November 2019 Monthly

We reviewed PIP in our report, 11.9% average annual NAV growth since 1987, published on 6 September 2019. PIP invests in a diversified portfolio of PE funds and directly in private companies. On average, it has generated ca.1.5x the market’s returns since inception in 1987, delivered by i) PE-owned businesses outperforming quoted ones, ii) PIP investing in the right PE sub-sectors, iii) benefits from being in the Pantheon family, and iv) a structured fund selection process. PIP gives investors liquid access to the illiquid PE market, strong corporate governance and a “real” NAV above its “book” value. The risks are detailed below.

• September NAV: PIP’s September NAV update showed a 1.2% drop in NAV driven by forex effects (-1.4%). Investment gains were +0.2%, investment income +0.1%, and expenses and taxes -0.1%. Gains are typically larger in months where the underlying valuations are updated as they roll forward quarterly (August +3.3%).
• Peer news: Harbourvest’s NAV rose $0.13 to $25.73 (£20.94) in September. ICG Enterprise Trust’s interim results showed 12% NAV growth over six months. Standard Life Private Equity saw a 1.8% NAV fall in September (FX effects). BMO Private Equity Trust saw a ca.6% shareholder switch from Prudential to M&G.
• Valuation: PIP currently trades at a 21% discount to NAV, despite its long-term outperformance. ICGT and SLPE trade at similar levels. We believe the “real” PIP NAV is likely to be above the accounting value, making the discount even higher. PIP reinvests returns for superior capital growth, and does not pay a dividend.
• Risks: Sentiment to the economic cycle is material (note that PIP’s NAV rose every year in the early 1990s’ recession). Even though PIP has permanent capital and proven uplifts on exit, market sentiment to investments with illiquid and unquoted shares is adverse. Sentiment to the duration of the discount may also be an issue.
• Investment summary: PIP is in an attractive market, can pick the best part of that market, and has competitive operational advantages. Its manager selection and portfolio structuring have added value. Corporate governance appears strong, and the “real” value of the assets is, we believe, above their accounting value. Investors are getting liquid access to the whole PE market. There are risks around the cycle, and illiquid and unquoted underlying assets, but comparing these with the historical returns makes the current discount an anomaly, in our view.