Pantheon International Plc

11.9% average annual NAV growth since 1987

06 Sep 2019 / Corporate research

PIP (ticker PIN) invests in a diversified portfolio of private equity (PE) funds and directly in private companies. On average, it has beaten its benchmark index by ca.4.0% p.a. since inception in 1987, generating ca.1.5x the market’s returns. This has been delivered by i) PE funds earning better returns than quoted companies, ii) PIP investing in the right parts of the PE market, iii) benefits from being in the Pantheon family, and iv) a structured fund selection process. PIP gives investors access to the whole PE market, with strong corporate governance. We believe the “real” NAV is above “book” NAV. There are risks (see below), but the discount makes the risk/reward anomalous, in our view.

  • Value-added: PIP delivers market-beating returns because real value is added in the process. PE adds value through better operational performance, strategic flexibility and financial expertise. Through its whole-market, flexible mandate, PIP can select the best opportunities in this market, and it has proven skills in manager selection.
  • Investment neutrals: We see no financial impact from the Woodford situation, but it is affecting sentiment. PIP’s costs are a small part of investor returns. Due diligence and process make this a high-resource business but, despite this, returns post-costs have beaten market indices. Gearing and liquidity appear appropriate.
  • Valuation: PIP currently trades at a 20% discount to NAV, despite its long-term outperformance. We outline why the “real” NAV is likely to be above the accounting value, making the discount higher than the public number. PIP re-invests returns for superior capital growth, and does not pay a dividend.
  • Risks: Sentiment to the economic cycle is material (we 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.
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