October 2021 Monthly

PIP’s August update was further illustration of the strong NAV growth reported across the PE sector. Moving from predominately March to June underlying valuations helped drive a 9.8% NAV increase in the month. This performance reflects PE investing in growing businesses with a focus on tech-enablement, PE managers adding strategic and operational value to the investee companies, as well as PIP’s own manager and co-investment/single-asset secondary selections. The compounding benefits over the long term of such a performance match this asset class to the long-term nature of pensions, a factor relevant this month, given Pensions Awareness Day was on 15 September 2021.

• August report: The End-August’21 report noted valuation gains (9.0%) and a small forex benefit (0.9%). PE assets were £1,942m, cash £210m, and facilities $270m and €102m, against undrawn commitments of £572m. The five-year TSR is 95%. We have upgraded our FY’22 expectations by £140m, as the August NAV was above our previous estimate.
• Proposed share split: At the 27 October AGM, investors are being asked to approve a 10 for 1 share sub-division. The purpose is to “make PIP’s shares more accessible to a range of investors with a view to improving the marketability of PIP’s shares”. We believe this will be especially relevant to smaller investors.
• Valuation: PIP shares trade at a 23% 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 consistent uplift 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-Jun’21, this delivered 12.1% 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.