February 2021 Monthly

PIP is a well-funded, globally diversified investor in PE funds, whose flexible mandate means it can exploit the best opportunities available in 2021. In our notes (most recently), Returns, resilience and responsibility and The real costs of public vs. PE ownership, we have highlighted how and why PE outperforms in downturns and that re-investment returns immediately post a crisis are above-average. With £434m of available finance, Pantheon is well positioned to exploit this opportunity. Unlike many of its peers, it has been quoted throughout four major crises, with a proven track record of outperformance (11.6% p.a. NAV return since 1987).

• The real costs of public vs. PE ownership: Listed equities’ portfolios have “agency” costs that impair performance. PE and PIP’s strong corporate governance allow i) a long-term focus, ii) shorter periods of operational underperformance, iii) valued-added acquisitions, and iv) aligned managers’ and shareholders’ interests.
• End December 2020 Performance report: In December, valuation gains added 3.2p and investment income 6.6p. The forex impact was -53.8p, and expenses/taxes were -3.8p. PE assets were £1,572m, total available resources were £434m, and undrawn commitments were £443m. The five-year TSR is 90%.
• Valuation: PIP shares trade at a 24% 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, as the company consistently reports uplifts on realisation. PIP re-invests returns for superior capital growth and pays no dividend.
• 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 (PIP 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: 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. This has delivered 11.6% annual NAV growth since inception. Corporate governance is strong, and the NAV is conservatively valued. Investors get liquid access to the whole PE market. There are risks around the cycle, and illiquid and unquoted underlying assets, but these, against the historical returns, make the current discount to NAV an anomaly.