February 2020 Monthly

We reviewed PIP in our initiation report, published on 6 September 2019, and in our note, History of value added to portfolio by holding Pantheon, published on 26 November 2019. PIP, on average, has generated ca.1.5x the market’s returns since inception in 1987 (11.6% p.a. CAGR in NAV per share), delivered by i) PE-owned businesses outperforming quoted ones, ii) PIP investing in the right PE subsectors, iii) benefits from being in the Pantheon family, and iv) a structured fund.

• PIP December NAV: PIP’s 31 December 2019 NAV per share was 2,749.3p, a 49.9p (-1.8%) reduction in the month. Foreign exchange movements (-60.1p, -2.2%) and expenses and taxes (-3.7p, -0.1%) exceeded valuation gains (+8.5p, +0.3%) and investment income (+5.4p, +0.2%).
• Peer news: On 17 January, Harbourvest announced that its NAV rose $0.45 to $26.92 during December. On 15 January, Standard Life Private Equity Trust reported a monthly NAV fall of 2.5p to 438.5p. ICG Enterprise Trust, on 23 January, announced a three-month to October NAV fall of 2.5% to 1,140p (forex-driven).
• Valuation: PIP currently trades at an 11% discount to NAV, despite its record of market outperformance outlined above. We believe the “real” PIP NAV is likely to be above the accounting value, making the discount even higher. PIP reinvests returns for superior capital growth, and does not pay a dividend.
• Risks: Sentiment to the economic cycle is material (PIP’s NAV rose every year in the early 1990s’ recession). Even though PIP has permanent capital and proven uplifts on exit, market sentiment towards investments with illiquid and unquoted shares is adverse. Forex movements can 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.