June 2022 Monthly

On 4 May 2022, Helen Steers, Partner and Manager of PIN, joined Hardman & Co for an open forum discussion about the role of private equity (PE) in financing entrepreneurship, innovation and growth. The presentation, and our subsequent note, highlighted that, even in a difficult period, PE is well-positioned because it adds value to its investee companies, with hands-on operational and sector-specific expertise, exercised with good governance and aligned interests. It is much more than capital support. PIN gives privileged access to carefully selected PE investments globally and has delivered long-term outperformance.

• Why PIN: This forum highlighted that PIN’s shares have outperformed the FTSE All-Share total return by 6.8%, 8.9%, 8.1%, 7.8% and 3.9% p.a. over one, three, five and 10 years, and since inception timescales, respectively. Against the MSCI World index, it has been 3.9%, -0.9%, 1.0%, 1.3% and 3.0%, respectively.
• April factsheet: PIN saw monthly NAV per share growth of 3.8%, driven mainly by valuation gains (1.3%) and forex impacts (2.4%). Available finance of £508m was held against outstanding commitments of £752m (up £53m this month compared with the prior month and partially reflecting forex impacts).
• Valuation: PIN shares trade at a 35% 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. PIN consistently sees material uplifts on exit realisations.
• 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) 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. To the end of April 2022, this delivered 12.4% 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.