April 2020 Monthly

We reviewed PIP’s results in our note 2020 interim results: consistency in delivery, published on 2 March 2020. The key results message was “more of the same”, including i) market-beating core NAV growth, ii) strong underlying company EBITDA growth, iii) good cash generation; iv) strong uplift to carry cost from realisations, and iv) a conservative over-commitment policy. This is delivered as i) PE outperforms quoted companies, ii) PIP is in the right parts of the PE market, iii) the Pantheon family benefits, and iv) there is a value-added fund selection process. PIP gives access to the whole PE market, with strong corporate governance.

• February NAV: On 23 March, PIP announced its NAV increased 5% in February to 2,906.7p with 2% valuation gains and 3% from forex. However, PIP, like other PE funds, is dependent on its manager valuations and 53% were September or earlier and 47% December or later. This NAV does not capture recent market falls.
• COVID comments: PIP noted “the majority of PIP’s diversified portfolio is tilted towards technology, healthcare and consumer staples, which could be considered more resilient industry sectors”. Net cash of £148m (29 Feb’20) and unutilised committed credit ($163.0m and €59.8m) is available to meet any near-term calls.
• Valuation: After recent market falls, PIP trades at a 46% discount to NAV (if we adjust for market falls, it is likely to be 15%-20%), despite its record of outperformance. PIP reinvests returns for superior capital growth (no dividend).
• Risks: Sentiment to the economic cycle is material (PIP’s NAV rose every year in the early 1990s’ recession) as it is to private investments. 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.