November 2020 Monthly

Our 9 October note, Returns, resilience and responsibility, noted i) PIP’s investors get liquid access to the whole private equity (PE) market, ii) PE-backed companies, on average, deliver superior growth compared with quoted ones, iii) PIP is investing in the right parts of the PE market, iv) PIP benefits from being part of the Pantheon family, and vi) we believe the “real” NAV is above “book” NAV. September saw a 5.7%, 161p NAV uplift with valuation gains on two IT IPOs adding 65p, and forex 85p. The downturn resilience of PIP’s NAV has been proven once again in 2020 (one-year NAV up 3.2%). PIP’s ESG credentials are market-leading and well-established.

• Returns: PIP delivers market-beating returns by selecting PE managers who add real value to their underlying portfolio companies, and by selecting direct investment opportunities in PE-backed companies. PIP’s mandate means it can select the best opportunities across the whole market.
• Resilience: PIP’s outlook confidence is driven by i) more than 40 years’ PE experience, gathered through different economic cycles, ii) a conservative stance, including limiting debt, iii) a bias to the IT/healthcare sectors, iv) permanent capital and strong liquidity, v) a collegial culture, and vi) a track record of outperformance.
• Valuation: PIP shares trade at a 27% 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, as the company consistently reports uplifts on realisation. PIP re-invests returns for superior capital growth and pays no dividend.
• 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 (PIP 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: 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. This has delivered 11.6% annual NAV growth since inception. Corporate governance is strong, and the NAV is conservatively valued. Investors get liquid access to the whole PE market. There are risks around the cycle, and illiquid and unquoted underlying assets, but these, against the historical returns, make the current discount to NAV an anomaly.