February 2023 Monthly

In the forthcoming interim results (announcement 23 February), we expect a reiteration of the messages seen last year (see our note of 11 August 2022, FY’22 results: it is not just lionesses that roar). Over the past 35 years, through multiple cycles, PIP has delivered market-beating NAV returns, driven by the incremental operational, strategic and financial value that PE adds to investee companies. Incremental value is added by Pantheon through its selection of high-quality managers and mature/profitable companies in resilient sectors. Investee company gearing and over-commitment are modest. Uplifts on exit proving the conservatism of the valuation approach continue. The discount to NAV appears anomalous.

• Secondary commitment: In December 2022, PIP made a $112.5m commitment to Pantheon Secondary Opportunity Fund II, which is focused on single-asset secondaries. This commitment will be deployed over a three-year investment period. A five-minute Pantheon video on secondaries can be seen here.
• December factsheet: The 0.4% valuation losses in the month were compounded by forex (-0.3%). For the 11th month out of the past 12, there was positive cashflow. Available finance was £577m, vs. commitments (likely to be drawn over five years) of £942m (in December, £113m new commitments were made).
• Valuation: PIN shares trade at a 44% discount to NAV, despite their long-term outperformance. We believe the “real” NAV is likely to be above the book value, given the uplifts to carrying value achieved on exits. PIN consistently sees material uplifts on exit realisations. Steady buybacks have been made through 2H’22.
• 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) that 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. The latest factsheet reports 12.2% annualised 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 to NAV appears anomalous with risk-adjusted returns, including global diversity.