September 2020 Monthly

We reviewed PIP’s recent results in our note, Positioned for sustained growth, of 14 August 2020. In summary, PIP is “generally well placed to withstand and, in certain cases, to benefit during a period of significant economic and market turmoil”. The key statistics were i) 11.6% average annual NAV growth since inception, ii) +4.0% NAV per share growth in the year, despite valuations being based off March 2020 market lows, and iii) £228m distributions vs. £118m calls, a £110m net cashflow. PIP had £121m of net available cash and £310m of undrawn borrowing facilities. A 21% discount to NAV appears anomalous with performance.

• Results summary: FY’20 valuation gains and income were impacted by COVID-19, but still saw a positive effect (+3.9% NAV against average since 2013 of 10.1%). Expenses (-1.5%) were consistent with 2013-19 averages. The period saw a positive FX effect (1.6%), delivering overall NAV growth of 4.0%.
• Outlook: PIP’s outlook confidence is driven by i) the Manager’s more than 40 years’ PE experience, ii) a conservative stance, including limiting debt, taken in advance, iii) a bias to IT/healthcare in newer investments, iv) permanent capital and strong liquidity, v) a collegial culture, and vi) a track record of outperformance.
• Valuation: PIP shares trade at a 21% 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, and the NAV was at March, when markets were at recent lows. 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 11.4% 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.