics and Trends in 2024 (Top 27
AI Statistics and Trends for 2024 (hostinger.com)).
(5) Source: Preqin, Future of Alternatives 2028.
PORTFOLIO AS AT 30 NOVEMBER 2023
Since its inception, PIP has been able to generate excellent returns while at
the same time structuring its portfolio to minimise the risks typically
associated with private equity investments. Our established portfolio of
assets has been carefully selected, based on the strengths of our appointed
private equity managers, actively monitored and diversified to reduce specific
timing, regional and sector risks; and managed to maximise growth and
liquidity over time.
Type and region
Flexible approach to portfolio construction increases potential for
outperformance.
Investment type(1)
Primaries 34%
Co-investments 33%
Manager-led secondaries 21%
Fund secondaries 12%
54% invested directly in companies.
Weighted towards the more developed private equity markets in the USA and
Europe.
Region(1)
USA 54%
Europe 30%
Asia 8%
Global(2) 8%
(1) Investment type and region percentages are based upon underlying fund and
company valuations and exclude the portion of the reference portfolio
attributable to the Asset Linked Note.
(2) Global category contains funds with no target allocation to any particular
region equal to or exceeding 60%.
Maturity and stage
PIP's portfolio has a weighted average age of 5.0 years.
Maturity(1)
2022 and later 19%
2021 13%
2020 7%
2019 13%
2018 13%
2017 10%
2016 9%
2015 6%
2014 3%
2011-2013 4%
2010 and earlier 3%
Well-diversified with an emphasis on the buyout stages.
Stage(1)
Small/mid buyout 46%
Large/mega buyout 25%
Growth 20%
Special situations 6%
Venture 3%
( )
(1)Fund stage and maturity percentages are based upon underlying fund and
company valuations and exclude the portion of the reference portfolio
attributable to the ALN.
( )
Sector(1)
Information technology 33%
Healthcare 20%
Consumer 14%
Industrials 11%
Financials 10%
Communication services 6%
Energy 3%
Materials 2%
Others 1%
( )
(1)The company sector percentages are based upon underlying company valuations
as at 30 September 2023, adjusted for calls and distributions to 30 November
2023. These account for 100% of PIP's overall portfolio value.
PERFORMANCE
PIP's portfolio value has increased modestly over the period. Access to
top-performing managers and a tilt towards resilient and high-growth sectors
has helped PIP to withstand the current macroeconomic environment.
Private equity portfolio movements
PIP's portfolio generated returns of 1.5% during the six-month period(1).
( )
Portfolio value 31 May 2023 £2,387m
Valuation gains £35m
Foreign exchange impact (£32m)
Distributions (£112m)
Calls £82m
New investments(2) £15m
Portfolio value 30 Nov 2023 £2,375m
( )
(1) Excluding returns attributable to the ALN share of the portfolio.
(2) Amount drawn down at the time of commitment.
Valuation movement by type(1)
Resilient portfolio performance despite the current challenging macroeconomic
environment. The return on manager-led secondaries reflects the relative
immaturity of this segment of the portfolio.
( ) Closing portfolio NAV% Return
Fund secondaries 12% 3.0%
Co-investments 33% 2.9%
Manager-led Secondaries 21% 0.5%
Primary 34% 0%
Valuation movement by stage(1)
Positive performance across PIP's portfolio with the exception of venture,
which was impacted by the volatility in public markets.
( ) Closing portfolio NAV% Return
Growth 20% 2.6%
Special situations 6% 2.5%
Large/mega buyout 25% 1.1%
Small/ Mid buyout 46% 1.1%
Venture 3% (0.6)%
Valuation movement by region(1)
PIP's portfolio is weighted towards investments in the USA and Europe, which
generated positive returns during the period.
The global part of the portfolio was impacted by a handful of company-specific
write-downs.
( ) Closing portfolio NAV% Return
USA 54% 2.0%
Europe 30% 1.2%
Asia & Emerging Markets 8% 0.7%
Global 8% (0.8%)
(1) Portfolio returns include income, exclude gains and losses from foreign
exchange movements, and look through underlying vehicle structures to the
underlying funds. Portfolio returns exclude returns generated by the portion
of the reference portfolio attributable to the ALN, and are calculated by
dividing valuation gains by opening portfolio values.
REALISATIONS
PIP's mature portfolio continued to generate distributions despite a subdued
exit environment. Distributions have been incremental to returns, with many
reflecting realisations at significant uplifts to carrying value
Uplifts on exit realisations
The value-weighted average uplift on exit realisations in the year was 17%,
consistent with our view that realisations can be incremental to returns.
The method used to calculate the average uplift is to compare the value at
exit with the value of the investment 12 months prior to exit or if known, the
latest valuation unaffected by pricing effects arising from market
participants becoming aware of the imminent sale of an asset. Since 2012, the
weighted average uplift on exit is 30%.
( )
Cost multiples on exit realisations
The average cost multiple on exit realisations of the sample was 2.5 times,
demonstrating value creation over the course of PIP's investment.
The annual average cost multiple on exit since 2012 is 3.0 times.
Exit realisations by sector and type
Realisation activity was strongest in the communication services and
financials sectors. Secondary buyouts and trade sales represented the most
significant sources of exit activity during the year. The data in the sample
provides coverage for 100% (for exit realisations by sector) and 100% (for
exit realisations by type) of proceeds from exit realisations received during
the period.
Exit realisations by sector
For the half year to 30 November 2023
Communication services 35%
Financials 31%
Information Technology 10%
Industrials 9%
Healthcare 8%
Consumer 4%
Energy 3%
Exit realisations by type
For the half year to 30 November 2023
Strategic sales 47%
Secondary buyouts 44%
IPO(1) and secondary share sale 7%
Refinancing and recapitalisation 2%
(1) Initial Public Offering.
NET PORTFOLIO CASH FLOW
Net portfolio cash flow equals distributions less capital calls.
A continued focus on the portfolio's maturity profile means that PIP is
well-positioned to generate positive cash flows.
With an average distribution rate of 25% since 2012, PIP's portfolio has been
cash flow positive since 2010.
During the period, PIP's net portfolio cash flow was £30m. PIP has generated
£1.7bn over the last 10 years.
Net positive cash flow generation has continued despite a challenging
macroeconomic environment.
DISTRIBUTIONS
With a weighted average fund maturity of 5.0 years at the end of the period
(31 May 2023: 4.8 years), PIP's portfolio continued to generate positive net
cash.
PIP received £112m in proceeds from PIP's portfolio in the six-month period
to 30 November 2023 (six-month period to 30 November 2022: £112m) equivalent
to an annualised distribution(1) rate of 9% of opening portfolio value (31 May
2023: 10%).
Although PIP's portfolio has continued to generate cash, there has been a
slowdown in distributions during the period. The challenging economic
environment has impacted exit activity.
(1) Distribution rate equals distributions in the period (annualised) divided
by opening portfolio value.
CALLS
PIP paid £82m to finance calls on undrawn commitments during the year
(six-month period to 30 November 2022: £78m).
Quarterly call rate(1)
The annualised call rate(1) for the six-month period to 30 November 2023 was
equivalent to 19% of opening undrawn commitments (31 May 2023: 21%).
The "observed" call rate is below historical average levels is a reflection of
the subdued M&A market.
(1)Call rate equals calls in the period (annualised) divided by opening
undrawn commitments. All call figures exclude the acquisition cost of new
secondary and co-investment transactions.
NEW COMMITMENTS
PIP committed £15m to three new investments during the year (for six-month
period to 30 November 2022: £303m, committed to 21 new investments).
The company intentionally managed investment pacing to ensure liquidity was
preserved in a market environment experiencing lower exit levels than
historically.
Our investment process
Investment opportunities in companies and funds are originated via Pantheon's
extensive and well-established platform.
We invest with many of the best private equity managers who are able to
identify and create value in their portfolio companies.
Cash generated from the sale of those companies is returned to PIP and
redeployed into new investment opportunities.
New commitments by region
Europe 87%
USA 13%
New commitments by stage
Growth 13%
Small/mid buyout 87%
BUYOUT ANALYSIS(1)
( )
Revenue and EBITDA growth
Over the last 12 months, weighted-average growth for both revenue and EBITDA
was 18%. PIP's sample buyout companies have consistently exceeded growth rates
seen among companies that constitute the MSCI World Index. Strong top-line
performance, disciplined cost control, operational expertise and good earnings
growth, together with an efficient use of capital, underpin the investment
thesis of our private equity managers.
Valuation multiple
Accounting standards require private equity managers to value their portfolios
at fair value. Public market movements can be reflected in valuations.
PIP's sample-weighted average Enterprise Value (EV)/EBITDA was 18.5 times
compared to 19.5 times for the MSCI World Index.
PIP invests proportionately more in high-growth sectors such as
mission-critical B2B information technology and healthcare, and these sectors
tend to trade at a premium to other sectors.
Buyout portfolio*
Information technology 28%
Healthcare 21%
Consumer 17%
Industrials 14%
Financials 11%
Communication Services 5%
Materials 3%
Others 1%
MSCI World**
Information technology 22%
Consumer 19%
Financials 15%
Healthcare 13%
Industrials 11%
Others 9%
Communication Services 7%
Materials 4%
* 100% coverage of buyout portfolio.
** As at 30 June 2023.
Debt multiples
Venture, growth and buyout investments have differing leverage
characteristics.
Average debt multiples for small/mid buyout investments, which represent the
largest segment of PIP's buyout portfolio, are typically lower than debt
levels in the large/mega-buyout segment.
The venture and growth portfolios have little or no leverage.
% of PIP's portfolio Debt multiple
Small/mid buyout 46% 5.2x
Large/mega buyout 25% 5.9x
(1) The sample buyout figures for the 12 months to 30 June 2023 were
calculated using all the information available to the Company. The figures are
based on unaudited data. MSCI data was sourced from Bloomberg. See the
Alternative Performance Measures section in the Full Half Year Report for
sample calculations and disclosures.
LARGEST 50 COMPANIES BY VALUE(1)
% of PIP
Rank Company Country(2) Sector Investment type Description portfolio
1 Action Netherlands Consumer Manager-led Secondary Non-food discount stores 1.2%
2 Kaseya USA Information Technology Co-investment; Secondary Provider of information technology management and monitoring software services 1.0%
3 Smile Doctors USA Healthcare Manager-led Secondary Orthodontic treatments and services provider 1.0%
4 ShiftKey USA Healthcare Manager-led Secondary Recruitment platform for nurses 0.9%
5 Valantic Germany Information Technology Manager-led Secondary Digital consulting and software company 0.8%
6 doit USA Information Technology Co-investment Provider of cloud consulting and engineering services 0.8%
7 Asurion USA Financials Primary; Secondary Mobile phone insurance company 0.8%
8 Omni Eye Services USA Healthcare Manager-led Secondary Specialist eye surgery and treatment provider 0.8%
9 Froneri United Kingdom Consumer Manager-led Secondary Ice cream and frozen food manufacturer 0.8%
10 Tag Israel Healthcare Manager-led Secondary Manufacturer and distributor of medical, surgical and dental equipment and 0.7%
implants
11 Anaplan USA Information Technology Co-investment; Primary Developer of a cloud-based modelling and planning platform 0.7%
12 Visma Norway Information Technology Primary; Co-investment Provider of accounting, HR and legal software solutions for SMEs 0.7%
13 JSI USA Industrials Manager-led Secondary Consultant to telecommunication service providers 0.7%
14 LifePoint Health USA Healthcare Co-investment; Manager-led Secondary Healthcare services provider 0.7%
15 Millenium Trust Company USA Financials Co-investment; Primary Provider of technology-enabled retirement and investment services 0.7%
16 MRO USA Healthcare Co-investment; Primary Provider of disclosure management services 0.7%
17 Recorded Future USA Information Technology Primary; Co-investment; Secondary Cybersecurity software company 0.7%
18 Eversana USA Healthcare Manager-led Secondary Commercial services platform for the life sciences sector 0.7%
19 Ascent Resources Plc USA Energy Secondary Natural gas and oil producer 0.7%
20 Nord Anglia Education Hong Kong Consumer Primary; Co-investment Operator of educational services 0.6%
21 Confie USA Financials Co-investment Personal lines insurance provider 0.6%
22 RLDatix USA Healthcare Manager-led Secondary Developer of cloud-based patient safety and risk management software 0.6%
23 SunMedia Spain Communication Services Co-investment Digital advertising company 0.6%
24 Kaspi.KZ Kazakhstan Financials Primary Banking products and services provider 0.5%
25 24seven USA Industrials Manager-led Secondary Digital marketing and recruitment services provider 0.5%
26 Krispy Krunchy Chicken USA Consumer Co-investment; Primary Operator of fast food restaurants 0.5%
27 OptConnect USA Information Technology Manager-led Secondary Provider of wireless internet connectivity solutions 0.5%
28 Access United Kingdom Information Technology Co-investment Provider of business management software solutions to SMEs 0.5%
29 Logic Monitor USA Information Technology Primary; Co-investment; Secondary Managed information technology service provider 0.5%
30 101 USA Industrials Co-investment Provider of food waste recycling services 0.5%
31 Tanium USA Information Technology Co-investment Cybersecurity services provider 0.5%
32 Kilcoy Global Foods Australia Consumer Manager-led Secondary Producer of beef and other animal protein products 0.5%
33 StoneRidge Insurance Brokers Canada Financials Manager-led Secondary Insurance brokerage provider 0.5%
34 Arby's USA Consumer Manager-led Secondary Operator of restaurant franchises 0.5%
35 IFS Sweden Information Technology Co-investment; Primary Developer of enterprise resource planning software 0.5%
36 KD Pharma Germany Healthcare Manager-led Secondary Specialist pharmaceutical company 0.5%
37 Flynn Restaurant Group USA Consumer Co-investment Operator of restaurant franchises 0.4%
38 SailPoint USA Information Technology Co-investment; Primary Provider of enterprise identity governance solutions 0.4%
39 Perspecta USA Information Technology Co-investment Information technology services management company 0.4%
40 Star Health India Financials Primary Health insurance provider 0.4%
41 VIZRT Norway Information Technology Primary; Manager-led Secondary Developer of content production tools for the digital media industry 0.4%
42 Trimech USA Information Technology Co-investment Provider of three-dimensional design, engineering and manufacturing solutions 0.4%
43 Sonar Switzerland Information Technology Primary; Secondary Developer of coding software 0.4%
44 Satlink Spain Information Technology Co-investment Satellite communication equipment provider for the maritime industry 0.4%
45 Personio Germany Information Technology Primary Developer of a human resource management and recruitment platform 0.4%
46 Toll Global Express Australia Industrials Primary Provider of transport and logistics services 0.4%
47 SVT Germany Industrials Secondary Manufacturer of fire protection products and systems 0.4%
48 Regina Maria Romania Healthcare Secondary Provider of private healthcare services 0.4%
49 Renaissance Learning USA Communication Services Secondary; Primary Online education provider 0.4%
50 Prelude USA Healthcare Co-investment; Secondary Fertility treatment provider 0.3%
Coverage of PIP's private equity asset value 29.5%
(1) The largest 50 companies table is based upon underlying company valuations
as at 30 September 2023 adjusted for known call and distributions to 30
November 2023, and includes the portion of the reference portfolio
attributable to the ALN.
(2) Classified according to location of Headquarters.
OTHER INFORMATION - LARGEST 50 MANAGERS BY VALUE % of total
private equity
Rank Manager Region(1) Stage asset value(2)
1 Insight Partners USA Growth 7.1%
2 Index Ventures Global Venture, Growth 3.8%
3 Hg Europe Buyout 3.4%
4 Providence Equity Partners USA Buyout, Growth 3.2%
5 Water Street Healthcare Partners USA Buyout 2.4%
6 Advent International Global Buyout 2.3%
7 Parthenon Capital USA Buyout 2.2%
8 ABRY Partners USA Buyout 2.1%
9 ThomaBravo USA Buyout 1.7%
10 Investment Partners Europe Buyout 1.6%
11 Charlesbank USA Buyout 1.6%
12 Veritas Capital USA Buyout 1.5%
13 Seven2 (Previously Apax Partners SAS) Europe Buyout 1.5%
14 LYFE Capital Asia Growth 1.4%
15 Mid Europa Partners Europe Buyout 1.4%
16 Searchlight Global Special situations 1.3%
17 Deutsche Private Equity Europe Buyout 1.3%
18 Hellman & Friedman Global Buyout 1.3%
19 Altamont Capital Partners USA Buyout 1.3%
20 3i Europe Buyout 1.2%
21 BPEA Asia Buyout 1.2%
22 Apollo Global Buyout 1.1%
23 HIG Capital USA Buyout 1.1%
24 OAK HC/ FT USA Growth 1.1%
25 LINDEN USA Buyout 1.1%
26 Main Post Partners USA Buyout 1.0%
27 Lorient Capital USA Buyout 1.0%
28 Five Arrows Europe Buyout 1.0%
29 Altor Capital Europe Buyout 1.0%
30 Ergon Capital Partners Europe Buyout 0.9%
31 The Energy and Minerals Group USA Special Situations 0.9%
32 Onex Partners USA Buyout 0.9%
33 Growth Fund(3) USA Growth 0.9%
34 PAI Partners Europe Buyout 0.9%
35 Francisco Partners USA Buyout 0.8%
36 NMS Group USA Buyout 0.8%
37 Chequers Capital Europe Buyout 0.8%
38 Calera Capital USA Buyout 0.8%
39 Stone Goff USA Buyout 0.8%
40 BC Partners Europe Buyout 0.8%
41 Quantum Energy Partners USA Special Situations 0.7%
42 ECI Europe Buyout 0.7%
43 Roark Capital Group USA Buyout 0.7%
44 Shamrock Capital Advisors USA Buyout 0.7%
45 Alpine USA Buyout 0.7%
46 Wasserstein & Co. USA Buyout 0.7%
47 Balderton Europe Growth 0.6%
48 Tene Investment Funds Europe Growth 0.6%
49 Magnum Industrial Partners Europe Buyout 0.6%
50 Sentinel Capital Partners USA Buyout 0.6%
Coverage of PIP's total private equity asset value 69.1%
(1) Refers to the regional exposure of funds.
(2) Percentages look through underlying vehicle structures and exclude the
portion of the reference portfolio attributable to the ALN.
.
INTERIM MANGEMENT REPORT AND RESPONSIBILITY STATEMENT OF THE DIRECTORS
Interim management report
The important events that have occurred during the period under review, the
key factors influencing the financial statements and the principal
uncertainties for the remaining six months of the financial year are set out
in the Chair's Statement and the Manager's Review.
The principal risks facing the Company are substantially unchanged since the
date of the Annual Report for the financial period ended 31 May 2023 and
continue to be as set out in that report on pages 44 to 48.
Risks faced by the Company include, but are not limited to, funding of
investment commitments and default risk, risks relating to investment
opportunities, financial risk of private equity, long-term nature of private
equity investments, valuation uncertainty, gearing, foreign currency risk,
the unregulated nature of underlying investments, counterparty risk, taxation,
the risks associated with the engagement of the Manager or other third-party
advisers, cybersecurity and geopolitical risks.
Responsibility statement
Each Director confirms that, to the best of their knowledge:
- The condensed set of financial statements has been prepared in accordance
with FRS 104 "Interim Financial Reporting"; and gives a true and fair view of
the assets, liabilities, financial position and return of the Company.
- This Interim Financial Report includes a fair review of the information
required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during the first
six months of the financial year and their impact on the set of financial
statements; and a description of the principal risks and uncertainties for the
remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being 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.
This Interim Financial Report was approved by the Board on 21 February 2024
and was signed on its behalf by John Singer CBE, Chair.
INDEPENDENT REVIEW REPORT TO PANTHEON INTERNTIONAL PLC
Conclusion
We have been engaged by Pantheon International Plc ("the Company'") to review
the condensed set of financial statements in the half-yearly financial report
for the six months ended 30 November 2023 which comprises the Condensed Income
Statement, the Condensed Statement of Changes in Equity, the Condensed Balance
Sheet, the Condensed Cash Flow Statement, and the Related Notes 1 to 12
(together the "condensed financial statements"). We have read the other
information contained in the half-yearly financial report and considered
whether it contains any apparent misstatements or material inconsistencies
with the information in the condensed set of financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 November 2023 is not prepared, in
all material respects, in accordance with FRS 104 "Interim Financial
Reporting" and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis of conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" ("ISRE") issued by the
Financial Reporting Council. 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. 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.
As disclosed in Note 1 Basis of Preparation, the annual financial statements
of the Company are prepared in accordance with United Kingdom Generally
Accepted Accounting Practice. The condensed set of financial statements
included in this half-yearly financial report has been prepared in accordance
with the Financial Reporting Standard FRS 104 "Interim Financial Reporting".
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis of Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management 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
this ISRE, however future events or conditions may cause the entity to cease
to continue as a going concern.
Responsibilities of the Directors
The Directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the Directors are responsible
for assessing 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 the Directors either intend to
liquidate the Company or to cease operations, or have no realistic alternative
but to do so.
Auditor's responsibility for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our conclusion is based on procedures that are
less extensive than audit procedures, as described in the Basis of Conclusion
paragraph of this report.
Use of our report
This report is made solely to the Company in accordance with guidance
contained in International Standard on Review Engagements 2410 (UK and
Ireland) "Review of Interim Financial Information Performed by the Independent
Auditor of the Entity" issued by the Financial Reporting Council. To the
fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the Company, for our work, for this report, or for the
conclusions we have formed.
ERNST & YOUNG LLP
London, United Kingdom
21 February 2024
CONDENSED INCOME STATEMENT (UNAUDITED) FOR THE SIX MONTHS TO 30 NOVEMBER 2023
Six months ended Six months ended Year Ended
30 November 2023 30 November 2022 31 May 2023
Revenue Capital Total* Revenue Capital Total* Revenue Capital Total*
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
(Losses)/gains on investments at fair value through profit or loss - (4,848) (4,848) - 82,513 82,513 - 50,885 50,885
(Losses)/gains on financial liabilities at fair value through profit or loss - (320) (519) (839) (80) 2,838 2,758 (856) 4,240 3,384
ALN
Currency gains on cash and borrowings - 4,229 4,229 - 10,877 10,877 - 9,179 9,179
Investment income 9,430 - 9,430 7,697 - 7,697 18,084 - 18,084
Investment management fees (12,573) - (12,573) (13,932) - (13,932) (27,707) - (27,707)
Other expenses (1,236) (1,406) (2,642) (1,011) (1,387) (2,398) (2,059) (1,625) (3,684)
(Loss)/return before financing costs and taxation (4,699) (2,544) (7,243) (7,326) 94,841 87,515 (12,538) 62,679 50,141
Interest payable and similar expenses (4,860) - (4,860) (3,784) - (3,784) (6,366) - (6,366)
(Loss)/return before taxation (9,559) (2,544) (12,103) (11,110) 94,841 83,731 (18,904) 62,679 43,775
Taxation paid (1,702) - (1,702) (940) - (940) (1,494) - (1,494)
(Loss)/return for the period/year being total comprehensive income for the (11,261) (2,544) (13,805) (12,050) 94,841 82,791 (20,398) 62,679 42,281
period /year
(Loss)/return per ordinary share (2.18)p (0.49)p (2.67)p (2.26)p 17.74p 15.48p (3.83)p 11.77p 7.94p
* The Company does not have any income or expenses that are not included in
the return for the period therefore the return for the period is also the
total comprehensive income for the period. The supplementary revenue and
capital columns are prepared under guidance published in the Statement of
Recommended Practice ("SORP") issued by the Association of Investment
Companies ("AIC").
All revenue and capital items in the above statement relate to continuing
operations.
The Notes below form part of these financial statements.
CONDENSED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) FOR THE SIX MONTHS TO 30
NOVEMBER 2023
Capital
Capital Other reserve on
Share Share redemption capital investments Revenue
capital premium reserve reserve held reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Movement for the six months ended 30 November 2023
Opening equity shareholders' funds 35,503 269,535 4,062 1,620,532 653,695 (133,255) 2,450,072
Return for the period - - - 50,554 (53,098) (11,261) (13,805)
Ordinary shares bought back for cancellation via tender offer (3,295) - 3,295 (151,050) - - (151,050)
Ordinary shares bought back for cancellation in the market (179) - 179 (7,397) - - (7,397)
Closing equity shareholders' funds 32,029 269,535 7,536 1,512,639 600,597 (144,516) 2,277,820
Movement for the six months ended 30 November 2022
Opening equity shareholders' funds 36,012 269,535 3,553 1,556,346 674,875 (112,857) 2,427,464
Return for the period - - - 42,623 52,218 (12,050) 82,791
Ordinary shares bought back for cancellation in the market (425) - 425 (16,737) - - (16,737)
Closing equity shareholders' funds 35,587 269,535 3,978 1,582,232 727,093 (124,907) 2,493,518
Movement for the year ended 31 May 2023
Opening equity shareholders' funds 36,012 269,535 3,553 1,556,346 674,875 (112,857) 2,427,464
Return for the year - - - 83,859 (21,180) (20,398) 42,281
Ordinary shares bought back for cancellation in the market (509) - 509 (19,673) - - (19,673)
Closing equity shareholders' funds 35,503 269,535 4,062 1,620,532 653,695 (133,255) 2,450,072
The Notes below form part of these financial statements.
CONDENSED BALANCE SHEET (UNAUDITED) AS AT 30 NOVEMBER 2023
30 November 30 November 31 May
2023 2022 2023
Note £'000 £'000 £'000
Fixed assets
Investments at fair value 2,404,240 2,476,152 2,417,620
Current assets
Debtors 1,965 2,993 2,347
Cash at bank 28,579 52,560 66,043
30,544 55,553 68,390
Creditors: Amounts falling due within one year
Bank loan (Expiry Oct 2024) 5 (96,389) - -
Other creditors (6,697) (3,960) (4,617)
(103,086) (3.960) (4,617)
Net current (liabilities)/assets (72,542) 51,593 63,773
Total assets less current liabilities 2,331,698 2,527,745 2,481,393
Creditors: Amounts falling due after one year
Bank Loan (Expiry Oct 2026) 5 (24,200) - -
Asset Linked Loan ("ALN") 6 (29,678) (34,227) (31,321)
(53,878) (34,227) (31,321)
Net assets 2,277,820 2,493,518 2,450,072
Capital and reserves
Called-up share capital 7 32,029 35,587 35,503
Share premium 269,535 269,535 269,535
Capital redemption reserve 7,536 3,978 4,062
Other capital reserve 1,512,639 1,582,232 1,620,532
Capital reserve on investments held 600,597 727,093 653,695
Revenue reserve (144,516) (124,907) (133,255)
Total equity shareholders' funds 2,277,820 2,493,518 2,450,072
Net asset value per share - ordinary 9 476.49p 469.46p 462.37p
Total ordinary shares for NAV calculation 7 478,041,656 531,143,457 529,893,457
The Notes below form part of these financial statements.
CONDENSED CASH FLOW STATEMENT (UNAUDITED) FOR THE SIX MONTHS TO 30 NOVEMBER
2023
Six months ended Six months ended Year Ended
Note 30 November 2023 30 November 2022 31 May 2023
£'000 £'000 £'000
Cash flow from operating activities
Investment income received - comprising:
Dividend income 7,414 4,999 12,325
Interest income 1,424 2,142 4,756
Other investment income 30 116 211
Deposit and other interest received 560 323 780
Investment management fees paid (10,687) (13,716) (27,586)
Secretarial fees paid (224) (167) (354)
Depositary fees paid (128) (86) (284)
Directors fees paid (158) (167) (303)
Legal and professional fees paid (772) (1,503) (1,996)
Other cash payments(1) (1,661) (671) (1,036)
Withholding tax (deducted)/ recovered (1,721) (945) (1,502)
Net cash outflow from operating activities 10 (5,923) (9,675) (14,989)
Cash flows from investing activities
Purchases of investments (75,330) (231,592) (289,020)
Disposals of investments 84,078 76,531 161,168
Net cash inflow/(outflow) from investing activities 8,748 (155,061) (127,852)
Cash flows from financing activities
Loan drawdowns 125,000 - -
ALN repayments (2,122) (3,582) (5,035)
Ordinary Shares bought back for cancellation (7,397) (16,741) (19,678)
Ordinary Shares bought back for cancellation via tender offer (151,050) - -
Loan commitment and arrangement fees paid (3,285) (4,726) (7,071)
Loan interest paid (1,259) - -
Net cash outflow from financing activities (40,113) (25,049) (31,784)
Decrease in cash in the period/year (37,288) (189,785) (174,625)
Cash and cash equivalents at beginning of the period/year 66,043 231,458 231,458
Foreign exchange (losses)/gains on cash (176) 10,887 9,210
Cash and cash equivalents at the end of the period/year 28,579 52,560 66,043
(1) Includes bank interest paid during the period of £nil (30 November 2022:
£22,000; 31 May 2023: £22,000) and loan interest paid of £1,259,000 (30
November 2022: £nil; 31 May 2023: £nil).
The Notes below form part of these financial statements.
NOTES TO THE INTERIM FINANCIAL STATEMENTS (UNAUDITED)
1. ACCOUNTING POLICIES
A. Basis of preparation
PIP is a listed public limited company incorporated in England and Wales.
The Company applies FRS 102 and the Association of Investment Companies
("AIC") SORP for its financial yearending 31 May 2023 in its Financial
Statements. The financial statements for the six months to 30 November 2023
have therefore been prepared in accordance with FRS 104 "Interim Financial
Reporting". The condensed financial statements have been prepared on the same
basis as the accounting policies set out in the statutory accounts for the
period ending 31 May 2023. They have also been prepared on the assumption that
approval as an investment trust will continue to be granted. The Company's
financial statements are presented in sterling and all values are rounded to
the nearest thousand pounds (£'000) except when indicated otherwise.
The financial information contained in this report has been prepared in
accordance with the SORP for the financial statements of investment trust
companies and venture capital trusts issued by the AIC (issued in April 2021),
other than where restrictions are imposed on the Company which prohibit
specific disclosures.
The financial information contained in this Interim Report and Accounts and
the comparative figures for the financial year ended 31 May 2023 are not the
Company's statutory accounts for the financial period as defined in the
Companies Act 2006. The financial information for the half-year periods ended
30 November 2023 and 30 November 2022 are not for a financial year and have
not been audited but have been reviewed by the Company's auditors and their
report can be found above. The Annual Report and Financial Statements for the
financial year ending 31 May 2023 have been delivered to the Registrar of
Companies. The report of the auditors was: (i) unqualified; (ii) did not
include a reference to any matters which the auditors drew attention by way of
emphasis without qualifying the report; and (iii) did not contain statements
under section 498 (2) and (3) of the Companies Act 2006.
B. Going Concern
The financial statements have been prepared on a going concern basis and under
the historical cost basis of accounting, modified to include the revaluation
of certain assets at fair value.
The Directors have made an assessment of going concern, taking into account
the Company's current performance and financial position as at 30 November
2023. In addition, the Directors have assessed the outlook, which considers
the potential further impact of the ongoing geopolitical uncertainties as a
result of the Russia-Ukraine and Middle East conflicts, including the
disruption to the global supply chain and increases in the cost of living as a
result, persistent inflation, high interest rates and the impact of climate
change on PIP's portfolio using the information available as at the date of
issue of these financial statements. As part of this assessment the Directors
considered:
· Various downside liquidity modelling scenarios with varying
degrees of decline in investment valuations, decreased investment
distributions, and increased call rates, with the worst being a downside case
downside scenario representing an impact to the portfolio that is worse than
that experienced during the Global Financial Crisis.
· The Company manages and monitors liquidity regularly ensuring it
is adequate and sufficient and is underpinned by its monitoring of
investments, distributions, capital calls and outstanding commitments. Total
available financing as at 30 November 2023 stood at £389m (30 November 2022:
£560m; 31 May 2023: £554m), comprising £24m (30 November 2022: £52m; 31
May 2023: £63m) in available net cash balances and £365m in undrawn,
sterling equivalent, bank facilities (30 November 2022: £508m; 31 May 2023:
£491m).
· PIP's 30 November 2023 valuation is primarily based on reported
GP valuations with a reference date of 30 September 2023, updated for capital
movements and foreign exchange impacts.
· Unfunded commitments - PIP's unfunded commitments at 30 November
2023 were £761m (30 November 2022: £848m; 31 May 2023: £857m). The
Directors have considered the maximum level of unfunded commitments which
could theoretically be drawn in a 12-month period, the ageing of commitments
and available financing to fulfil these commitments. In these scenarios PIP
can take steps to limit or mitigate the impact on the Balance Sheet, namely
drawing on the credit facility, pausing on new commitments, selling assets to
increase liquidity and reducing outstanding commitments if necessary. In
addition, subject to market conditions, the Company could also seek to raise
additional debt or equity capital.
· The impact of share buybacks and the Company's capital allocation
policy on available liquidity.
· Tenure of credit facilities - A £100m tranche of the facility
expires in October 2024 and will either be re-financed or repaid with cash or
drawings from the other existing loan.
· The Directors have also considered the impact of climate change
on PIP's portfolio and have come to the conclusion that there is no
significant impact on the Company as a result of climate change.
Having performed the assessment on going concern, the Directors considered it
appropriate to prepare the financial statements of the Company on a going
concern basis. The Company has sufficient financial resources and liquidity,
is well placed to manage business risks in the current economic environment
and can continue operations for a period of at least 12 months from the date
of issue of these financial statements.
C. Segmental reporting
The Directors are of the opinion that the Company is engaged in a single
segment of business, being investment business. Consequently, no businesses
segmental analysis is provided.
2.Tax on ordinary activities
The tax charge for the six months to 30 November 2023 is £1.7m (six months to
30 November 2022: £0.9m; year to 31 May 2023: £1.5m). The tax charge is
wholly comprised of irrecoverable withholding tax suffered with the exception
of an amount of £0.1m, received during the year to 31 May 2023, in relation
to the recovery of tax from prior years which has been offset against the tax
charge.
Investment gains are exempt from capital gains tax owing to the Company's
status as an investment trust.
3. Transactions with the Manager and related parties
During the six month period ended 30 November 2023, services with a total
value of £14,419,000, being £12,573,000 directly from Pantheon Ventures (UK)
LLP and £1,846,000 (30 November 2022: £14,734,000; £13,932,000; and
£802,000; year to 31 May 2023: £29,010,000; £27,707,000 and £1,303,000
respectively) via Pantheon managed fund investments were purchased by the
Company.
At 30 November 2023, the amount due to Pantheon Ventures (UK) LLP in
management fees and performance fees disclosed under creditors was £4,130,000
and £nil respectively (30 November 2022: £2,340,000 and £nil respectively;
31 May 2023: £2,245,000 and £nil respectively).
Fees paid to the Company's Board of Directors for the six months to 30
November 2023 totalled £175,000 (six months to 30 November 2022: £157,000;
year to 31 May 2023: £291,000). At 30 November 2023, the amount payable in
Directors fees disclosed under creditors was £62,000 (30 November 2022:
£47,000; 31 May 2023: £45,000).
There are no other identifiable related parties at the period end.
4. Performance fee
The Manager is entitled to a performance fee from the Company in respect of
each 12 calendar month period ending on 31 May in each year. The performance
fee payable in respect of each such calculation period is 5% of the amount by
which the NAV at the end of such period exceeds 110% of the applicable
"high-water mark", i.e. the NAV at the end of the previous calculation period
in respect of which a performance fee was payable, compounded annually at 10%
for each subsequent completed calculation period up to the start of the
calculation period for which the fee is being calculated. For the six month
calculation period ended 30 November 2023, the notional performance fee hurdle
is a NAV per share of 561.22p. The performance fee is calculated using the
adjusted NAV.
The performance fee is calculated so as to ignore the effect on performance of
any performance fee payable in respect of the period for which the fee is
being calculated or of any of the following:
· Increase or decrease in the net assets of the Company resulting
from any issue, redemption or purchase of any shares or other securities.
· The sale of any treasury shares or the issue or cancellation of
any subscription or conversion rights for any shares or other securities.
· Any other reduction in the Company's share capital or any
distribution to shareholders.
No performance fee has been paid or accrued during the period.
5. Bank Loan
On 19 October 2023, the Company announced that it has agreed a new £500m
equivalent multi-tranche, multi-currency revolving credit facility agreement
(the "credit facility"), which on 20 October 2023 replaced the existing £500m
equivalent credit facility and Credit Suisse AG London Branch as a Lender.
There are five Lenders of the new facility, being Lloyds Bank plc, Mizuho, RBC
Europe, Royal Bank of Scotland and State Street. The new credit Facility is
secured by certain assets of the Company and is split as follows:
- Facility A: £400m, expiring in October 2026 with an ongoing option to
extend, by agreement, the maturity date by 364 days at a time; and
- Facility B: £100m, expiring in October 2024.
The Company has sought to build a long-term, sustainable, more flexible, and
diverse capital structure as part of this process, further strengthening the
Company's balance sheet. The structure permits Facility A to be increased from
£400m to £700m via an uncommitted accordion option, subject to the consent
of the participating Lenders, with a covenant package that better supports
utilisation under the credit facility, the announced tender offer and the
ongoing share buyback programme.
Depending on the utilisation of the "credit facility", PIP will pay a
commitment fee of between 0.70% and 1.15% per annum on the undrawn portion of
the credit facility. The rate of interest payable on the drawn portion is the
aggregate of the relevant benchmark rate plus 2.95% or 2.25% depending on
whether Facility A or B is utilised respectively.
The credit facility had a sterling equivalent value of £485.1m as at 30
November 2023, at which point the Company had drawn down £120.6m split
£24.2m through Facility A and £96.4m through Facility B.
6. Asset Linked Note ("ALN")
As part of the share consolidation effected on 31 October 2017, the Company
issued an ALN with an initial principal amount of £200m to the Investor.
Payments under the ALN are made quarterly in arrears and are linked to the ALN
share (c. 75%) of the net cash flow from a reference portfolio which is
comprised of interests held by PIP in over 300 of its oldest private equity
funds, substantially 2006 and earlier vintages. PIP retains the net cash flow
relating to the remaining c. 25% of the reference portfolio.
The ALN is held at fair value through profit or loss and therefore movements
in fair value are reflected in the Income Statement. The Directors do not
believe there to be a material own credit risk, due to the fact that
repayments are only due when net cash flow is received from the reference
portfolio. Fair value is calculated as the sum of the ALN share of fair value
of the reference portfolio plus the ALN share of undistributed net cash flow
which is equivalent to the amount which would be required to be repaid had the
ALN matured on 30 November 2023. Therefore no fair value movement has occurred
during the period as a result of changes to credit risk.
A pro rata share of the Company's Total Ongoing Charges is allocated to the
ALN, reducing each quarterly payment ("the Expense Charge") and deducted from
Other Expenses in the Income Statement.
The ALN's share of net cash flow is calculated after withholding taxation
suffered. These amounts are deducted from Taxation in the Income Statement.
During the six months to 30 November 2023, the Company made repayments
totalling £2.1m, representing the ALN share of the net cash flow for the
three month period to 31 May 2023 and three month period to 31 August 2023.
The fair value of the ALN at 30 November 2023 was £31.0m, of which £1.3m
represents the net cash flow for the three months to 30 November 2023, due for
repayment on 28 February 2024.
During the six months to 30 November 2022, the Company made repayments
totalling £3.6m, representing the ALN share of the net cash flow for the
three month period to 31 May 2022 and three month period to 31 August 2022.
The fair value of the ALN at 30 November 2022 was £34.8m, of which £0.6m
represents the net cash flow for the three months to 30 November 2022, due for
repayment on 28 February 2023.
During the year to 31 May 2023, the Company made repayments totalling £5.0m,
representing the ALN share of the net cash flow for the year to 28 February
2023. The fair value of the ALN at 31 May 2023 was £32.5m, of which £1.2m
represents cash flows for the three months to 31 May 2023, due for repayment
on 31 August 2023.
7. Called up share capital
30 November 2023 30 November 2022 31 May 2023
Allocated, called up and fully paid: Shares £'000 Shares £'000 Shares £'000
Ordinary shares of 67p each
Opening position 529,893,457 35,503 537,493,640 36,012 537,493,640 36,012
Cancellation of shares bought back in Market (2,671,474) (179) (6,350,180) (425) (7,600,183) (509)
Cancellation of shares bought back via tender offer (49,180,327) (3,295) - - - -
Closing position in issue 478,041,656 32,029 531,143,457 35,587 529,893,457 35,503
Total shares for NAV calculation 478,041,656 32,029 531,143,457 35,587 529,893,457 35,503
On 3 August 2023, upon publication of its annual results for the year ended 31
May 2023, the Company announced its intention to invest up to £200m in the
Company's portfolio by buying back its own ordinary shares during the
financial year to 31 May 2024. On 25 September 2023, the Company announced it
would undertake a "Tender Offer", conducted as a reverse auction, for up to
£150m in value (at the Strike Price) of ordinary shares with settlement
taking place on 26 October 2023. Shareholders on the Register on the Record
Date of 17 October 2023 were invited to tender for sale some or all (subject
to the overall size limit of the tender offer) of their ordinary shares.
On 19 October 2023, the result of the tender offer was announced, being that
the Company had acquired 49,180,327 of the Company's ordinary shares. All
Shares repurchased by the Company have been cancelled. Each Share acquired by
the Company in the tender offer was purchased at the Strike Price of 305 pence
per ordinary share.
During the period to 30 November 2023 and in addition to the tender offer,
2,671,474 ordinary shares were bought back by the Company for cancellation at
a total cost, including stamp duty, of £7.4m. In total, during the period to
30 November 2023, the Company acquired, for cancellation, 51,851,801 shares.
During the six months ended 30 November 2022, 6,350,183 ordinary shares were
bought back for cancellation at a total cost, including stamp duty, of
£16.7m.
During the year ended 31 May 2023, 7,600,183 ordinary shares were bought back
for cancellation at a total cost, including stamp duty, of £19.7m.
As at 30 November 2023, there were 478,041,656 ordinary shares in issue (30
November 2022: 531,143,457 ordinary shares; year to 31 May 2023: 529,893,457
ordinary shares).
8. Return per share
Six months to 30 November 2023 Six months to 30 November 2022 Year to 31 May 2023
Revenue Capital Total Revenue Capital Total Revenue Capital Total
Return for the financial period £'000 (11,261) (2,544) (13,805) (12,050) 94,841 82,791 (20,398) 62,679 42,281
Weighted average number of ordinary shares 516,456,314 534,675,332 532,707,383
(Loss)/return per share (2.18)p (0.49)p (2.67)p (2.26)p 17.74p 15.48p (3.83)p 11.77p 7.94p
There are no dilutive shares in issue in any period.
9. Net asset value per share
30 November 2023 30 November 2022 31 May 2023
Net assets attributable in £'000 2,277,820 2,493,518 2,450,072
Ordinary shares in issue 478,041,656 531,143,457 529,893,457
Net asset value per share 476.49p 469.46p 462.37p
10. Reconciliation of return before financing costs and taxation to net cash
flow from operating activities
Six months to Six months to Period to
30 November 2023 30 November 2022 31 May 2023
£'000 £'000 £'000
Return before finance costs and taxation (7,243) 87,515 50,141
Withholding tax deducted (1,702) (940) (1,494)
Losses/(gains) on investments 4,898 (82,513) (50,885)
Currency gains on cash and borrowings (4,229) (10,877) (9,179)
Increase in creditors 1,851 388 394
Increase in other debtors (33) (230) (147)
Gains/(reductions) on financial liabilities at fair value through profit or 839 (2,758) (3,384)
loss - ALN
Expenses and taxation associated with ALN (254) (260) (435)
Net cash outflow from operating activities (5,923) (9,675) (14,989)
11. Fair Value Hierarchy
(i) Unquoted fixed asset investments are stated at the estimated fair value
In the case of investments in private equity funds, this is based on the net
asset value of those funds ascertained from periodic valuations provided by
the managers of the funds and recorded up to the measurement date. Such
valuations are necessarily dependent upon the reasonableness of the valuations
by the fund managers of the underlying investments. In the absence of contrary
information the values are assumed to be reliable. These valuations are
reviewed periodically for reasonableness and recorded up to the measurement
date. If a class of assets were sold post period end, management would
consider the effect, if any, on the investment portfolio.
The Company may acquire secondary interests at either a premium or a discount
to the fund manager's valuation. Within the Company's portfolio, those fund
holdings are normally revalued to their stated net asset values at the next
reporting date unless an adjustment against a specific investment is
considered appropriate.
The fair value of each investment is derived at each reporting date. In the
case of direct investments in unquoted companies, the initial valuation is
based on the transaction price. Where better indications of fair value become
available, such as through subsequent issues of capital or dealings between
third parties, the valuation is adjusted to reflect the new evidence, at each
reporting date. This information may include the valuations provided by
private equity managers that are invested in the Company.
(ii) Quoted investments are valued at the bid price on the relevant stock
exchange
Private equity funds may contain a proportion of quoted shares from time to
time, for example where the underlying company investments have been taken
public but the holdings have not yet been sold. The quoted market holdings at
the date of the latest fund accounts are reviewed and compared with the value
of those holdings at the period end.
All investments are initially recognised and subsequently measured at fair
value. Changes in fair value are recognised in the Income Statement.
(iii) Fair value hierarchy
The fair value hierarchy consists of the following three levels:
· Level 1 - The unadjusted quoted price in an active market for
identical assets or liabilities that the entity can access at the measurement
date;
· Level 2 - Inputs other than quoted prices included within level 1
that are observable (i.e. developed using market data) for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e. derived from
prices); and
· Level 3 - Inputs are unobservable (i.e. for which market data is
unavailable) for the asset or liability.
In accordance with FRS 104, the Company must disclose the fair value hierarchy
of financial instruments.
Financial assets at fair value through profit or loss at 30 November 2023
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Unlisted holdings - - 2,400,933 2,400,933
Listed holdings 3,307 - - 3,307
Total 3,307 - 2,400,933 2,404,240
Financial liabilities at fair value through profit or loss at 30 November 2023
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Asset Linked Note - - 30,984 30,984
Total - - 30,984 30,984
Financial assets at fair value through profit or loss at 30 November 2022
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Unlisted holdings - - 2,472,990 2,472,990
Listed holdings 3,162 - - 3,162
Total 3,162 - 2,472,990 2,476,152
Financial liabilities at fair value through profit or loss at 30 November 2022
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Asset Linked Note - - 34,776 34,776
Total - - 34,776 34,776
Financial assets at fair value through profit or loss at 31 May 2023
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Unlisted holdings - - 2,415,800 2,415,800
Listed holdings 1,820 - - 1,820
Total 1,820 - 2,415,800 2,417,620
Financial liabilities at fair value through profit or loss at 31 May 2023
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Asset Linked Note - - 32,520 32,520
Total - - 32,520 32,520
12. Post balance sheet event
On 12 January 2024, the Company announced that it has agreed a private
placement of $150m (£118m equivalent) of loan notes, with proceeds being
received on 1 February 2024. The loan notes have been structured over
different maturities of 5, 7 and 10 years. Proceeds from the loan notes have
been used to partially repay the existing drawn loan facilities.
NATIONAL STORAGE MECHANISM
A copy of the Half-Yearly Financial Report will be submitted shortly to the
National Storage Mechanism ("NSM") and will be available for inspection at the
NSM, which is situated at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
Ends
LEI: 2138001B3CE5S5PEE928
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