NB Private Equity Partners

Co-investments generating superior performance

16 Jun 2023 / Corporate research

NBPE’s private equity (PE) portfolio has co-investments, alongside 55 PE managers (GPs) in 90 high-secular-growth and downside-resilient private companies. PE provides access to a different universe of companies versus public markets, and, by adding value to investee companies, has generated superior returns. Co-investments with good cashflow characteristics and potentially higher returns are especially attractive. NB adds further value in GP and co-investment selection. NBPE’s 10-year share price total return is 4.2x the UK market. Exit uplifts prove a conservative NAV. Through multiple downturns, NBPE’s outperformance has proved its resilience.

  • Appeals of co-investment: Co-investment is appealing because it provides i) gross PE returns without the General Partners (GP’s) costs, delivering superior long-term returns, ii) control of pacing of new investments, and the potential for earlier realisations, iii) no blind-pool risk, iv) control of diversification, v) control over the investment process, and vi) double due diligence.
  • NB added value: To do co-investments well requires significant analytical resource, expertise and experience (to identify good investments and partners). It also needs good GP relationships, a track record of through-cycle investment, processes that respond rapidly and add value to GPs, and portfolio management. NB has them all.
  • Valuation: The 30% discount is above that of direct peers (average 24%), and it (like peers) rose sharply in 2022, to well above historical levels. Adjusting for the legacy income-investments (7% of portfolio), NBPE’s discount rises to 34%. The NAV appears resilient and conservatively valued, making the discount absolutely and relatively anomalous.
  • Risks: Sentiment to costs, the cycle, residual positions in highly rated listed companies following IPOs in 2020-21, the duration of the discount and valuation are the key issues for NBPE, as they are across the whole listed sector. As we detail, below, they are sentiment issues, and do not reflect reality, as we see it. The benefits from the current strategy may not yet be fully appreciated.
  • Investment summary: With over 92% of the portfolio invested in direct equity, NBPE is the most focused listed vehicle in the low-cost, attractive co-investment subsector of the market-beating PE sector. The company and GP selection have proved resilient in downturns, and consistent, large premiums on exit should give investors comfort in the NAV. Its portfolio is diversified by name, sector, GP and geographically, but it has enough concentration for individual investments to add value. The discount is anomalous with long-term, market-beating returns.
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