May 2020 Monthly

PE fund businesses’ NAVs normally reflect a delay in getting valuations from the underlying managers. The effect is small, unless markets move significantly. PIP has addressed the current distortion through the introduction of a “Manager’s Provision”, which reduced its managers’ valuations (94% of which were valued at December 2019) by 8%, (226.3p, March monthly performance report). This level was assessed by underlying manager feedback, proprietary models and an analysis of how its PE asset values changed relative to market movements. The fact that PIP introduced this provision speaks volumes for its openness with investors.

• March NAV: On 30 April 2020, PIP announced that its NAV fell 4% in March, with a 1% valuation and 3% forex gains offset by the new Managers’ Provision (-8%). PIP made 14 new investments during the month (£67.8m of new commitments). It had a net cash position (£116m) and credit facilities of US$163.0m and €59.8m.
• Managers’ Provision: PIP obtained guidance from 71% of its managers on the end of March value of their positions. Listed underlying holdings were marked to the end of March prices. For the rest, PIP used proprietary models, applying sector index movements and the correlation to markets seen in the financial crisis.
• Valuation: After recent market falls, PIP trades at a 30% discount to a NAV, which has been adjusted for market movements. This is despite its long-term record of outperformance. PIP reinvests returns for superior capital growth (no dividend).
• Risks: Sentiment to economic cycle and to private investments is material (noting PIP’s NAV rose every year in the early 1990s’ recession). PIP has conservative accounting/liquidity policies. Forex movements create short-term volatility.
• Investment summary: PIP is in an attractive market, can pick the best part of that market, and has competitive operational advantages. Its manager selection and portfolio structuring have added value. Corporate governance appears strong, and the “real” value of the assets is, we believe, above their accounting value. Investors are getting liquid access to the whole PE market. There are risks around the cycle, and illiquid and unquoted underlying assets; however, comparing these with the historical returns makes the current discount an anomaly, in our view.