August 2022 Monthly

Pantheon will report its May year-end numbers on 4 August. Some of the figures, such as the NAV and cash, had already been reported in its May update. We expect results to confirm some key business trends – strong investee company EBITDA growth (ahead of public markets), good uplifts on exits and the drivers behind strong net cash generation. Perhaps, equally importantly, we expect further reiterations on the valuation approach, and why investors can take comfort that it is conservative. There are proven uplifts on exit, no incentive to inflate, a growth sector focus, a low REG ratio, and minimal exposure to unprofitable companies.

• June monthly report: NAV uplift 2.5% (0.5% valuation gains, 2% forex). Five-year NAV total return 16.2% CAGR. £18.3m cashflow in month (positive in each of the past 12 months). Cash £194m and undrawn facilities £310m, vs. outstanding commitments £761m. Primary 38%, co-investments & secondaries 31% each.
• Market news flow: Valuation is the issue of the moment. Listed PE news flow continues to give confidence that NAVs are real, with rising values (e.g. APEO. 3i), investor days with explanations of methodologies (APAX), investee company growth (AUGM), and director buying and realisations above book (OCI). As noted above, we expect PIN’s results to continue this trend.
• Valuation: PIN shares trade at a 46% discount to NAV, despite their long-term outperformance. We believe the “real” NAV is likely to be above the book value on the accounting date, given the market rises and uplifts to carrying value achieved on exits. PIN consistently sees material uplifts on exit realisations.
• Risks: We note i) sentiment to the economic cycle (NAV rose every year in the 1990s’ recession and in FY’20), ii) adverse sentiment to illiquid and unquoted investments (PIN has permanent capital and proven exit uplifts), and iii) sentiment to the sustained discount could be an issue. Short term, there can be FX volatility.
• Investment summary: PIN is in an attractive market, can pick the best part of that market, and has competitive operational advantages. Its manager and deal selection, and portfolio structuring, add value. To the end of June 2022, this delivered 12.4% annual NAV growth since inception in 1987. Corporate governance is strong, and the NAV is conservatively valued. Investors get liquid access to the global PE market. There are risks around the cycle, and illiquid and unquoted underlying assets. The discount appears anomalous with risk-adjusted returns.