February 2022 Monthly

In our note, Primary platform + active management = value add, we demonstrated how the strength of PIN’s primary platform and the active management of its portfolio add value in the attractive secondary (30% of the portfolio) and co-investment (33%) strategies. PIN’s key competitive advantages come from leveraging its often decades-long relationships with high-quality PE managers, its scale and expertise (including due diligence of managers and direct investments), a focus in the mid-market (where PE can add the most value to underlying companies) and a conservative approach to liquidity. The portfolio is now almost evenly split between direct/single asset holdings and funds.

• Interim results due 24 February: The November NAV has already been disclosed – so the results will give more colour on the business. We expect reinforcement of the messages of the strength of the platform, comprehensive coverage of the PE market (and value to investors from that) and the conservatism in approach.
• December newsletter: The latest newsletter reported a small NAV fall, driven by FX movements (during the month, there were few updates to the underlying manager valuations). Immediately available finance is £510m, against PIN’s multi-year commitments of £628m, with monthly net cash generated of £33m.
• Valuation: PIN shares trade at a 26% 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. The weighted average uplift achieved on exit in FY’21 was 26%.
• 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 and deal selection, and portfolio structuring, add value. To end-Dec’21, this delivered 12.2% 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.