September 2021 Monthly

In our note, FY’21: 20% NAV growth; right place at right time (19 August 2021), we noted PIP's buyout company sample reported FY’21 weighted average revenue and EBITDA growth of 13% and 20%, respectively, outperforming the MSCI World Index by 23% and 41%. Picking the right managers and co-investments (with the operational and financial support that PE provides) in resilient sectors generated this vastly superior growth. It has also led to higher valuation ratings, although PIP’s average rating has moved from being 2.4% above the MSCI World Index level to 4.2% below. The balance sheet is strong and well positioned to fund new opportunities. The shares trade at a 21% discount to NAV.

• July report: The End-July’21 report noted a 0.4% NAV appreciation, driven primarily by valuation gains offset by forex. 85% of valuations were still as at March. PE assets were £1,759m, available resources were cash (£200m) and facilities ($270m, €102m), with a total of £481m, against undrawn commitments of £577m. The five-year TSR is 81%.
• Increasing commitments: PIP cut commitments from £541m in May’20 to £427m in Jan’21. Since then, it has increased them to £577m due to greater confidence in the economic outlook, the successful extension of its undrawn banking facilities, and single-asset secondary opportunities. A share buyback commenced on 25 August.
• 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, 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 11.9% 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.