November 2021 Monthly

PIP’s September update was a further illustration of its strong performance. It was the eighth sequential month of positive cashflows, showed a one-year 32% NAV per share performance (a 4% beat against the FTSE All-Share’s 28%) and saw the NAV grow to £39.60. PIP’s NAV is somewhat delayed, as the PE managers have yet to build recent market rises into their valuations (93% are still based on June submissions) – so the real NAV is likely to be higher. Despite delivering 89% total shareholder returns over five years and the NAV return beating the index over one, three and five years, and, since inception, by 3.7% p.a., the discount to NAV is 24%. Modest buybacks have now begun.

• September report: The September report noted valuation gains (0.3%) and a forex benefit (1.6%). PE assets were £1,968m, cash £224m, and facilities $270m and €102m, against undrawn commitments of £635m (up from £572m in August). PIP has been increasing its commitments through 2021 (January £427m), as market risk has fallen.
• Proposed share split and buyback: At the 27 October AGM, investors approved a 10 for 1 share sub-division to improve “the marketability of PIP’s shares”. Steadily through September, PIP invested £1.2m in share buybacks (40k shares at an average price of £29.90, an average 23% discount to the end-August NAV).
• Valuation: PIP shares trade at a 24% 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. The weighted average uplift achieved on exit in FY’21 was 26%.
• 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 and deal selection, and portfolio structuring, add value. To end-Sep’21, this delivered 12.2% 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.