March 2023 Monthly

In the interim results and presentation, Exceptional companies, Excellent long-term performance, the messages from last year continue unchanged (see our note, FY’22 results: it is not just lionesses that roar). Over the past 35 years, through multiple cycles, PIN has delivered market-beating NAV returns, driven by the incremental operational, strategic and financial value that PE adds to investee companies. Pantheon adds further value 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.

• Uplifts prove conservative valuations: The long-term feature of material uplift to carrying values on exit continued (1HFY’23 33%) as buyers, after their due diligence, consistently pay above PIN’s valuation. The investee companies have delivered the public-market-beating revenue (23%) and EBITDA (11%) growth.
• Positive portfolio mix: Direct investments now account for 54% of the portfolio. Venture investments, where both market valuation volatility and investor sentiment have been high, are just 3%. With an average investment age of 4.8 years, net cash generation has continued. Resilient sectors dominate the mix.
• Valuation: PIN shares trade at a 46% 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.