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We noted in,  NB: adding value in attractive co-investment sector, that NBPE is uniquely focused on the PE co-investment sector. In our view, this sector has appealing return, cashflow, asset selection, risk management, and PE manager access characteristics. In our note, we reviewed how NB adds value, with i) the resources to understand the investee company dynamics, ii) excellent PE manager relationships, and iii) experience/skills that add value to the PE managers. Its success is evidenced by the growing deal flow in a subdued PE market. NB is focused on the mid-market, which, in our view, has multiple value-creation options. There is an investor day on 6 November.

  • Evidence of value added: We highlight NBPE’s i) growing number of co-investment opportunities (3x the level of 10 years ago, in a slowing market), ii) above-peer investee company revenue and EBITDA growth in 2023, iii) broad spread of this growth, and iv) above-average 5-/10-year shareholder returns.
  • NB’s value added to co-investments: NB’s platform is large (NB Private Markets $115bn of active capital commitments, incl. $37bn in co-investments and over 400 PE staff), generating the scale to optimise the co-investment process. The deal completion rate (ca.8% of opportunities presented) shows great selectivity.
  • Valuation: The 23% discount is slightly below that of most direct peers (average 29% exc. HGT), but it rose sharply in 2022, to well above historical levels (10%-15%). We detail in our thematic notes what may lead to a rerating back to these levels. The discount appears absolutely and relatively anomalous.
  • Risks: Sentiment to costs, the cycle, modest residual positions in highly rated listed companies following IPOs in 2020-21, the duration of the discount and valuation are the key issues for NBPE, as they are across the whole listed PE sector. However, they are sentiment issues, and do not reflect reality, as we see it. The benefits from the current strategy may not yet be fully appreciated.
  • Investment summary: With 98% of the portfolio invested in direct equity, co-investments, NBPE is the most focused listed vehicle in the low-cost, attractive co-investment subsector of the long-term, market-beating PE sector. The company and PE manager selection have proved resilient in downturns, and continued premiums on exit should give investors comfort in the NAV. Its portfolio is diversified by name, sector, PE manager and geographically, but it has enough concentration for individual investments to add value. The discount is anomalous with long-term, market-beating returns.
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