October 2019 Monthly

We reviewed Pantheon International (PIP, ticker PIN) in our report, 11.9% average annual NAV growth since 1987, published on 6 September. PIP invests in a diversified portfolio of private equity (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.

• August NAV: PIP issued its August NAV update showing a 3.6% NAV per share uplift in the month (3.3% from investment gains). Part of the valuation uplift reflected underlying business growth over time, with 95% of the current portfolio based off June or later valuations, while the prior NAV was 99% March or later.
• Peer news: Harbourvest’s NAV rose $0.68 to $25.6 (£21.06) in August. ICG Enterprise Trust appointed a new NED, Gerhard Fusenig. Standard Life Private Equity declared a third-quarter dividend of 3.2p per share. There was no RNS news in September from BMO Private Equity Trust.
• 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.