For immediate release
The
information contained in this announcement is restricted and is not
for publication, release or distribution in the United States of
America, Canada, Australia (other than to persons who are both
wholesale clients and professional or sophisticated investors in
Australia), Japan, the Republic of South Africa or any other
jurisdiction where its release, publication or distribution is or
may be unlawful.
PANTHEON INTERNATIONAL PLC
INTERIM REPORT FOR THE SIX MONTHS ENDED 30 NOVEMBER
2023
The full Interim Report and Accounts
can be accessed via the Company's website at
www.piplc.com or by contacting the Company Secretary by telephone on +44
(0)333 300 1950.
Pantheon International
Plc
(the "Company" or
"PIP")
Pantheon International Plc, a FTSE
250 investment trust that provides access to an actively-managed
global and diversified portfolio of private equity-backed
companies, today publishes its Interim Report and Accounts for the
six months ended 30 November 2023.
Corporate
activity
· Capturing value for PIP's shareholders:
o Launch of up to £200m share
buyback programme to take advantage of the wide discount on
PIP's shares and invest in PIP's own portfolio during the financial
year to 31 May 2024. During the half year to 30 November 2023,
£157m was invested in share buybacks, including a
£150m tender offer which
was completed in October 2023.
· Optimised capital structure for more flexibility and
robustness because of the longer, staggered debt maturity profile
and more diversified funding sources:
o During the period, PIP agreed a new £500m equivalent credit facility
to replace the previous credit facility and Credit Suisse as one of
the lenders.
o Following the period end, PIP agreed a private placement of
US$150m of loan notes,
structured over different maturities of five, seven and ten years,
with five high quality North American investors.
o The
refinancing and the private placement have increased the number of
PIP's credit counterparties from three to ten within two separate
highly liquid markets.
Performance
update
· PIP's
share price increased by
8.1% during the period and it was up by 20% for the calendar year
2023.
· NAV
per share grew by
3.1% during the half year.
Valuation gains in the portfolio and NAV accretion from share
buybacks were partially offset by unfavourable currency movements,
given that PIP's portfolio is predominantly USD-denominated.
Currency movements tend to balance out over the long
term.
· PIP
has a strong long-term track
record. Annualised NAV per share growth over the last 10
years was 13.8%. The NAV performance beats the public market
benchmarks over the last three, five and ten years and since the
Company's inception in 1987.
Annualised performance as at 30 NOVEMBER
2023
|
1 yr
|
3 yrs
|
5 yrs
|
10 yrs
|
Since
inception1
|
NAV per share (stated net of
fees)
|
1.5%
|
14.9%
|
12.2%
|
13.8%
|
12.0%
|
Ordinary share price
|
8.7%
|
8.2%
|
7.5%
|
11.1%
|
10.8%
|
FTSE All-Share, Total
Return
|
1.8%
|
8.4%
|
4.9%
|
5.1%
|
7.3%
|
MSCI World, Total Return
(Sterling)
|
6.8%
|
9.5%
|
10.7%
|
11.7%
|
8.3%
|
1 Inception in September 1987.
NAV
per share vs. market performance
|
1 yr
|
3 yrs
|
5 yrs
|
10 yrs
|
Since
inception
|
Versus FTSE All-Share, Total
Return
|
-0.3%
|
+6.5%
|
+7.3%
|
+8.7%
|
+4.7%
|
Versus MSCI World, Total Return
(Sterling)
|
-5.3%
|
+5.4%
|
+1.5%
|
+2.1%
|
+3.7%
|
Share price vs. market performance
|
1 yr
|
3 yrs
|
5 yrs
|
10 yrs
|
Since
inception
|
Versus FTSE All-Share, Total
Return
|
+6.9%
|
-0.2%
|
+2.6%
|
+6.0%
|
+3.5%
|
Versus MSCI World, Total Return
(Sterling)
|
+1.9%
|
-1.3%
|
-3.2%
|
-0.6%
|
+2.5%
|
Portfolio
update
· Annualised EBITDA and revenue
growth of 19% and 18% respectively
in PIP's underlying portfolio company investments over the past
five financial years, indicating the strength and resilience of these
companies and underpinning our
confidence in PIP's reported NAV.
· PIP's
loss ratio for all investments, realised and unrealised, made over
the last 10 years is low at
2.4%1.
· Weighted average uplift from fully realised exits was
17% and the weighted
average uplift since 2012 has been 30%. The average cost multiple
on exit realisations was 2.5
times during the half year, and that figure since 2012 has
been 3.0 times. The cost multiple on the existing portfolio, as
implied by the current NAV, is 1.6 times. These figures point
to the significant embedded value in PIP's portfolio.
· PIP's
portfolio has remained cash-generative during the period with
net cash inflow from the
portfolio of £30m.
1 Loss ratio is calculated by
the sum of 1) the loss made in the realised investments which have
exited below cost and 2) the difference between the unrealised
value and the cost on the unrealised investments which are held at
below the cost, divided by the aggregate investment costs of all
investments
Financial position
update
· As at
30 November 2023, PIP had access to net available cash of
£24m in addition to its
multi-currency revolving £500m credit facility of which £121m
was drawn at the period end.
· The
proceeds of the US$150m private placement loan notes have been used
to repay the existing drawings on the credit facility. As
such, the issuance of the privately placed loan notes has not
resulted in a significant change in PIP's leverage. As at 31
January and following the issuance of the privately placed loan
notes, PIP's net debt to NAV, excluding the Asset Linked Note, is
conservative at 5.5%.
Company
update
· Zoe
Clements and Rahul Welde were appointed to the Board of PIP,
providing additional expertise in private equity investment,
corporate finance, marketing and audit.
Commenting on the half year,
John Singer CBE, Chair
of PIP, said: "The past six months
have clearly been an extremely busy period for PIP, which included
a substantial share buyback programme of up to £200m, involving a
tender offer, and a reworking of our capital structure. These
activities are enabling us to fulfil our purpose, which remains to
deliver excellent risk-adjusted long-term capital appreciation to a
growing shareholder base of institutions and individuals, through
easier access to diversified and well selected private companies,
while offering the daily liquidity of a quoted stock. We will
continue our dialogue with a wide group of shareholders and ensure
that we put their interests first."
Commenting on PIP, Jie Gong, Partner at Pantheon and Co-lead
Manager of PIP, said: "PIP has been designed to provide an
"all weather", high quality portfolio that can withstand
macroeconomic volatility and market cycles. The majority of PIP's
portfolio is invested in buyouts of profitable and differentiated
businesses, with technology and healthcare companies making up a
considerable slice of PIP's exposure. Our preference is to "lean
in" to the dynamic parts of the economy, while avoiding cyclical
businesses, and this underpins our strategy in generating stable,
attractive risk-adjusted returns over the long term."
Commenting on the private equity
market, Helen Steers, Partner at
Pantheon and Co-lead Manager of PIP, said: "Market
dislocation offers good opportunities for those investors that have
the capital and the expertise to take advantage of them, and we
have seen new deal activity starting to tick up towards the end of
2023. We believe that Pantheon's reputation as an established and a
reliable partner through market cycles will continue to serve us
well for securing high quality deal flow from private equity
managers on behalf of PIP."
A video of John Singer CBE
discussing corporate activity during the half year and a video of
the team at Pantheon discussing PIP's half-year results are
available on PIP's website at www.piplc.com.
LEI: 2138001B3CE5S5PEE928
For more information please
contact:
Pantheon
Helen Steers / Vicki
Bradley
|
+44 (0)20 3356 1800
|
|
pip.ir@pantheon.com
|
|
|
Jie Gong
|
+65 6027 1060
|
|
|
Investec Bank plc
Joint Corporate
Broker Tom Skinner (Corporate Broking)
Lucy Lewis (Corporate Finance)
|
+44 (0)20 7597 4000
|
J.P.
Morgan Cazenove
Joint Corporate Broker
William Simmonds (Corporate Finance)
|
+44 (0)203 493 8000
|
Montfort Communications Gay
Collins / Pippa Bailey / Isabel
Garnon
|
+44 (0)7738 912267
PIP@montfort.london
|
Follow PIP on LinkedIn:
https://www.linkedin.com/company/pantheon-international-plc
Important
Information
A
copy of this announcement will be available on the Company's
website at www.piplc.com
Neither the
content of the Company's website, nor the content on any website
accessible from hyperlinks on its website for any other website, is
incorporated into, or forms part of, this announcement nor, unless
previously published by means of a recognised information service,
should any such content be relied upon in reaching a decision as to
whether or not to acquire, continue to hold, or dispose of,
securities in the Company.
CHAIR'S STATEMENT
Authenticity, relevance for Shareholders and
differentiation
Key
Statistics
|
|
+3.1%
|
NAV per share growth in the half
year
|
+12.0%
|
Average annual NAV per share growth
since inception
|
+3.8%
|
NAV accretion from share
buybacks
|
+8.1%
|
Share price change in the half
year
|
+10.8%
|
Average annual share price growth
since inception
|
£157m
|
Shares repurchased during the half
year
|
Corporate activity
- Initiation
of three-stage process, following consultation with
shareholders.
- Launch of
up to £200m share buyback programme in FY24 to invest in our own
portfolio at an attractive discount.
- Optimised
PIP's capital structure to support long-term investment
strategy.
CHAIR'S STATEMENT
The past six months have clearly
been an extremely busy period for PIP. I would like to thank my
fellow Board members and the PIP management team for the energy and
teamwork which have ensured the success of various
initiatives.
Even more importantly, I would like
to express my gratitude to you, our shareholders, an increasing
number with whom I have established an ongoing dialogue, who have
given us constructive suggestions, feedback and encouragement as we
have continued our journey during this period.
After working in recent years with
our Manager on reshaping our investment strategy - the increase in
direct company investments to 54% of PIP's NAV being one example -
this year's work on the portfolio and related capital allocation
was accompanied by a heavy programme of activity to implement our
PIP corporate strategy, as I set out in last year's Annual Report.
The first phase of this corporate strategy included a substantial
share buyback programme of up to £200m, involving a tender offer,
and a reworking of our capital structure. These activities have
emphatically not been carried out for their own sake, but rather to
enable us to fulfil our purpose, which remains to deliver excellent
risk-adjusted long-term capital appreciation to a growing
shareholder base of institutions and individuals, through easier
access to diversified and well selected private companies, while
offering the daily liquidity of a quoted stock. Let me address what
we did, but also what our objectives were, and the eventual
outcomes.
Increase in our direct company investments to
54%
of PIP's
NAV
|
Our
Three-Step Corporate Programme
As discussed in my Chair's Statement
in August 2023, after personal meetings with many shareholders, and
working with the Board and the Team, we announced this three-step
process of corporate activity, with the first step being a buyback
programme for up to £200m for the financial year ending 31 May
2024. As I explained at the time, buybacks are not the universal
panacea to reduce discounts between NAV and share price in stock
markets. However large, used as a one-off event, they tend to
disappoint as a long-term solution to this issue. Thus, we
conceived of this programme to meet multiple objectives. Primarily,
this was a way of allocating a portion of capital to an existing,
high-quality portfolio that we know extremely well, and where we
benefit both from value creation on the purchase, given the
discount, and from the eventual future NAV uplifts which we
regularly experience. Warren Buffett has stated his belief that not
doing this would amount to "economic illiteracy"! Secondly, we
wanted to send a signal to the market of our deeply held conviction
in the value of PIP's investment portfolio. Thirdly, by
incorporating a tender offer into this process, we were able to
offer those shareholders who wanted to obtain liquidity for all or
part of their shareholding the opportunity to do so through an
egalitarian process open to all. Finally, according to data
provided by Peel Hunt, buyback activity does reduce discount
volatility, which is a deterrent to certain potential investors in
our sector.
1
Step One
As an update, since August last
year, PIP has bought back 56,760,264 shares for a total amount of
£172.4m1, at an average price of 303.7 pence per share,
representing an average 36% discount to NAV. The most important
element was a £150m reverse tender offer completed on 19 October
2023, at which time PIP purchased 49.2m shares at a strike price of
305.0p per share, representing a weighted average discount of 35%
to the then prevailing NAV per share. Given the overall buyback
budget of up to £200m, PIP has £27.6m left for buybacks for the
remainder of this financial year. In carrying out these
transactions, we feel satisfied that the multiple objectives set
out above were met, and it was particularly gratifying to receive
such an outpouring of positive feedback from you, our shareholders,
when the tender was announced on 25 September 2023.
2
Step Two
As I said in last year's Annual
Report, a one-off large buyback is insufficient to meet our
objectives. Our next step will set out a clear continuing buyback
mechanism to be implemented over the next financial year, beginning
June 2024. This is an extension to our capital allocation policy of
dedicating a proportion of the Company's net portfolio cash flow to
share buybacks. As a transparent Board, we will share details of
this policy with you nearer to the time of implementation, as I
have consistently stated since setting out our strategy.
3
Step Three
To achieve our long-term ambitions
for narrowing the discount further, we have been working on ideas
to stimulate further demand for our shares at a price that more
accurately reflects the NAV per share. It would be very easy to
excuse inactivity on this front by blaming everything on cyclical
causes resulting from the ebb and flow seen through different
market environments - such as cycles in global M&A volumes, or
periods of indigestion such as we saw following the record-breaking
year of new investment trust launches in 2021, followed by the
rapid rise of interest rates and worsening macroeconomic conditions
in 2022. Our sector was disproportionately penalised during that
latter "risk-off" environment.
Financial year
|
Discount
|
May 2019
|
20%
|
May 2020
|
28%
|
May 2021
|
21%
|
May 2022
|
35%
|
May 2023
|
41%
|
Nov 2023
|
38%
|
But as promised, we have been taking
various initiatives during this period to understand how we might
deal with the non-cyclical causes.
- On the marketing side we have
continued work on segmentation of the global market, and, through
our Marketing Sub-Committee, have set up the process for choosing
our marketing agency partner to carry this work
forwards.
- Our due diligence work on the
marketing side has uncovered various "distrust factors" surrounding
the Listed Private Equity sector which appear to be holding back
demand for our sector's excellent products, which should form a
long-term holding of every portfolio. Several issues are listed
below. Clearly many need to be solved through joint actions and
communications by the private equity sector as a whole. Indeed much
of the feedback from shareholders after the tender suggested
working with other members of the sector to explore joint
solutions. If concerted action were to be agreed upon, it would
need to be on the basis of each contributing to meet the needs of
this sector's existing and potential shareholders in ways
appropriate to that Trust. We intend to work with our peers in the
sector to try and help educate and to dispel some of the myths
surrounding Private Equity.
- There can be no doubt that the
closed-end fund sector, particularly trusts that invest in
alternatives with necessarily higher costs and therefore fees, has
been severely held back in the UK by the lack of a level playing
field regarding the disclosure of those costs. Helen Steers,
our Co-Lead Manager, has been working closely for some time with a
large group of interested parties across the closed-end fund
industry who do seem, at last, to be making their voices heard
within government and elsewhere. We must be optimistic and keep our
fingers crossed that the regulations evolve such that we disclose
costs, rather than double count.
Creating a more flexible capital structure
Other important corporate actions
during the last six months involved PIP's refinancing of its
revolving credit facilities, and a landmark private placement of
long-dated loan notes. These actions were planned in the first half
of 2023 as a sequence, and the execution work took place in the
second half with the closing of the private placement in January
2024. These moves were made to further increase PIP's flexibility
and balance sheet strength as a holistic part of our overall
journey, not in order to increase our overall leverage, which has
not changed as a result of the refinancing and the subsequent
private placement. PIP's net debt (excluding the ALN) to NAV ratio
as at 31 January 2024 of 5.5% is conservative as an absolute figure
given the robustness of NAV, and broadly in line with peers. Our
strategic thinking as we worked on our refinancing plans was as
follows:
- While needing to replace Credit
Suisse, a major lender in the previous credit facility, the
refinancing and private placement have increased the number of
credit counterparties from three to 10 within two separate highly
liquid markets. As a consequence, PIP is now much better placed to
replace any particular credit counterparty that faces a similar
situation to Credit Suisse in the future.
- The refinancing and private
placement reflect our Board's intention to use PIP's balance sheet
in a more considered manner than in the past. Our conservative
approach resulted in excessive cash balances which caused cash drag
for PIP, with a meaningfully negative effect on NAV performance. As
a Board, we spend a lot of time considering the balance between
capital efficiency, return enhancement and balance sheet prudence.
I will elaborate further on the calibration of our balance sheet
strategy as we discuss the new discount-based buyback mechanism in
the months ahead.
- In putting together the new
financing package, we have not speculated on the trajectory of
interest rates nor attempted to "time the market". Having said
that, there was considerable work conducted on interest rate
scenario analysis before the decision was made. Based on today's
3-month US interest forward rate, the all-in revolving credit
facility rate would become 6.5% in the second half of 2025 and
beyond, based on the projected floating base rate and assuming the
same interest spread as today, which is very close to the blended
coupon achieved on the privately placed loan notes.
We
are maintaining the figure of
3.9x
financing cover of undrawn commitments
|
Bearing in mind all these
considerations, in October 2023 PIP signed an agreement with
lenders for a new £500m equivalent multi-tranche, multi-currency
revolving credit facility, which replaced the existing £500m
equivalent credit facility, and removed Credit Suisse as a lender.
In addition to the Credit Suisse exposure de-risking, the
refinancing secured a more flexible and diverse capital
structure, strengthening the balance sheet. The facility has
an uncommitted accordion option, and it has a covenant package
which is more favourable than before. Despite the significant
change in the interest rate environment, the blended margin of the
revolving credit facility is only modestly higher than the prior
credit facility, having increased by 46 basis points.
On 12 January 2024, PIP completed a
private placement of $150m (£118m equivalent) of loan notes
structured over maturities of five, seven and 10 years, with a
6.9-year weighted average maturity. The loan notes were three times
oversubscribed and purchased by five sophisticated North American
institutional investors with considerable in-house knowledge of the
private equity asset class, as they also invest in private equity
funds from their balance sheets. These loan notes have a blended
coupon rate of 6.49%, whereas the revolving credit facility has an
all-in rate2 of 7.56% for the one-year tranche and 8.26%
for the three-year tranche. The privately placed loan notes repaid
the revolving credit facility drawings by the equivalent amount,
and hence there is no change in PIP's overall leverage after the
private placement.
We believe we have met the
objectives we set ourselves, with the debt replacement being done
not only at a lower cost, but also over longer, staggered
maturities which reduce repayment risk. It should be reassuring for
us all that this capital structure gives access to two separate
liquidity markets with relatively small correlation to each other:
global banks located in the UK & Europe, and insurer and
pension investors in North America. Given the significant
volatility of the banking market over the past 18 months, it is
reassuring to know that we now have the benefit of being able to
access the private placement market in the future, taking advantage
of whichever market is offering the most attractive terms, if and
when liquidity is required.
PIP's share price and NAV performance over the last six
months
The beginning of 2023 was the near
nadir of market sentiment towards investment trusts, and in
particular private equity investment trusts. It is hard to imagine
that, only one year earlier, the investment trust sector overall
celebrated a record-breaking year of annual new issuances - twice
that of the preceding five-year average.
Against this backdrop, I am
particularly pleased to report that PIP's share price increased by
8.1% during the six months being reported on, and for the calendar
year 2023 it was up by 20%. The discount on PIP's ordinary shares
decreased from 41% as at 31 May 2023 to 38% as at 30 November 2023.
Although it is encouraging to see the discount closing, these are
still early days regarding the three-step corporate programme
outlined earlier, and the discount is still too wide at 34% at the
time of writing. While it is impossible to find objective data to
explain this share price increase, I would like to think that it is
a healthy mix of consistency in performance; our strategic
corporate activity; and the suitability of PIP's risk profile for
all macroeconomic climates.
Turning to NAV and portfolio
performance, against a background of still considerable market
volatility, the highlights can be summarised as follows. During the
six months to 30 November 2023, PIP's NAV per share grew by 3.1%.
Over 70% of PIP's portfolio is invested in buyouts, and they
generated positive returns during the period, along with the growth
and special situations segments. The small-to-mid buyout segment,
which represents nearly half of our portfolio, showed a NAV growth
of 1% for this six-month period ended 30 November 2023, compared
with 10% for the prior six months ended 31 May 2023. The
venture portion of PIP's portfolio was the only negative
growth strategy during the six months ended November 2023, but it
accounts for only 3% of PIP's exposure. Overall, the valuation
gains in the portfolio were 1.4%, on top of which share buybacks
added 3.8% to the NAV. Just over three-quarters of PIP's portfolio
is USD denominated, and therefore adverse currency movements, due
to the strengthening of sterling against the dollar, offset the
valuation gains. However, in our experience, currency movements
tend to balance out over the long term. PIP's impressive long-term
track record has remained intact with its NAV outperforming the
public market benchmarks over the last three, five and ten years,
and since the company's inception in 1987.
NAV
per share progression4
May
2023
|
Valuation gains3
|
Investment income3
|
FX
impact3
|
Share buybacks
|
Expenses and taxes4,5
|
November 2023
|
462.4p
|
6.4p
|
1.8p
|
(7.5p)
|
17.5p
|
(4.1p)
|
476.5p
|
|
+1.4p
|
+0.4%
|
(1.6%)
|
+3.8%
|
(0.9%)
|
+3.1%
|
1
As of 21 February 2024.
2 Based on SOFR of 5.31% as at
15 February 2024
3 PIP's valuation policy for
private equity funds is based on the latest valuations reported by
the managers of the funds in which PIP has holdings. In the case of
PIP's valuation as at 30 November 2023, 89% of reported valuations
are dated 30 September 2023 or later.
4 Figures are stated net of
movements associated with the ALN share of the reference
portfolio.
5 Taxes relate to withholding
taxes on investment distributions.
This last point highlights our
emphasis on long-term outperformance through the cycle. Our NAV
performance is the accumulation of value in investments made over
many vintage years, of which 2023 investments comprised only a
small percentage. And these new investments would inevitably be
held at cost during 2023 and would have no impact on NAV movement
one way or the other. I therefore felt it would be helpful for
shareholders to look at specific variables that are relevant for
long-term performance and see how they performed during this
six-month period.
- Valuations. While many public market
investors were expecting a large drop in private equity valuations
during 2023, translating into a sharp dip in Listed Private Equity
NAV performance, this has not happened. While PIP's NAV growth for
the reported six-month period appears somewhat muted at 3.1%, the
figures show the inherent conservatism of our managers and reflect
the fact that they did not write companies up to the levels being
indicated by booming public market comparables in 2021. Therefore
while public market comparables sank in 2022 and 2023, our managers
did not have to make significant write-downs, given also the very
healthy growth in EBITDA which forms an important part of those
valuations. And the 17% average uplift on exit value in a difficult
six-month period ended November 2023 gives confidence - especially
as these 30 September valuations do not allow for the Q4 rally in
public stocks.
-
EBITDA growth. The 19% growth in
annualised EBITDA of our underlying investments over the past five
financial years, and 18% revenue growth during that same period,
indicate the maintenance of growth and margins in the portfolio
that support those valuations which we are reporting to you. This
level of EBITDA growth means that valuations can be maintained even
if the multiples used in those valuations are being lowered to
reflect this point in the cycle.
- Direct investments. These continue to
constitute the majority of our NAV, giving further comfort around
the valuations because of the closer relationship that we have with
these companies.
- PIP low-risk characteristics. We are
keen to maintain the low-risk profile embedded in our portfolio,
strategy and capital structure. For investments made over the past
ten years, our loss ratio5 (including not just absolute
losses incurred upon realisation of investments, but also the gap
between unrealised values and cost for those positions marked below
cost, which may be reversable) is still only 2.4%. A second good
sign is that we are maintaining the figure of 3.9x financing cover
of undrawn commitments, as defined previously. This provides great
reassurance for us and our shareholders at a time when
distributions of £111.5m represent a historic low of 9% of the
portfolio value, and the call rate is at 19%.
2.5x
|
17%
|
19%
|
Extremely low 2.4%
|
average multiple upon exit
realisation in the six months ended November 2023, and
|
average uplift on exit value in the
six months ended November 2023, and
|
annualised EBITDA growth6
over the past five financial years
|
loss ratio5 over 10
years…without having sacrificed healthy long-term NAV
growth
|
3.0x
|
30%
|
18%
|
|
long-term average since
2012
|
long term average since
2012
|
annualised revenue
growth6 over the past five financial years
|
5 Loss ratio is calculated by
the sum of (1) the loss made in the realised investments which have
exited below cost and (2) the difference between the unrealised
value and the cost on the unrealised investments which are held at
below the cost, divided by the aggregate investment costs of all
investments.
6 Source: Bloomberg. Five-year
annualised figures are derived from underlying annual performance
growth data.
These six months of portfolio
management and corporate activity have created one of the busiest
periods in memory for the PIP Board and management team - often
involving three formal meetings a week as a result of the
compressed time schedules. I am so lucky to be surrounded by such
an experienced, enthusiastic and willing group of colleagues who
have worked seamlessly - together with other members of the broader
Pantheon Group team- to deliver these results for our shareholders,
whilst strictly respecting governance "red lines". It was therefore
very gratifying to hear, first, the strong positive feedback from
shareholders regarding the tender offer, but also to receive the
Investment Trust Board of the Year award from Citywire in October -
not for the corporate actions per se, but rather for the
independence we have shown as a Board, and for listening to, and
then acting on, our shareholders' wishes - always putting our
shareholders' interests first.
The Board's and the Manager's
interests continue to be closely aligned with PIP's shareholders,
as the Board Directors collectively own 3.7m shares in the Company,
valued at the time of writing at £11.9m, while 18 Partners of
Pantheon collectively held a further 1.8m shares as at 31 December,
2023, which were valued at £5.7m at the time of writing. And,
finally, on the topic of the Board, I am delighted to report that
the two new Directors whom I mentioned in my last report, Zoe
Clements and Rahul Welde, were elected to our Board at the AGM last
October, and are actively bringing their experience and skills (an
essential element of the diversity I promised) to our Board and
Committees. We continue to monitor needs for Director recruitment
at and between Nominations Committee meetings.
Outlook
The private equity investment trust
sector is highly valued by investors I have spoken to for its
ability to provide long term capital gains and its highly
democratising characteristics, yet challenges remain. Cyclical
pressures, which created 40-50% discounts to NAV in the market,
will reverse, helping to reduce those discounts. But to achieve the
discount (or premium) levels the sector deserves and dreams of
requires a rerating to stimulate new demand, as described in step
three above. That in turn requires work by private equity General
Partners ("GPs") and investment trusts together to provide clear
and simple explanations of what we do and how we do it to the other
two players in our chain - namely wealth managers and investors in
general.
My conversations with the latter
have exposed constant misunderstandings, mistrust and recurring
questions. Here are just a few examples of the questions, and I
hope in future communications to be able to expand on
these:
Q.
Isn't investing in public markets and private equity similar enough
to expect common methodologies and outcomes on areas covering
valuations, fees etc.
A. Actually, in my view they
are highly dissimilar. Public markets link capital with companies
(which in turn have their own relatively protected management
teams) in a two-partner relationship where "active vs passive"
normally refers purely to the selection process between investor
and company. In private equity, the creation of a triangle by
adding a value-adding partner to the other two components (such as
general partners, investment trusts, operating and specialist
partners) means that capital passes to companies via those partners
who always work actively with a portfolio company and its
incentivised and hard-driven management team to achieve a specific
strategic and business plan in a defined period to create value for
shareholders. The track record of alpha generation, operating
expertise, skills and resources, as well as the investment
strategy, are therefore vital criteria for an investor to help
choose their value-adding partner who then takes responsibility for
the creation of gains in those companies. Here we use attribution
calculations, key person analysis and other methods for assessing
the likelihood of continuing alpha-generation by those partners'
firms.
Given this very different business
model, valuations of portfolio companies can be undertaken by the
value-adding GP directly based on their assessments of each
company's business plan - including the impact of macroeconomic and
microeconomic factors that may impair or enhance the anticipated
value and market multiples used for calculating those valuations.
Business and strategic plans are changed actively by the
value-adding partner to enhance or transform the business. But this
is very different to the rationale for sector valuation sentiment
of public markets. And this is why many investors and commentators
are mystified by the strong evidence of continuing healthy uplifts
to final valuations before company exits, which have been shown
over decades by private equity investment trusts like PIP. Costs,
in turn, will inevitably be higher because of the value-adding
team, but the upper two quartile GPs continue to produce returns
net of fees which significantly beat global indices of other
assets, and therefore show a very positive return on those
additional costs.
Q.
Aren't private equity managers greedy, putting their own interests
first?
A. Undoubtedly there will
always be self-interested operators in the world, but we need to
explain the power of alignment of interest not only between private
equity managers and portfolio company management teams, but also
between the former and their investors which uniquely empowers the
outperformance of this asset class. Private equity managers'
compensation is not determined by a performance fee that is related
to unrealised value. Instead, their ongoing management fees are a
function of the invested cost of investments, and their carried
interest (performance fee) is earned only after the portfolio
companies are exited from the fund. Their interests are aligned
with ours, and therefore with yours.
Q.
Isn't the era of cheap leverage and good private equity returns is
over?
A. Long-term sustainable
capital gains have never been made by private equity managers who
rely predominately on leverage or multiple arbitrage for their
portfolio capital gains. Neither one of these drivers is under
their control. The only driver which is under their control is
EBITDA growth - which explains PIP's focus on EBITDA growth
in our portfolio companies and why I emphasise the 18% EBITDA
growth in the past six months which our PIP portfolio showed in
what would be considered a tough year for growth. This EBITDA
growth element is particularly important in small to medium-sized
businesses which provide the growth element for a very large part
of the private equity market - including our own. The alpha-focused
creators of value will continue to show market-beating
returns.
18% EBITDA growth in the last six
months…in what would be considered a tough year for
growth
|
Q.
Isn't private equity too risky - even taking higher returns into
consideration?
A. As an example within our
sector, PIP's risk containment ethos in the construction and
selection of assets means we can show an extremely low 2.4% loss
rate over ten years without having sacrificed healthy long-term NAV
growth.
These represent just a sample of the
information-sharing work ahead, but let us turn finally to PIP
itself, and its anticipated future.
An advantage of my, and my
colleagues', personal maturing process is that we have lived
through several cycles, and know well those moments of darkness and
gloom before dawn returns. Because of the fast-changing external
environment we have been facing, sadly one is never in a position
to say anything sensible about timing. However, the data that I
have seen recently suggests that rays of sunshine are on their way.
For deals involving debt, the cost and availability of this is
improving as spreads are compressing, and there is markedly
increased single-lender capability compared with the several
lenders needed until recently in order to get a deal done. More
generally, the large pricing gaps are narrowing as pressure to buy
and sell at a GP level is increasing. Despite all the continuing
macroeconomic and geopolitical challenges, the business model for
growth in portfolio companies of all sizes has very frequently
involved add-on acquisitions of other companies, and this has
driven activity in PIP's underlying investments as well.
However, to explain my confidence in
PIP's future (and my own PIP shareholding!) I return to my opening
words regarding authenticity, relevance and
differentiation.
Regarding authenticity, staying true
to one's values and culture, even if the exit environment stays
sticky - and according to Pitchbook.com, in 2023, average PE
holding periods in the USA recently breached 6.4 years - our heavy
focus on active value-added investments and continuing EBITDA
growth puts us in a very good position. Another example is GP-led
secondaries where pressure is rising to provide liquidity for some
investors while allowing GPs to continue building companies. We
continue to be invited to participate in these deals both because
of our close relationships with those GPs as partners, and our
investment team's capability to work within a deal's tight
timeframe.
Regarding relevance, we aim to be
relevant at all points of the cycle, but especially in a world of
macroeconomic and microeconomic turbulence where EBITDA growth
needs to be sustained through well-stewarded companies to produce
the long-term gains with carefully measured risk which PIP can
offer.
And differentiation through the
capital allocation and corporate actions described above, which are
carefully designed to produce consistent above-market returns
within a low-risk investing framework - is guided by extensive,
hands-on private equity experience at Board level (which the
majority of our Directors possess), and our Manager Pantheon as
well. I believe that this private equity experience will be
required more and more, in addition to governance skills, in an
increasingly complex private equity world. With our values and
culture, our strength in these areas, and the continued support of
our shareholders (for which my Board and I would like to thank you
warmly once again), we remain confident that these will continue to
guide the journey forward in the service of shareholders'
interests.
PIP's Strategic Report has been
approved by the Board and should be read in its entirety by
shareholders.
JOHN SINGER CBE
Chair
21 February 2024
Annualised performance as at 30 NOVEMBER
2023
|
1 yr
|
3 yrs
|
5 yrs
|
10 yrs
|
Since
inception*
|
NAV per share
|
1.5%
|
14.9%
|
12.2%
|
13.8%
|
12.0%
|
Ordinary share price
|
8.7%
|
8.2%
|
7.5%
|
11.1%
|
10.8%
|
FTSE All-Share
|
1.8%
|
8.4%
|
4.9%
|
5.1%
|
7.3%
|
MSCI World, Total Return
(Sterling)
|
6.8%
|
9.5%
|
10.7%
|
11.7%
|
8.3%
|
NAV
per share vs. public market performance
|
1 yr
|
3 yrs
|
5 yrs
|
10 yrs
|
Since
inception*
|
Versus FTSE All-Share, Total
Return
|
-0.3%
|
6.5%
|
7.3%
|
8.7%
|
4.7%
|
Versus MSCI World, Total Return
(Sterling)
|
-5.3%
|
5.4%
|
1.5%
|
2.1%
|
3.7%
|
Share price relative performance
|
1 yr
|
3 yrs
|
5 yrs
|
10 yrs
|
Since
inception*
|
Versus FTSE All-Share, Total
Return
|
6.9%
|
-0.2%
|
2.6%
|
6.0%
|
3.5%
|
Versus MSCI World, Total Return
(Sterling)
|
1.9%
|
-1.3%
|
-3.2%
|
-0.6%
|
2.5%
|
*
Inception in September 1987.
Key
Performance Indicators
|
What this is
|
How
PIP has performed
|
Link to our strategic objectives
|
Examples of related factors that we monitor
|
Performance
|
Five-year cumulative total
shareholder return
43.4%
|
Total shareholder return constitutes
the return to investors, after taking into account share price
movements (capital growth) and, if applicable, any dividends paid
during the period.
The Board's strategy is to deliver
returns for shareholders through the growth in NAV and not through
the payment of dividends.
|
30 Nov 2021
89.1%
30 Nov 2022
44.7%
30 Nov 2023
43.4%
|
• PIP's ordinary shares had a
closing price of 294.0p at the half year end (31 May 2023: 272.0p).
This was an 8% increase compared with the prior financial year end.
PIP share price increased by 20%
between 1 January 2023 and 31
December 2023.
• Narrowing of share price discount
following
significant progress in implementing
PIP's financial year 2024 share buyback programme of up to
£200m.
• Share price discounts to NAV have
remained wide in the listed private equity sector. Despite the
improvement in PIP's share price during the period, the discount on
PIP's shares was 38% as at the half year end (31 May 2023: 41%).
The median discount for listed private equity peers1 as
at the same date was 39% (May 2023: 39%).
|
• Maximise shareholder returns
through long-term capital growth.
• Promote better market liquidity
and narrow the discount by building demand for the Company's
shares.
|
• Rate of NAV growth relative to
listed markets.
• Trading volumes for the Company's
shares.
• Share price discount to
NAV.
|
NAV per share growth2
during the six-month period
3.1%
|
NAV per share reflects the
attributable value of a shareholder's holding in PIP. The provision
of consistent long-term NAV per share growth is central to our
strategy.
NAV per share growth in any period
is shown net of foreign exchange movements and all costs associated
with running the Company.
The NAV is robustly calculated and
the balance sheet is audited by PIP's auditors.
|
6M to Nov 2021
22.1%
6M to Nov 2022
4.0%
6M to Nov 2023
3.1%
|
• NAV per share increased by 14.1p
during the period to 476.5p (31 May 2023: 462.4p). This was an
increase of 3.1% compared to the prior financial year
end.
• Uplifts from share buybacks
contributed +3.8% to NAV per share growth during the
period.
• PIP's NAV per share outperformed
the MSCI World by 1.6% over the interim period.
|
• Investing in high performing
private companies alongside and through top-tier private equity
managers globally, to maximise long-term capital growth.
• Containing costs and risks by
constructing a well-diversified portfolio in a cost-efficient
manner.
|
• Valuations provided by the
underlying private equity managers.
• Fluctuations in currency exchange
rates.
• Tax efficiency of
investments.
• Effect of financing (cash drag) on
performance.
• Ongoing charges relative to NAV
growth and listed private equity peer group.
|
Portfolio investment
return2 during the six-month period
1.5%
|
Portfolio investment return measures
the total movement in the valuation of the underlying companies and
funds comprising PIP's portfolio, expressed as a percentage of the
opening portfolio value, before taking foreign exchange effects and
other expenses into account.
|
6M to Nov 2021
19.7%
6M to Nov 2022
0.9%
6M to Nov 2023
1.5%
|
• Modest increase in underlying
portfolio valuation against a backdrop of market
volatility.
.
• PIP's portfolio is actively
managed and focuses on resilient, high-growth sectors.
|
• Maximise shareholder returns
through long-term capital growth.
|
• Performance relative to listed
markets and private equity peer group.
• Valuations provided by private
equity managers.
|
Liquidity
|
Net portfolio cash flow2
during the six-month period
£30m
|
Net portfolio cash flow is equal to
distributions less capital calls to finance investments, and
reflects the Company's capacity to finance calls from existing
investment commitments.
PIP manages its maturity profile
through a mix of primaries, secondaries and co-investments to
ensure that its portfolio remains cash generative at the same time
as maximising the potential for growth.
|
6M to Nov 2021
£121m
6M to Nov 2022
£34m
6M to Nov 2023
£30m
|
• PIP's portfolio generated £112m
(six months to 30 November 2022: £112m) of distributions versus
£82m of calls (six-month period to 30 November 2022:
£78m).
• In addition, the Company made new
commitments of £15m (six months to 30 November 2022: £303m) during
the year, which was fully drawn at the time of purchase (30
November 2022: £183m).
• As at 30 November 2023, PIP's
portfolio had a weighted average age of 5.0 years3 (31
May 2023: 4.8 years).
|
• Maximise long-term capital growth
through
ongoing portfolio renewal while
controlling financing risk.
|
• Relationship between
outstanding
commitments and NAV.
• Portfolio maturity and
distribution rates by vintage.
• Commitment rate to new investment
opportunities.
|
Undrawn coverage
ratio4
88%
|
The undrawn coverage ratio is the
ratio of available financing and 10% of private equity assets to
undrawn commitments. The undrawn coverage ratio is an indicator of
the Company's ability to meet outstanding commitments, even in the
event of a market downturn.
|
30 Nov 2021
120%
30 Nov 2022
102%
30 Nov 2023
88%
|
• The current undrawn coverage ratio
reflects lower cash balances and modest usage of PIP's credit
facility.
• The optimisation of PIP's balance
sheet will enable the Company to further enhance its performance,
by allowing PIP to lean into attractive opportunities across market
cycles and by reducing cash drag.
• PIP's undrawn coverage ratio
remains healthy.
• The vintage diversification of
unfunded commitments helps PIP manage future capital
calls.
|
• Flexibility in portfolio
construction, allowing the Company to select a mix of manager-led
secondaries, co-investments, and primaries, and vary investment
pace, to achieve long-term capital growth.
|
• Relative weighting of primary,
secondary and co-investments in the portfolio.
• Level of undrawn commitments
relative to gross assets.
• Trend in distribution
rates.
• Ability to access debt markets on
favourable terms.
|
1 Peer group comprised: Abrdn
Private Equity Opportunities Trust, CT Private Equity Trust PLC,
HarbourVest Global Private Equity Ltd, ICG Enterprise Trust
PLC.
2 Excludes valuation gains
and/or cash flows associated with the ALN.
3 Excludes the portion of the
reference portfolio attributable to the ALN.
4 Outstanding commitments
relating to funds outside their investment period (>13 years
old) were excluded from the calculation as there is a low
likelihood of these being drawn.
INVESTMENT POLICY
Our
investment policy is to maximise capital growth with a carefully
managed risk profile.
The Company's policy is to make
unquoted investments. It does so by subscribing to investments in
new private equity funds ("primary investment"), buying secondary
interests in existing private equity funds ("secondary
investment"), and acquiring direct holdings in unquoted companies
("co-investments"), usually either where a vendor is seeking to
sell a combined portfolio of fund interests and direct holdings or
where there is a private equity manager, well known to the
Company's Manager, investing on substantially the same
terms.
The Company may, from time to time,
hold quoted investments as a consequence of such investments being
distributed to the Company from its fund investments as the result
of an investment in an unquoted company becoming quoted. In
addition, the Company may invest in private equity funds which are
quoted. The Company will not otherwise normally invest in quoted
securities, although it reserves the right to do so should this be
deemed to be in the interests of the Company.
The Company may invest in any type
of financial instrument, including equity and non-equity shares,
debt securities, subscription and conversion rights and options in
relation to such shares and securities, and interests in
partnerships and limited partnerships and other forms of collective
investment schemes. Investments in funds and companies may be made
either directly or indirectly, through one or more holding, special
purpose or investment vehicles in which one or more co-investors
may also have an interest.
The Company employs a policy of
over-commitment. This means that the Company may commit more than
its available uninvested assets to investments in private equity
funds on the basis that such commitments can be met from
anticipated future cash flows to the Company and through the use of
borrowings and capital raisings where necessary.
The Company's policy is to adopt a
global investment approach. The Company's strategy is to mitigate
investment risk through diversification of its underlying portfolio
by geography, sector and investment stage. Since the Company's
assets are invested globally on the basis, primarily, of the merits
of individual investment opportunities, the Company does not adopt
maximum or minimum exposures to specific geographic regions,
industry sectors or the investment stage of underlying
investments.
In addition, the Company adopts the
following limitations for the purpose of diversifying investment
risk:
- No holding in a company will
represent more than 15% by value of the Company's investments at
the time of investment (in accordance with the requirement for
approval as an investment trust which applied to the Company in
relation to its accounting periods ended on and before 30 June
2012).
- The aggregate of all the amounts
invested by the Company (including commitments to or in respect of)
in funds managed by a single management group may not, in
consequence of any such investment being made, form more than 20%
of the aggregate of the most recently determined gross asset value
of the Company and the Company's aggregate outstanding commitments
in respect of investments at the time such investment is
made.
- The Company will invest no more
than 15% of its total assets in other UK-listed closed-ended
investment funds (including UK-listed investment
trusts).
The Company may invest in funds and
other vehicles established and managed or advised by Pantheon or
any Pantheon affiliate. In determining the diversification of its
portfolio and applying the Manager's diversification requirement
referred to above, the Company looks through vehicles established
and managed or advised by Pantheon or any Pantheon
affiliate.
The Company may enter into
derivatives transactions for the purposes of efficient portfolio
management and hedging (for example, hedging interest rate,
currency or market exposures).
Surplus cash of the Company may be
invested in fixed interest securities, bank deposits or other
similar securities.
The Company may borrow to make
investments and typically uses its borrowing facilities to manage
its cash flows flexibly, enabling the Company to make investments
as and when suitable opportunities arise, and to meet calls in
relation to existing investments without having to retain
significant cash balances for such purposes. Under the Company's
Articles of Association, the Company's borrowings may not at any
time exceed 100% of the Company's NAV. Typically, the Company does
not expect its gearing to exceed 30% of gross assets. However,
gearing may exceed this in the event that, for example, the
Company's future cash flows alter.
The Company may invest in private
equity funds, unquoted companies or special purpose or investment
holding vehicles which are geared by loan facilities that rank
ahead of the Company's investment. The Company does not adopt
restrictions on the extent to which it is exposed to gearing in
funds or companies in which it invests.
OPTIMISING PIP'S CAPITAL STRUCTURE
We
aim to build a sustainable, diverse and flexible capital structure
that can support PIP's long-term investment
strategy.
As part of this, during the period
PIP agreed a new £500m equivalent
multi-currency revolving credit facility ("credit facility")
provided by five relationship lenders, replacing the previous
credit facility and Credit Suisse as a lender. In addition,
following the period end, PIP secured a private placement of
US$150m of loan notes, structured over different
maturities.
As a result of these actions, PIP
has successfully diversified its financing counterparties, expanded
its sources of liquidity and reduced refinancing risk. New
investments and calls on undrawn commitments will be funded
primarily by distributions and, where appropriate, short-term
drawdowns from the credit facility.
Managing our financing cover
We regularly stress test PIP's
balance sheet against a range of scenarios and market conditions to
ensure that it is well positioned for the long term. We manage PIP
to ensure that it has sufficient liquidity to finance its undrawn
commitments, which represent capital committed to funds but yet to
be drawn by the private equity managers, as well as to take
advantage of new investment opportunities. A critical part of this
exercise is ensuring that the undrawn commitments do not become
excessive relative to PIP's private equity portfolio and available
financing. We achieve this by managing PIP's investment pacing as
well as constructing its portfolio to ensure the right balance of
exposure to primaries, manager-led secondaries and
co-investments.
As at 30 November 2023, PIP had net
available cash1 balances of £24m (31 May 2023:
£63m).
In addition to these cash
balances, PIP also has access to a £500m
equivalent credit facility, split as follows:
- Facility
A: £400m, expiring in October 2026 with an ongoing option to
extend, by agreement, the maturity date by 364 days at a time;
and
- Facility
B: £100m, expiring in October 2024.
Using exchange rates as at 30
November 2023, the credit facility amounted
to a sterling equivalent of £485m, of which £365m remained undrawn
as at the period end.
With £24m of net available cash and
an undrawn credit facility of £365m, PIP had £389m of available financing as at
30 November 2023 (31 May 2022: £554m) which, along with the value
of the private equity portfolio, provides comfortable cover of 3.9
times (31 May 2023: 3.7 times) relative to undrawn commitments for
funds within their investment periods.
Another important measure is the
undrawn coverage ratio, which is the ratio of available financing
and 10% of private equity assets to undrawn commitments. The
undrawn coverage ratio is a key indicator of the Company's ability
to meet outstanding commitments, even in the event of a market
downturn, and was 88% as at 30 November 2023 (31 May 2023:
98%)2.
Minimal gearing level
As at 30 November 2023, PIP had
£121m drawn down under the credit
facility and £29m remaining on the Asset Linked
Note. Taken in conjunction with PIP's net available cash, this
results in a conservative net debt3 to NAV ratio of
4.3%. The net debt to NAV ratio already reflects share buybacks
that the Company undertook in October 2023, using a combination of
operating cash flow and drawdowns from the credit facility.
Following the period end, PIP
announced that it had agreed a private placement of US$150m of loan
notes ("the loan notes") structured over different maturities of
five, seven and 10 years. The transaction provides PIP with access
to long-term funding at a blended US Dollar coupon of 6.49%, which
is cheaper than the all-in interest cost currently payable on the
revolving credit facility. The loan notes were three times
oversubscribed at this pricing point and purchased by five
high-quality North American institutional investors.
The proceeds of this issuance will
be used to repay the existing drawings on the credit facility,
resulting in additional liquidity capacity. As at 31 January 2024
and following the issuance of the loan notes, PIP's net
debt3 to NAV was 5.5%.
Undrawn commitments by vintage4
PIP's undrawn commitments were £761m
as at 30 November 2023 (31 May 2023: £857m). Of the £761m undrawn
commitments as at the period end, £45m relate to funds that are
more than 13 years old and therefore, outside their investment
periods. Generally, when a fund is past its investment period, it
cannot make any new investments and only draws capital to fund
follow-on investments or to pay expenses. As a result, the rate of
capital calls by these funds tends to slow dramatically.
2023
|
18%
|
2022
|
33%
|
2021
|
18%
|
2020
|
3%
|
2019
|
6%
|
2018
|
4%
|
2017
|
3%
|
2014 - 2016
|
6%
|
2010 - 2013
|
3%
|
2009 and earlier
|
6%
|
1 The available cash and loan
figure excludes the current portion payable under the Asset Linked
Note, which amounted to £1.3m as at 30 November
2023.
2 Excludes outstanding
commitments relating to funds outside their investment period
(>13 years old), amounting to £45.1m as at 30 November 2023 (31
May 2023: £48.2m).
3 Net debt calculated as
borrowings (excluding the outstanding balance of the Asset Linked
Note) less net available cash. The ALN is not considered in the
calculation of gross borrowings or the loan-to-value ratio, as
defined in PIP's credit facility and note agreements. If the ALN is
included, net debt to NAV was 5.5% as at 30 November 2023, and 6.7%
as at 31 January 2024.
4 Includes undrawn commitments
attributable to the reference portfolio related to the
ALN.
MANAGER'S REVIEW
OUR
MARKET
Resilience and strength
Helen Steers and Jie Gong, Partners at Pantheon and Co-lead
managers of PIP, reflect on how the private equity industry and PIP
are positioned in the current macroeconomic environment and what
they believe lies ahead.
Looking back over the past two years, what have been your
biggest takeaways?
The volatility in public markets
over the past 24 months has been particularly striking, reflecting
major geopolitical and macroeconomic events and investor
uncertainty. In 2022, the year started off relatively benignly but
ended in a very different place as a result of the onset of the
Russia-Ukraine war, the energy crisis, the unwinding of
quantitative easing, high inflation in developed economies and the
ensuing succession of interest rate hikes.
In 2023, we saw the pendulum start
to swing back, with the impact of higher interest rates and lower
energy prices helping inflation to recede, enabling central banks
to pause rate rises, and leading to predictions of a "soft
landing". Markets began to factor in rate cuts, and most major
share indices recorded double digit gains for the year, helped by a
strong, albeit lopsided rally in November and December. The
so-called "Magnificent Seven" (Apple, Microsoft, Alphabet, Amazon,
Tesla, Nvidia and Meta) share prices grew by an average of 111% in
2023, compared with 8% for the other constituents of the S&P
500 index. As we entered 2024, investors worried about whether the
US Federal Reserve and other central banks could keep rates high
enough to slow the economy and continue to reduce inflation,
without causing a recession, and whether the recovery in public
markets would widen further.
In private markets, the last two
years have been marked by the end of decades-long low interest
rates, resulting in rising deal financing costs, and a slowdown in
Mergers & Acquisitions (M&A) activity, reduced deal-making
and slow fundraising. However, the cooling of the market should be
put in context. Deal flow may be much lower compared with the
exceptionally high levels of activity registered in 2021, but it is
in line with pre-pandemic levels. In 2022 and 2023 we have seen the
best managers continue to execute new transactions, build value in
portfolio companies, achieve exits at substantial uplifts, and
successfully fundraise. In fact, in this market cycle, change and
disruption can create opportunities for the best operationally
focused private equity investors, while others who have relied on
historically low interest rates to generate returns, may suffer
disproportionately.
Recent performance in private equity
has been impacted by rate hikes and lower valuation multiples,
although company earnings have held up better than many observers
might have expected. Despite short-term volatility, private equity
returns continue to be resilient over the long term, and outperform
public markets on a consistent basis. In more difficult economic
periods, dispersion of returns between private equity managers
increases, and those that focus on investing in companies that
offer opportunities for improving operating performance and
increasing growth differentiate themselves from the "financial
engineers". This highlights the importance of both manager
selection and deal selection, when the market becomes more
challenging and a bifurcation emerges between the top tier
operators and the rest.
How is PIP positioned in this environment?
Given the significant changes that
have taken place during the last two years, investors are looking
for stability, liquidity and predictability. PIP has been designed
to provide an "all weather", high-quality portfolio that can
withstand macroeconomic volatility and market cycles. The majority
of PIP's portfolio is invested in buyouts, which are mature,
well-established businesses. Profitable technology and healthcare
companies make up a considerable slice of PIP's exposure, therefore
growth has not been sacrificed for the sake of resilience and
stability. Our preference is to "lean in" to the dynamic parts of
the economy, while avoiding highly cyclical businesses, and this
underpins our focus on generating appropriate risk-adjusted returns
over the long term.
PIP's portfolio has performed well
over the past 18 months, which is a testament to the strength of
the underlying companies, that have been deliberately selected for
their resilience and cross-cyclical characteristics. Overall, the
levels of debt in our portfolio companies are appropriately managed
and much of it has been hedged. This is just one of the many
proactive risk management tools used by our private equity
managers.
Another important factor in the
resilience of the portfolio is that many of our companies are able
to pass their costs on to their customers efficiently because of
the differentiated must-have products and services that they offer.
For example, software-as-a-service (SaaS) providers have the
advantage that their clients cannot do without these essential
business tools, and price increases can be implemented immediately.
PIP's private equity managers are also doing a huge amount of work
to contain costs in their underlying companies, obtain better terms
from suppliers and drive through change. Notably, they are using
technology for a variety of purposes, such as improving
productivity and making efficiency gains, and for better risk
management. We can really see the effects of these actions shining
through in the continued EBITDA growth of PIP's underlying
companies. We are heartened by fact that the average EBITDA growth
of PIP's buyout portfolio in the last five years is a robust 19%,
despite the many external shocks we have witnessed in the last five
years including a global pandemic, an inflation shock, a rise in
interest rates to the highest level for two decades, and the
outbreak of conflicts in Europe and the Middle East.
Market dislocation offers good
opportunities for those investors that have the capital and the
expertise to take advantage of them, and we have seen new deal
activity starting to pick up towards the end of 2023. Whereas some
private equity managers might not have recognised the impetus for
change and value creation in their portfolios, we have seen, during
our many years of experience in the industry that, in more
difficult times such as these, the best private equity managers
perform even better than their less experienced peers, and tend to
achieve even greater outperformance over public markets than in
more settled times. This is because they have both the operational
expertise and the "muscle memory" to remember what happened before.
Although no crisis generally repeats itself, experienced investors
retain the learnings from those previous crises which they can
adapt and apply to their portfolios.
An evolving private equity secondary
market (US$bn)3
|
2018
|
2019
|
2020
|
2021
|
2022
|
2023
|
Manager-led secondaries
|
23
|
26
|
32
|
68
|
48
|
51
|
Traditional fund
secondaries
|
49
|
54
|
28
|
66
|
55
|
63
|
Total secondary transactions
volume
|
72
|
80
|
60
|
134
|
103
|
114
|
The size of the companies matters as
well. We focus predominantly on small and mid-sized businesses
where there is plenty of "low-hanging fruit" for fundamental value
creation, as these are often businesses that have not been owned by
private equity before. In many cases they are family-owned
businesses with succession issues, or those that have been around
for decades but have not had the benefit of professional
management, or there is latent growth that hasn't been capitalised
upon by the incumbent management. We think that this demonstrates
the power of unleashing private equity on a mid-sized
business.
Also one of the reasons why we
haven't seen valuation impairments in PIP's underlying portfolio
versus what people might have expected is because our managers are
investing in companies that are benefiting from fundamental
long-term trends that are not going to go away. For example, they
are backing businesses that are tapping into the opportunities
arising from automation and digitalisation, ageing demographics and
sustainability. These are all multi-year trends and not
"fashionable" investment fads that could end up being discarded
tomorrow. Part of our detailed investment due diligence process
includes gaining a full understanding of the investment rationale
and the expected exit routes for these businesses. While healthy
public markets are important for the economy overall, we are not
dependent on initial public offerings (IPOs) for exits. Typically,
PIP's underlying portfolio companies are sold to trade buyers or to
other private equity managers that might be larger or have a
different set of skills and networks. There are record levels of
dry powder (US$1.5tn1) in our industry, which is capital
that has been raised and is available to invest but has not yet
been deployed, however, a majority of this is concentrated among
the largest buyout funds. This capital sitting above us at the mega
end of the market is good for PIP as these managers can buy our
smaller portfolio companies.
As a result of the current
macroeconomic environment, exits and distributions remained low in
2023. In times like these, the private equity secondaries market
can really come to the fore and in 2023, it recorded its second
biggest year on record for deal volume which was
US$114bn2. Manager-led secondaries are when the private
equity managers themselves instigate deals in order to provide
liquidity options for the investors in their funds. They can
consist of either multi-asset portfolios or single-asset
secondaries. We focus on single-asset secondaries and they are
attractive to investors like PIP because they are often "trophy"
companies that the private equity manager believes have significant
runway for additional value uplift from a lengthened period of
ownership by the same manager. The development of single-asset
secondaries is relatively new but we believe that they are here to
stay and are an example of how private equity is always renewing
and reinventing itself, and finding new ways to add
value.
This type of secondaries transaction
accounted for 44%3 of all secondary transactions in
2023, with the remainder being traditional fund sales.
However, not all manager-led deals
are created equal. With an increasingly large volume of deals
entering the secondary market, it is up to an experienced investor
like Pantheon to be extremely selective regarding asset quality and
manager quality, as well as the alignment of interest between the
manager and new investors. We believe that Pantheon's scale,
investment capacity and specialist expertise, combined with the
global reach enabled by our broader private equity platform and
deep industry relationships, positions us well to capitalise on the
opportunities that we are seeing in the market on behalf of
PIP.
PIP also gains exposure to direct
company investments via co-investments. Sourced predominantly from
the managers that we have backed on a primary basis on the Pantheon
platform, and typically without any fee or carried interest being
charged, co-investments are economically very advantageous as an
investment strategy.
Private equity managers select their
co-investment partners based on several criteria. Large and
sophisticated co-investors, such as Pantheon, have
an opportunity to differentiate themselves and source greater deal
flow relative to smaller and less sophisticated co-investors. This
has particularly been the case since the heightened levels of
public market volatility began in 2022. Pressures on valuations in
the public markets over this period have resulted in a "denominator
effect" that has caused many traditional co-investment investors to
pull away from new private equity transactions as they manage their
relative exposure to private assets versus public assets. By
contrast, Pantheon has remained in the market supporting private
equity managers as new transactions are evaluated and completed. We
believe that Pantheon's reputation as an established and a reliable
co-investment partner through market cycles will continue to serve
us well for securing high-quality deal flow from private equity
managers.
All of our co-investment
opportunities pass through a "double quality filter", since each
opportunity has first been evaluated by a private equity manager,
who themselves have passed our rigorous manager selection hurdles.
The opportunity is then subjected to our own detailed due diligence
process, carried out by our dedicated co-investment team, who will
confirm, among other things, that the deal is a good fit for the
manager. Entry valuation continues to be the biggest reason for a
deal to be screened out at the stage that it is brought to the
investment committee, although a number of other factors are also
considered, including the resilience of the company's end market,
competitive differentiation and revenue quality.
Co-investment deal flow volume
gradually recovered in the second half of 2023 as the macro
environment improved. As with all of our deals, selectivity remains
key and the approval rate in 2023 in terms of number of deals -
from pre-qualified deals entering into the pipeline for our review
to those completed - was just 10% (compared to the last ten-year
average of 15%).
You spoke about trends and, without doubt, a major topic in
2023 was the development and use of Artificial Intelligence ("AI").
What impact could AI have on PIP's portfolio in
2024?
AI is an exciting and
transformational technology breakthrough, and we are already seeing
the use of AI tools in everyday life. For example, in areas such as
written content and image production, AI can produce this much
faster and for a fraction of the cost of more traditional methods.
Most people will also have experienced AI "chatbots" that augment
and enhance online customer service. AI is being used to predict
demand patterns more accurately, and therefore to forecast revenues
and associated costs more dynamically. In our opinion, the full
fruits of AI application are going to develop in front of our eyes,
not just in 2024 but over a longer time horizon. According to
research, the global AI market size is expected to grow 37% every
year from 2023 to 2030 and will contribute over US15tn to the
global economy by 20304.
We believe that the use of AI is
going to affect almost every sector. Clearly it is disrupting the
technology sector but we're seeing it in healthcare as well,
particularly in the developed world where there is a focus on
reducing costs and improving efficiency. We expect it to become
even more effective than it is already in areas such as the
interpretation of diagnostic scans and drug discovery. There's been
a huge trend of moving away from globalisation and shifting towards
more onshoring, which is resulting in supply chains becoming more
complicated. AI could be a perfect solution for managing them in a
more intelligent and efficient way. Another interesting area will
be education. We are sure that there are areas that we haven't even
thought of yet - we are just scratching the surface!
We are encouraged by our private
equity managers' keenness to embrace AI and their thirst for
knowledge about it. Of course, this doesn't come as a surprise
given how nimble private equity managers are and their ability to
apply and adapt the latest technology to the needs of their
portfolio companies. While we are seeing capital pouring into the
development of AI itself, PIP doesn't generally participate in
early stage venture opportunities. However, PIP's portfolio
companies are focused on the application of new AI tools because of
the long-term benefits that they can bring. They may have an
initial cost overlay but the payback for productivity and
efficiency will be palpable during the years to come.
What are your expectations for 2024 from PIP's
perspective?
We are now finding ourselves at a
confluence of different factors. We have emerged from ten years of
monetary expansion and historically low interest rates. At the same
time, there are the after-effects of the COVID-19 pandemic, the
trend towards deglobalisation and substantial geopolitical risk.
This is a late cycle period that is ushering in a new era. Having
said that, by the end of 2023, the major economies had outperformed
the start of the year forecasts by considerable margins and the
year ended at a much higher point in terms of public market
confidence.
Of course, we do not have a crystal
ball but we believe that the worst of the interest rate threat is
behind us, albeit the path to a "soft landing" may be bumpy and
unpredictable. Nevertheless, the indications are that optimism is
starting to return to the market, and the buyer-seller price
expectation gap is narrowing, which should result in a more active
M&A environment and therefore a renewed flow of private equity
transactions. This should give a boost to the muted exit
environment that we have experienced over the past 18 months. And
there really is pent-up demand: numerous companies in PIP's
portfolio are ripe for sale because our managers, who can choose
when and how to exit their portfolio companies, have held onto them
in order to continue to build value and position them for the right
buyer.
Private equity assets under
management ("AUM") have been growing year on year and are forecast
to reach US$8.5tn by 2028, representing an annualised growth rate
of 10% from 2022 to 20285. Therefore, we have cautious
hope for the year ahead in terms of the private equity market, as
well as the broader economic environment. We also have confidence
in the strength and health of PIP's portfolio and that it has the
right ingredients to continue to achieve its aim of generating
public market-beating returns for shareholders over the long
term.
1 Source: Preqin, February
2024.
2 Source: Evercore Private
Capital Advisory, FY 2023 Secondary Market Survey Results -
Highlights, January 2024.
3 Source: Evercore Private
Capital Advisory, FY 2023 Secondary Market Survey Results -
Highlights, January 2024.
4 Source: Hostinger Tutorials,
27 AI Statistics and Trends in 2024 (Top 27 AI Statistics and
Trends for 2024 (hostinger.com)).
5 Source: Preqin, Future of
Alternatives 2028.
PORTFOLIO AS AT 30 NOVEMBER 2023
Since its inception, PIP has been
able to generate excellent returns while at the same time
structuring its portfolio to minimise the risks typically
associated with private equity investments. Our established
portfolio of assets has been carefully selected, based on the
strengths of our appointed private equity managers, actively
monitored and diversified to reduce specific timing, regional and
sector risks; and managed to maximise growth and liquidity over
time.
Type and region
Flexible approach to portfolio
construction increases potential for outperformance.
Investment type1
|
|
Primaries
|
34%
|
Co-investments
|
33%
|
Manager-led secondaries
|
21%
|
Fund secondaries
|
12%
|
|
|
54% invested directly in
companies.
|
|
Weighted towards the more developed
private equity markets in the USA and Europe.
Region1
|
|
USA
|
54%
|
Europe
|
30%
|
Asia
|
8%
|
Global2
|
8%
|
1 Investment type and region
percentages are based upon underlying fund and company valuations
and exclude the portion of the reference portfolio attributable to
the Asset Linked Note.
2 Global category contains
funds with no target allocation to any particular region equal to
or exceeding 60%.
Maturity and stage
PIP's portfolio has a weighted
average age of 5.0 years.
Maturity1
|
|
2022 and later
|
19%
|
2021
|
13%
|
2020
|
7%
|
2019
|
13%
|
2018
|
13%
|
2017
|
10%
|
2016
|
9%
|
2015
|
6%
|
2014
|
3%
|
2011-2013
|
4%
|
2010 and earlier
|
3%
|
Well-diversified with an emphasis on
the buyout stages.
Stage1
|
|
Small/mid buyout
|
46%
|
Large/mega buyout
|
25%
|
Growth
|
20%
|
Special situations
|
6%
|
Venture
|
3%
|
1Fund stage and maturity
percentages are based upon underlying fund and company valuations
and exclude the portion of the reference portfolio attributable to
the ALN.
Sector1
|
|
Information technology
|
33%
|
Healthcare
|
20%
|
Consumer
|
14%
|
Industrials
|
11%
|
Financials
|
10%
|
Communication services
|
6%
|
Energy
|
3%
|
Materials
|
2%
|
Others
|
1%
|
1The company sector
percentages are based upon underlying company valuations as at 30
September 2023, adjusted for calls and distributions to 30 November
2023. These account for 100% of PIP's overall portfolio
value.
PERFORMANCE
PIP's portfolio value has increased
modestly over the period. Access to top-performing managers and a
tilt towards resilient and high-growth sectors has helped PIP to
withstand the current macroeconomic environment.
Private equity portfolio movements
PIP's portfolio generated returns of
1.5% during the six-month period1.
Portfolio value 31 May
2023
|
£2,387m
|
Valuation gains
|
£35m
|
Foreign exchange impact
|
(£32m)
|
Distributions
|
(£112m)
|
Calls
|
£82m
|
New
investments2
|
£15m
|
Portfolio value 30 Nov
2023
|
£2,375m
|
1 Excluding returns
attributable to the ALN share of the portfolio.
2 Amount drawn down at the
time of commitment.
Valuation movement by type1
Resilient portfolio performance
despite the current challenging macroeconomic environment. The
return on manager-led secondaries reflects the relative immaturity
of this segment of the portfolio.
|
Closing portfolio NAV%
|
Return
|
Fund secondaries
|
12%
|
3.0%
|
Co-investments
|
33%
|
2.9%
|
Manager-led Secondaries
|
21%
|
0.5%
|
Primary
|
34%
|
0%
|
Valuation movement by stage1
Positive performance across PIP's
portfolio with the exception of venture, which was impacted by the
volatility in public markets.
|
Closing portfolio NAV%
|
Return
|
Growth
|
20%
|
2.6%
|
Special situations
|
6%
|
2.5%
|
Large/mega buyout
|
25%
|
1.1%
|
Small/ Mid buyout
|
46%
|
1.1%
|
Venture
|
3%
|
(0.6)%
|
Valuation movement by region1
PIP's portfolio is weighted towards
investments in the USA and Europe, which generated positive returns
during the period.
The global part of the portfolio was
impacted by a handful of company-specific write-downs.
|
Closing portfolio NAV%
|
Return
|
USA
|
54%
|
2.0%
|
Europe
|
30%
|
1.2%
|
Asia & Emerging
Markets
|
8%
|
0.7%
|
Global
|
8%
|
(0.8%)
|
1 Portfolio returns include
income, exclude gains and losses from foreign exchange movements,
and look through underlying vehicle structures to the underlying
funds. Portfolio returns exclude returns generated by the portion
of the reference portfolio attributable to the ALN, and are
calculated by dividing valuation gains by opening portfolio
values.
REALISATIONS
PIP's mature portfolio continued to
generate distributions despite a subdued exit environment.
Distributions have been incremental to returns, with many
reflecting realisations at significant uplifts to carrying
value
Uplifts on exit realisations
The value-weighted average uplift on
exit realisations in the year was 17%, consistent with our view
that realisations can be incremental to returns.
The method used to calculate the
average uplift is to compare the value at exit with the value of
the investment 12 months prior to exit or if known, the latest
valuation unaffected by pricing effects arising from market
participants becoming aware of the imminent sale of an asset. Since
2012, the weighted average uplift on exit is 30%.
Cost multiples on exit realisations
The average cost multiple on exit
realisations of the sample was 2.5 times, demonstrating value
creation over the course of PIP's investment.
The annual average cost multiple on
exit since 2012 is 3.0 times.
Exit realisations by sector and type
Realisation activity was strongest
in the communication services and financials sectors. Secondary
buyouts and trade sales represented the most significant sources of
exit activity during the year. The data in the sample provides
coverage for 100% (for exit realisations by sector) and 100% (for
exit realisations by type) of proceeds from exit realisations
received during the period.
Exit realisations by sector
For the half year to 30 November
2023
|
|
Communication services
|
35%
|
Financials
|
31%
|
Information Technology
|
10%
|
Industrials
|
9%
|
Healthcare
|
8%
|
Consumer
|
4%
|
Energy
|
3%
|
Exit realisations by type
For the half year to 30 November
2023
|
|
Strategic sales
|
47%
|
Secondary buyouts
|
44%
|
IPO1 and secondary share
sale
|
7%
|
Refinancing and
recapitalisation
|
2%
|
1 Initial Public
Offering.
NET
PORTFOLIO CASH FLOW
Net portfolio cash flow equals
distributions less capital calls.
A continued focus on the portfolio's
maturity profile means that PIP is well-positioned to generate
positive cash flows.
With an average distribution rate of
25% since 2012, PIP's portfolio has been cash flow positive since
2010.
During the period, PIP's net
portfolio cash flow was £30m. PIP has generated £1.7bn over the
last 10 years.
Net positive cash flow generation
has continued despite a challenging macroeconomic
environment.
DISTRIBUTIONS
With a weighted average fund
maturity of 5.0 years at the end of the period (31 May 2023: 4.8
years), PIP's portfolio continued to generate positive net
cash.
PIP received £112m in proceeds from
PIP's portfolio in the six-month period to 30 November 2023
(six-month period to 30 November 2022: £112m) equivalent to an
annualised distribution1
rate of 9% of opening portfolio value (31 May
2023: 10%).
Although PIP's portfolio has
continued to generate cash, there has been a slowdown in
distributions during the period. The challenging economic
environment has impacted exit activity.
1 Distribution rate equals
distributions in the period (annualised) divided by opening
portfolio value.
CALLS
PIP paid £82m to finance calls on
undrawn commitments during the year (six-month period to 30
November 2022: £78m).
Quarterly call rate1
The annualised call rate1
for the six-month period to 30 November 2023 was equivalent to 19%
of opening undrawn commitments (31 May 2023: 21%).
The "observed" call rate is below
historical average levels is a reflection of the subdued M&A
market.
1Call rate equals calls in
the period (annualised) divided by opening undrawn commitments. All
call figures exclude the acquisition cost of new secondary and
co-investment transactions.
NEW
COMMITMENTS
PIP committed £15m to three new investments during the year (for six-month
period to 30 November 2022: £303m, committed to 21 new
investments).
The company intentionally managed
investment pacing to ensure liquidity was preserved in a market
environment experiencing lower exit levels than
historically.
Our
investment process
Investment opportunities in
companies and funds are originated via Pantheon's extensive and
well-established platform.
We invest with many of the best
private equity managers who are able to identify and create value
in their portfolio companies.
Cash generated from the sale of
those companies is returned to PIP and redeployed into new
investment opportunities.
New
commitments by region
New
commitments by stage
Growth
|
13%
|
Small/mid buyout
|
87%
|
BUYOUT ANALYSIS1
Revenue and EBITDA growth
Over the last 12 months,
weighted-average growth for both revenue and EBITDA was 18%. PIP's
sample buyout companies have consistently exceeded growth rates
seen among companies that constitute the MSCI World Index. Strong
top-line performance, disciplined cost control, operational
expertise and good earnings growth, together with an efficient use
of capital, underpin the investment thesis of our private equity
managers.
Valuation multiple
Accounting standards require private
equity managers to value their portfolios at fair value. Public
market movements can be reflected in valuations.
PIP's sample-weighted average
Enterprise Value (EV)/EBITDA was 18.5 times compared to 19.5 times
for the MSCI World Index.
PIP invests proportionately more in
high-growth sectors such as mission-critical B2B information
technology and healthcare, and these sectors tend to trade at a
premium to other sectors.
Buyout portfolio*
Information technology
|
28%
|
Healthcare
|
21%
|
Consumer
|
17%
|
Industrials
|
14%
|
Financials
|
11%
|
Communication Services
|
5%
|
Materials
|
3%
|
Others
|
1%
|
MSCI World**
Information technology
|
22%
|
Consumer
|
19%
|
Financials
|
15%
|
Healthcare
|
13%
|
Industrials
|
11%
|
Others
|
9%
|
Communication Services
|
7%
|
Materials
|
4%
|
*
100% coverage of buyout portfolio.
**
As at 30 June 2023.
Debt multiples
Venture, growth and buyout
investments have differing leverage characteristics.
Average debt multiples for small/mid
buyout investments, which represent the largest segment of PIP's
buyout portfolio, are typically lower than debt levels in the
large/mega-buyout segment.
The venture and growth portfolios
have little or no leverage.
|
%
of PIP's portfolio
|
Debt multiple
|
Small/mid buyout
|
46%
|
5.2x
|
Large/mega buyout
|
25%
|
5.9x
|
1 The sample buyout figures
for the 12 months to 30 June 2023 were calculated using all the
information available to the Company. The figures are based on
unaudited data. MSCI data was sourced from Bloomberg. See the
Alternative Performance Measures section in the Full Half Year
Report for sample calculations and disclosures.
LARGEST 50 COMPANIES BY VALUE1
|
|
|
|
|
|
|
|
|
|
|
% of PIP
|
Rank
|
Company
|
Country2
|
Sector
|
Investment type
|
Description
|
portfolio
|
1
|
Action
|
Netherlands
|
Consumer
|
Manager-led Secondary
|
Non-food discount stores
|
1.2%
|
2
|
Kaseya
|
USA
|
Information Technology
|
Co-investment; Secondary
|
Provider of information technology
management and monitoring software services
|
1.0%
|
3
|
Smile Doctors
|
USA
|
Healthcare
|
Manager-led Secondary
|
Orthodontic treatments and services
provider
|
1.0%
|
4
|
ShiftKey
|
USA
|
Healthcare
|
Manager-led Secondary
|
Recruitment platform for
nurses
|
0.9%
|
5
|
Valantic
|
Germany
|
Information Technology
|
Manager-led Secondary
|
Digital consulting and software
company
|
0.8%
|
6
|
doit
|
USA
|
Information Technology
|
Co-investment
|
Provider of cloud consulting and
engineering services
|
0.8%
|
7
|
Asurion
|
USA
|
Financials
|
Primary; Secondary
|
Mobile phone insurance
company
|
0.8%
|
8
|
Omni Eye Services
|
USA
|
Healthcare
|
Manager-led Secondary
|
Specialist eye surgery and treatment
provider
|
0.8%
|
9
|
Froneri
|
United Kingdom
|
Consumer
|
Manager-led Secondary
|
Ice cream and frozen food
manufacturer
|
0.8%
|
10
|
Tag
|
Israel
|
Healthcare
|
Manager-led Secondary
|
Manufacturer and distributor of
medical, surgical and dental equipment and implants
|
0.7%
|
11
|
Anaplan
|
USA
|
Information Technology
|
Co-investment; Primary
|
Developer of a cloud-based modelling
and planning platform
|
0.7%
|
12
|
Visma
|
Norway
|
Information Technology
|
Primary; Co-investment
|
Provider of accounting, HR and legal
software solutions for SMEs
|
0.7%
|
13
|
JSI
|
USA
|
Industrials
|
Manager-led Secondary
|
Consultant to telecommunication
service providers
|
0.7%
|
14
|
LifePoint Health
|
USA
|
Healthcare
|
Co-investment; Manager-led
Secondary
|
Healthcare services
provider
|
0.7%
|
15
|
Millenium Trust Company
|
USA
|
Financials
|
Co-investment; Primary
|
Provider of technology-enabled
retirement and investment services
|
0.7%
|
16
|
MRO
|
USA
|
Healthcare
|
Co-investment; Primary
|
Provider of disclosure management
services
|
0.7%
|
17
|
Recorded Future
|
USA
|
Information Technology
|
Primary; Co-investment;
Secondary
|
Cybersecurity software
company
|
0.7%
|
18
|
Eversana
|
USA
|
Healthcare
|
Manager-led Secondary
|
Commercial services platform for the
life sciences sector
|
0.7%
|
19
|
Ascent Resources Plc
|
USA
|
Energy
|
Secondary
|
Natural gas and oil
producer
|
0.7%
|
20
|
Nord Anglia Education
|
Hong Kong
|
Consumer
|
Primary; Co-investment
|
Operator of educational
services
|
0.6%
|
21
|
Confie
|
USA
|
Financials
|
Co-investment
|
Personal lines insurance
provider
|
0.6%
|
22
|
RLDatix
|
USA
|
Healthcare
|
Manager-led Secondary
|
Developer of cloud-based patient
safety and risk management software
|
0.6%
|
23
|
SunMedia
|
Spain
|
Communication Services
|
Co-investment
|
Digital advertising
company
|
0.6%
|
24
|
Kaspi.KZ
|
Kazakhstan
|
Financials
|
Primary
|
Banking products and services
provider
|
0.5%
|
25
|
24seven
|
USA
|
Industrials
|
Manager-led Secondary
|
Digital marketing and recruitment
services provider
|
0.5%
|
26
|
Krispy Krunchy Chicken
|
USA
|
Consumer
|
Co-investment; Primary
|
Operator of fast food
restaurants
|
0.5%
|
27
|
OptConnect
|
USA
|
Information Technology
|
Manager-led Secondary
|
Provider of wireless internet
connectivity solutions
|
0.5%
|
28
|
Access
|
United Kingdom
|
Information Technology
|
Co-investment
|
Provider of business management
software solutions to SMEs
|
0.5%
|
29
|
Logic Monitor
|
USA
|
Information Technology
|
Primary; Co-investment;
Secondary
|
Managed information technology
service provider
|
0.5%
|
30
|
101
|
USA
|
Industrials
|
Co-investment
|
Provider of food waste recycling
services
|
0.5%
|
31
|
Tanium
|
USA
|
Information Technology
|
Co-investment
|
Cybersecurity services
provider
|
0.5%
|
32
|
Kilcoy Global Foods
|
Australia
|
Consumer
|
Manager-led Secondary
|
Producer of beef and other animal
protein products
|
0.5%
|
33
|
StoneRidge Insurance
Brokers
|
Canada
|
Financials
|
Manager-led Secondary
|
Insurance brokerage
provider
|
0.5%
|
34
|
Arby's
|
USA
|
Consumer
|
Manager-led Secondary
|
Operator of restaurant
franchises
|
0.5%
|
35
|
IFS
|
Sweden
|
Information Technology
|
Co-investment; Primary
|
Developer of enterprise resource
planning software
|
0.5%
|
36
|
KD Pharma
|
Germany
|
Healthcare
|
Manager-led Secondary
|
Specialist pharmaceutical
company
|
0.5%
|
37
|
Flynn Restaurant Group
|
USA
|
Consumer
|
Co-investment
|
Operator of restaurant
franchises
|
0.4%
|
38
|
SailPoint
|
USA
|
Information Technology
|
Co-investment; Primary
|
Provider of enterprise identity
governance solutions
|
0.4%
|
39
|
Perspecta
|
USA
|
Information Technology
|
Co-investment
|
Information technology services
management company
|
0.4%
|
40
|
Star Health
|
India
|
Financials
|
Primary
|
Health insurance provider
|
0.4%
|
41
|
VIZRT
|
Norway
|
Information Technology
|
Primary; Manager-led
Secondary
|
Developer of content production
tools for the digital media industry
|
0.4%
|
42
|
Trimech
|
USA
|
Information Technology
|
Co-investment
|
Provider of three-dimensional
design, engineering and manufacturing solutions
|
0.4%
|
43
|
Sonar
|
Switzerland
|
Information Technology
|
Primary; Secondary
|
Developer of coding
software
|
0.4%
|
44
|
Satlink
|
Spain
|
Information Technology
|
Co-investment
|
Satellite communication equipment
provider for the maritime industry
|
0.4%
|
45
|
Personio
|
Germany
|
Information Technology
|
Primary
|
Developer of a human resource
management and recruitment platform
|
0.4%
|
46
|
Toll Global Express
|
Australia
|
Industrials
|
Primary
|
Provider of transport and logistics
services
|
0.4%
|
47
|
SVT
|
Germany
|
Industrials
|
Secondary
|
Manufacturer of fire protection
products and systems
|
0.4%
|
48
|
Regina Maria
|
Romania
|
Healthcare
|
Secondary
|
Provider of private healthcare
services
|
0.4%
|
49
|
Renaissance Learning
|
USA
|
Communication Services
|
Secondary; Primary
|
Online education provider
|
0.4%
|
50
|
Prelude
|
USA
|
Healthcare
|
Co-investment; Secondary
|
Fertility treatment
provider
|
0.3%
|
Coverage of PIP's private equity asset value
|
|
|
29.5%
|
1 The largest 50 companies
table is based upon underlying company valuations as at 30
September 2023 adjusted for known call and distributions to 30
November 2023, and includes the portion of the reference portfolio
attributable to the ALN.
2 Classified according to
location of Headquarters.
OTHER INFORMATION - LARGEST 50 MANAGERS BY
VALUE
|
|
% of total
|
|
|
|
|
private
equity
|
Rank
|
Manager
|
Region1
|
Stage
|
asset
value2
|
1
|
Insight Partners
|
USA
|
Growth
|
7.1%
|
2
|
Index Ventures
|
Global
|
Venture, Growth
|
3.8%
|
3
|
Hg
|
Europe
|
Buyout
|
3.4%
|
4
|
Providence Equity Partners
|
USA
|
Buyout, Growth
|
3.2%
|
5
|
Water Street Healthcare
Partners
|
USA
|
Buyout
|
2.4%
|
6
|
Advent International
|
Global
|
Buyout
|
2.3%
|
7
|
Parthenon Capital
|
USA
|
Buyout
|
2.2%
|
8
|
ABRY Partners
|
USA
|
Buyout
|
2.1%
|
9
|
ThomaBravo
|
USA
|
Buyout
|
1.7%
|
10
|
Investment Partners
|
Europe
|
Buyout
|
1.6%
|
11
|
Charlesbank
|
USA
|
Buyout
|
1.6%
|
12
|
Veritas Capital
|
USA
|
Buyout
|
1.5%
|
13
|
Seven2 (Previously Apax Partners
SAS)
|
Europe
|
Buyout
|
1.5%
|
14
|
LYFE Capital
|
Asia
|
Growth
|
1.4%
|
15
|
Mid Europa Partners
|
Europe
|
Buyout
|
1.4%
|
16
|
Searchlight
|
Global
|
Special situations
|
1.3%
|
17
|
Deutsche Private Equity
|
Europe
|
Buyout
|
1.3%
|
18
|
Hellman & Friedman
|
Global
|
Buyout
|
1.3%
|
19
|
Altamont Capital Partners
|
USA
|
Buyout
|
1.3%
|
20
|
3i
|
Europe
|
Buyout
|
1.2%
|
21
|
BPEA
|
Asia
|
Buyout
|
1.2%
|
22
|
Apollo
|
Global
|
Buyout
|
1.1%
|
23
|
HIG Capital
|
USA
|
Buyout
|
1.1%
|
24
|
OAK HC/ FT
|
USA
|
Growth
|
1.1%
|
25
|
LINDEN
|
USA
|
Buyout
|
1.1%
|
26
|
Main Post Partners
|
USA
|
Buyout
|
1.0%
|
27
|
Lorient Capital
|
USA
|
Buyout
|
1.0%
|
28
|
Five Arrows
|
Europe
|
Buyout
|
1.0%
|
29
|
Altor Capital
|
Europe
|
Buyout
|
1.0%
|
30
|
Ergon Capital Partners
|
Europe
|
Buyout
|
0.9%
|
31
|
The Energy and Minerals
Group
|
USA
|
Special Situations
|
0.9%
|
32
|
Onex Partners
|
USA
|
Buyout
|
0.9%
|
33
|
Growth Fund3
|
USA
|
Growth
|
0.9%
|
34
|
PAI Partners
|
Europe
|
Buyout
|
0.9%
|
35
|
Francisco Partners
|
USA
|
Buyout
|
0.8%
|
36
|
NMS Group
|
USA
|
Buyout
|
0.8%
|
37
|
Chequers Capital
|
Europe
|
Buyout
|
0.8%
|
38
|
Calera Capital
|
USA
|
Buyout
|
0.8%
|
39
|
Stone Goff
|
USA
|
Buyout
|
0.8%
|
40
|
BC Partners
|
Europe
|
Buyout
|
0.8%
|
41
|
Quantum Energy Partners
|
USA
|
Special Situations
|
0.7%
|
42
|
ECI
|
Europe
|
Buyout
|
0.7%
|
43
|
Roark Capital Group
|
USA
|
Buyout
|
0.7%
|
44
|
Shamrock Capital Advisors
|
USA
|
Buyout
|
0.7%
|
45
|
Alpine
|
USA
|
Buyout
|
0.7%
|
46
|
Wasserstein & Co.
|
USA
|
Buyout
|
0.7%
|
47
|
Balderton
|
Europe
|
Growth
|
0.6%
|
48
|
Tene Investment Funds
|
Europe
|
Growth
|
0.6%
|
49
|
Magnum Industrial Partners
|
Europe
|
Buyout
|
0.6%
|
50
|
Sentinel Capital Partners
|
USA
|
Buyout
|
0.6%
|
Coverage of PIP's total private equity asset
value
|
69.1%
|
1 Refers to the regional
exposure of funds.
2 Percentages look through
underlying vehicle structures and exclude the portion of the
reference portfolio attributable to the ALN.
.
INTERIM MANGEMENT REPORT AND RESPONSIBILITY STATEMENT OF THE
DIRECTORS
Interim management report
The important events that have
occurred during the period under review, the key factors
influencing the financial statements and the principal
uncertainties for the remaining six months of the financial year
are set out in the Chair's Statement and the Manager's
Review.
The principal risks facing the
Company are substantially unchanged since the date of the Annual
Report for the financial period ended 31 May 2023 and continue to
be as set out in that report on pages 44 to 48.
Risks faced by the Company include,
but are not limited to, funding of investment commitments and
default risk, risks relating to investment opportunities, financial
risk of private equity, long-term nature of private equity
investments, valuation uncertainty, gearing, foreign currency
risk, the unregulated nature of underlying investments,
counterparty risk, taxation, the risks associated with the
engagement of the Manager or other third-party advisers,
cybersecurity and geopolitical risks.
Responsibility statement
Each Director confirms that, to the
best of their knowledge:
- The condensed set of financial
statements has been prepared in accordance with FRS 104 "Interim
Financial Reporting"; and gives a true and fair view of the assets,
liabilities, financial position and return of the
Company.
- This Interim Financial Report
includes a fair review of the information required by:
(a)
DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being
an indication of important events that have occurred during the
first six months of the financial year and their impact on the set
of financial statements; and a description of the principal risks
and uncertainties for the remaining six months of the year;
and
(b)
DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the Company
during that period; and any changes in the related party
transactions described in the last annual report that could do
so.
This Interim Financial Report was
approved by the Board on 21 February 2024 and was signed on its
behalf by John Singer CBE, Chair.
INDEPENDENT REVIEW REPORT TO PANTHEON INTERNTIONAL
PLC
Conclusion
We have been engaged by Pantheon
International Plc ("the Company'") to review the condensed set of
financial statements in the half-yearly financial report for the
six months ended 30 November 2023 which comprises the Condensed
Income Statement, the Condensed Statement of Changes in Equity, the
Condensed Balance Sheet, the Condensed Cash Flow Statement, and the
Related Notes 1 to 12 (together the "condensed financial
statements"). We have read the other information contained in the
half-yearly financial report and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial
statements.
Based on our review, nothing has
come to our attention that causes us to believe that the condensed
set of financial statements in the half-yearly financial report for
the six months ended 30 November 2023 is not prepared, in all
material respects, in accordance with FRS 104 "Interim Financial
Reporting" and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Basis of conclusion
We conducted our review in
accordance with International Standard on Review Engagements (UK
and Ireland) 2410, "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" ("ISRE") issued
by the Financial Reporting Council. A review of interim financial
information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying
analytical and other review procedures. A review is substantially
less in scope than an audit conducted in accordance with
International Standards on Auditing (UK) and consequently does not
enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit.
Accordingly, we do not express an audit opinion.
As disclosed in Note 1 Basis of
Preparation, the annual financial statements of the Company are
prepared in accordance with United Kingdom Generally Accepted
Accounting Practice. The condensed set of financial statements
included in this half-yearly financial report has been prepared in
accordance with the Financial Reporting Standard FRS 104 "Interim
Financial Reporting".
Conclusions relating to going concern
Based on our review procedures,
which are less extensive than those performed in an audit as
described in the Basis of Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or
that management have identified material uncertainties relating to
going concern that are not appropriately disclosed.
This conclusion is based on the
review procedures performed in accordance with this ISRE, however
future events or conditions may cause the entity to cease to
continue as a going concern.
Responsibilities of the Directors
The Directors are responsible for
preparing the half-yearly financial report in
accordance with the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
In preparing the half-yearly
financial report, the Directors are responsible for assessing the
Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going
concern basis of accounting unless the Directors either intend to
liquidate the Company or to cease operations, or have no realistic
alternative but to do so.
Auditor's responsibility for the review of the financial
information
In reviewing the half-yearly report,
we are responsible for expressing to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report. Our conclusion is based on procedures that are
less extensive than audit procedures, as described in the Basis of
Conclusion paragraph of this report.
Use
of our report
This report is made solely to the
Company in accordance with guidance contained in International
Standard on Review Engagements 2410 (UK and Ireland) "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company, for our work, for
this report, or for the conclusions we have formed.
ERNST & YOUNG LLP
London, United Kingdom
21 February 2024
CONDENSED INCOME STATEMENT (UNAUDITED)
FOR THE SIX MONTHS TO 30 NOVEMBER 2023
|
|
|
|
|
|
Six months
ended
|
Six
months ended
|
Year
Ended
|
|
30 November
2023
|
30
November 2022
|
31 May
2023
|
|
Revenue
|
Capital
|
Total*
|
Revenue
|
Capital
|
Total*
|
Revenue
|
Capital
|
Total*
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
(Losses)/gains on investments at
fair value through profit or loss
|
-
|
(4,848)
|
(4,848)
|
-
|
82,513
|
82,513
|
-
|
50,885
|
50,885
|
(Losses)/gains on financial
liabilities at fair value through profit or loss - ALN
|
(320)
|
(519)
|
(839)
|
(80)
|
2,838
|
2,758
|
(856)
|
4,240
|
3,384
|
Currency gains on cash and
borrowings
|
-
|
4,229
|
4,229
|
-
|
10,877
|
10,877
|
-
|
9,179
|
9,179
|
Investment income
|
9,430
|
-
|
9,430
|
7,697
|
-
|
7,697
|
18,084
|
-
|
18,084
|
Investment management
fees
|
(12,573)
|
-
|
(12,573)
|
(13,932)
|
-
|
(13,932)
|
(27,707)
|
-
|
(27,707)
|
Other expenses
|
(1,236)
|
(1,406)
|
(2,642)
|
(1,011)
|
(1,387)
|
(2,398)
|
(2,059)
|
(1,625)
|
(3,684)
|
(Loss)/return before financing costs and
taxation
|
(4,699)
|
(2,544)
|
(7,243)
|
(7,326)
|
94,841
|
87,515
|
(12,538)
|
62,679
|
50,141
|
Interest payable and similar
expenses
|
(4,860)
|
-
|
(4,860)
|
(3,784)
|
-
|
(3,784)
|
(6,366)
|
-
|
(6,366)
|
(Loss)/return before taxation
|
(9,559)
|
(2,544)
|
(12,103)
|
(11,110)
|
94,841
|
83,731
|
(18,904)
|
62,679
|
43,775
|
Taxation paid
|
(1,702)
|
-
|
(1,702)
|
(940)
|
-
|
(940)
|
(1,494)
|
-
|
(1,494)
|
(Loss)/return for the period/year being total comprehensive
income for the period /year
|
(11,261)
|
(2,544)
|
(13,805)
|
(12,050)
|
94,841
|
82,791
|
(20,398)
|
62,679
|
42,281
|
(Loss)/return per ordinary share
|
(2.18)p
|
(0.49)p
|
(2.67)p
|
(2.26)p
|
17.74p
|
15.48p
|
(3.83)p
|
11.77p
|
7.94p
|
*
The Company does not have any income or expenses that are not
included in the return for the period therefore the return for the
period is also the total comprehensive income for the period. The
supplementary revenue and capital columns are prepared under
guidance published in the Statement of Recommended Practice
("SORP") issued by the Association of Investment Companies
("AIC").
All revenue and capital items in the above statement relate to
continuing operations.
The Notes below form part of these financial
statements.
CONDENSED STATEMENT OF CHANGES IN EQUITY
(UNAUDITED) FOR THE SIX MONTHS TO 30
NOVEMBER 2023
|
|
|
Capital
|
|
|
|
|
|
Capital
|
Other
|
reserve on
|
|
|
|
Share
|
Share
|
redemption
|
capital
|
investments
|
Revenue
|
|
|
capital
|
premium
|
reserve
|
reserve
|
held
|
reserve
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Movement for the six months ended 30 November
2023
|
|
|
|
|
|
|
|
Opening equity shareholders'
funds
|
35,503
|
269,535
|
4,062
|
1,620,532
|
653,695
|
(133,255)
|
2,450,072
|
Return for the period
|
-
|
-
|
-
|
50,554
|
(53,098)
|
(11,261)
|
(13,805)
|
Ordinary shares bought back for
cancellation via tender offer
|
(3,295)
|
-
|
3,295
|
(151,050)
|
-
|
-
|
(151,050)
|
Ordinary shares bought back for
cancellation in the market
|
(179)
|
-
|
179
|
(7,397)
|
-
|
-
|
(7,397)
|
Closing equity shareholders' funds
|
32,029
|
269,535
|
7,536
|
1,512,639
|
600,597
|
(144,516)
|
2,277,820
|
Movement for the six months ended 30 November
2022
|
|
|
|
|
|
|
|
Opening equity shareholders'
funds
|
36,012
|
269,535
|
3,553
|
1,556,346
|
674,875
|
(112,857)
|
2,427,464
|
Return for the period
|
-
|
-
|
-
|
42,623
|
52,218
|
(12,050)
|
82,791
|
Ordinary shares bought back for
cancellation in the market
|
(425)
|
-
|
425
|
(16,737)
|
-
|
-
|
(16,737)
|
Closing equity shareholders' funds
|
35,587
|
269,535
|
3,978
|
1,582,232
|
727,093
|
(124,907)
|
2,493,518
|
Movement for the year ended 31 May 2023
|
|
|
|
|
|
|
|
Opening equity shareholders'
funds
|
36,012
|
269,535
|
3,553
|
1,556,346
|
674,875
|
(112,857)
|
2,427,464
|
Return for the year
|
-
|
-
|
-
|
83,859
|
(21,180)
|
(20,398)
|
42,281
|
Ordinary shares bought back for
cancellation in the market
|
(509)
|
-
|
509
|
(19,673)
|
-
|
-
|
(19,673)
|
Closing equity shareholders' funds
|
35,503
|
269,535
|
4,062
|
1,620,532
|
653,695
|
(133,255)
|
2,450,072
|
The Notes below form part of these financial
statements.
CONDENSED BALANCE SHEET (UNAUDITED) AS AT 30 NOVEMBER 2023
|
|
|
|
30
November
2023
|
30
November
2022
|
31
May
2023
|
|
Note
|
£'000
|
£'000
|
£'000
|
Fixed assets
|
|
|
|
|
Investments at fair value
|
|
2,404,240
|
2,476,152
|
2,417,620
|
Current assets
|
|
|
|
|
Debtors
|
|
1,965
|
2,993
|
2,347
|
Cash at bank
|
|
28,579
|
52,560
|
66,043
|
|
|
30,544
|
55,553
|
68,390
|
Creditors: Amounts falling due within one
year
|
|
|
|
|
Bank loan (Expiry Oct
2024)
|
5
|
(96,389)
|
-
|
-
|
Other creditors
|
|
(6,697)
|
(3,960)
|
(4,617)
|
|
|
(103,086)
|
(3.960)
|
(4,617)
|
Net
current (liabilities)/assets
|
|
(72,542)
|
51,593
|
63,773
|
Total assets less current liabilities
|
|
2,331,698
|
2,527,745
|
2,481,393
|
Creditors: Amounts falling due after one
year
|
|
|
|
|
Bank Loan (Expiry Oct
2026)
|
5
|
(24,200)
|
-
|
-
|
Asset Linked Loan ("ALN")
|
6
|
(29,678)
|
(34,227)
|
(31,321)
|
|
|
(53,878)
|
(34,227)
|
(31,321)
|
Net
assets
|
|
2,277,820
|
2,493,518
|
2,450,072
|
Capital and reserves
|
|
|
|
|
Called-up share capital
|
7
|
32,029
|
35,587
|
35,503
|
Share premium
|
|
269,535
|
269,535
|
269,535
|
Capital redemption
reserve
|
|
7,536
|
3,978
|
4,062
|
Other capital reserve
|
|
1,512,639
|
1,582,232
|
1,620,532
|
Capital reserve on investments
held
|
|
600,597
|
727,093
|
653,695
|
Revenue reserve
|
|
(144,516)
|
(124,907)
|
(133,255)
|
Total equity shareholders' funds
|
|
2,277,820
|
2,493,518
|
2,450,072
|
Net
asset value per share - ordinary
|
9
|
476.49p
|
469.46p
|
462.37p
|
Total ordinary shares for NAV calculation
|
7
|
478,041,656
|
531,143,457
|
529,893,457
|
The Notes below form part of these financial
statements.
CONDENSED CASH FLOW STATEMENT (UNAUDITED)
FOR THE SIX MONTHS TO 30 NOVEMBER 2023
|
|
|
Six months
ended
|
Six months
ended
|
Year
Ended
|
|
Note
|
30 November
2023
|
30
November 2022
|
31 May
2023
|
|
|
£'000
|
£'000
|
£'000
|
Cash flow from operating activities
Investment income received -
comprising:
|
|
|
|
|
Dividend
income
|
|
7,414
|
4,999
|
12,325
|
Interest
income
|
|
1,424
|
2,142
|
4,756
|
Other investment
income
|
|
30
|
116
|
211
|
Deposit and other interest
received
|
|
560
|
323
|
780
|
Investment management fees
paid
|
|
(10,687)
|
(13,716)
|
(27,586)
|
Secretarial fees paid
|
|
(224)
|
(167)
|
(354)
|
Depositary fees paid
|
|
(128)
|
(86)
|
(284)
|
Directors fees paid
|
|
(158)
|
(167)
|
(303)
|
Legal and professional fees
paid
|
|
(772)
|
(1,503)
|
(1,996)
|
Other cash
payments1
|
|
(1,661)
|
(671)
|
(1,036)
|
Withholding tax (deducted)/
recovered
|
|
(1,721)
|
(945)
|
(1,502)
|
Net
cash outflow from operating activities
|
10
|
(5,923)
|
(9,675)
|
(14,989)
|
Cash flows from investing activities
|
|
|
|
|
Purchases of investments
|
|
(75,330)
|
(231,592)
|
(289,020)
|
Disposals of investments
|
|
84,078
|
76,531
|
161,168
|
Net
cash inflow/(outflow) from investing activities
|
|
8,748
|
(155,061)
|
(127,852)
|
Cash flows from financing activities
|
|
|
|
|
Loan drawdowns
|
|
125,000
|
-
|
-
|
ALN repayments
|
|
(2,122)
|
(3,582)
|
(5,035)
|
Ordinary Shares bought back for
cancellation
|
|
(7,397)
|
(16,741)
|
(19,678)
|
Ordinary Shares bought back for
cancellation via tender offer
|
|
(151,050)
|
-
|
-
|
Loan commitment and arrangement fees
paid
|
|
(3,285)
|
(4,726)
|
(7,071)
|
Loan interest paid
|
|
(1,259)
|
-
|
-
|
Net
cash outflow from financing activities
|
|
(40,113)
|
(25,049)
|
(31,784)
|
Decrease in cash in the period/year
|
|
(37,288)
|
(189,785)
|
(174,625)
|
Cash and cash equivalents at beginning of the
period/year
|
|
66,043
|
231,458
|
231,458
|
Foreign exchange (losses)/gains on cash
|
|
(176)
|
10,887
|
9,210
|
Cash and cash equivalents at the end of the
period/year
|
|
28,579
|
52,560
|
66,043
|
1 Includes bank interest paid during the period of £nil (30
November 2022: £22,000; 31 May 2023: £22,000) and loan interest
paid of £1,259,000 (30 November 2022: £nil; 31 May 2023:
£nil).
The Notes below form part of these
financial statements.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
1.
ACCOUNTING POLICIES
A.
Basis of preparation
PIP is a listed public limited
company incorporated in England and Wales.
The Company applies FRS 102 and the
Association of Investment Companies ("AIC") SORP for its financial
yearending 31 May 2023 in its Financial Statements. The financial
statements for the six months to 30 November 2023 have therefore
been prepared in accordance with FRS 104 "Interim Financial
Reporting". The condensed financial statements have been prepared
on the same basis as the accounting policies set out in the
statutory accounts for the period ending 31 May 2023. They have
also been prepared on the assumption that approval as an investment
trust will continue to be granted. The Company's financial
statements are presented in sterling and all values are rounded to
the nearest thousand pounds (£'000) except when indicated
otherwise.
The financial information contained
in this report has been prepared in accordance with the SORP for
the financial statements of investment trust companies and venture
capital trusts issued by the AIC (issued in April 2021), other than
where restrictions are imposed on the Company which prohibit
specific disclosures.
The financial information contained
in this Interim Report and Accounts and the comparative figures for
the financial year ended 31 May 2023 are not the Company's
statutory accounts for the financial period as defined in the
Companies Act 2006. The financial information for the half-year
periods ended 30 November 2023 and 30 November 2022 are not for a
financial year and have not been audited but have been reviewed by
the Company's auditors and their report can be found above. The
Annual Report and Financial Statements for the financial year
ending 31 May 2023 have been delivered to the Registrar of
Companies. The report of the auditors was: (i) unqualified; (ii)
did not include a reference to any matters which the auditors drew
attention by way of emphasis without qualifying the report; and
(iii) did not contain statements under section 498 (2) and (3) of
the Companies Act 2006.
B.
Going Concern
The financial statements have been
prepared on a going concern basis and under the historical cost
basis of accounting, modified to include the revaluation of certain
assets at fair value.
The Directors have made an
assessment of going concern, taking into account the Company's
current performance and financial position as at 30 November 2023.
In addition, the Directors have assessed the outlook, which
considers the potential further impact of the ongoing geopolitical
uncertainties as a result of the Russia-Ukraine and Middle East
conflicts, including the disruption to the global supply chain and
increases in the cost of living as a result, persistent inflation,
high interest rates and the impact of climate change on PIP's
portfolio using the information available as at the date of issue
of these financial statements. As part of this assessment the
Directors considered:
· Various downside liquidity modelling scenarios with varying
degrees of decline in investment valuations, decreased investment
distributions, and increased call rates, with the worst being a
downside case downside scenario representing an impact to the
portfolio that is worse than that experienced during the Global
Financial Crisis.
· The
Company manages and monitors liquidity regularly ensuring it is
adequate and sufficient and is underpinned by its monitoring of
investments, distributions, capital calls and outstanding
commitments. Total available financing as at 30 November 2023 stood
at £389m (30 November 2022: £560m; 31 May 2023: £554m), comprising
£24m (30 November 2022: £52m; 31 May 2023: £63m) in available net
cash balances and £365m in undrawn, sterling equivalent, bank
facilities (30 November 2022: £508m; 31 May 2023:
£491m).
· PIP's
30 November 2023 valuation is primarily based on reported GP
valuations with a reference date of 30 September 2023, updated for
capital movements and foreign exchange impacts.
· Unfunded commitments - PIP's unfunded commitments at 30
November 2023 were £761m (30 November 2022: £848m; 31 May 2023:
£857m). The Directors have considered the maximum level of unfunded
commitments which could theoretically be drawn in a 12-month
period, the ageing of commitments and available financing to fulfil
these commitments. In these scenarios PIP can take steps to limit
or mitigate the impact on the Balance Sheet, namely drawing on the
credit facility, pausing on new commitments, selling assets to
increase liquidity and reducing outstanding commitments if
necessary. In addition, subject to market conditions, the Company
could also seek to raise additional debt or equity
capital.
· The
impact of share buybacks and the Company's capital allocation
policy on available liquidity.
· Tenure
of credit facilities - A £100m tranche of the facility expires in
October 2024 and will either be re-financed or repaid with cash or
drawings from the other existing loan.
· The
Directors have also considered the impact of climate change on
PIP's portfolio and have come to the conclusion that there is no
significant impact on the Company as a result of climate
change.
Having performed the assessment on
going concern, the Directors considered it appropriate to prepare
the financial statements of the Company on a going concern basis.
The Company has sufficient financial resources and liquidity, is
well placed to manage business risks in the current economic
environment and can continue operations for a period of at least 12
months from the date of issue of these financial
statements.
C.
Segmental reporting
The Directors are of the opinion
that the Company is engaged in a single segment of business, being
investment business. Consequently, no businesses segmental analysis
is provided.
2.Tax on ordinary activities
The tax charge for the six months to
30 November 2023 is £1.7m (six months to 30 November 2022: £0.9m;
year to 31 May 2023: £1.5m). The tax charge is wholly comprised of
irrecoverable withholding tax suffered with the exception of an
amount of £0.1m, received during the year to 31 May 2023, in
relation to the recovery of tax from prior years which has been
offset against the tax charge.
Investment gains are exempt from
capital gains tax owing to the Company's status as an investment
trust.
3. Transactions with the Manager and related
parties
During the six month period ended 30
November 2023, services with a total value of £14,419,000, being
£12,573,000 directly from Pantheon Ventures (UK) LLP and £1,846,000
(30 November 2022: £14,734,000; £13,932,000; and £802,000; year to
31 May 2023: £29,010,000; £27,707,000 and £1,303,000 respectively)
via Pantheon managed fund investments were purchased by the
Company.
At 30 November 2023, the amount due
to Pantheon Ventures (UK) LLP in management fees and performance
fees disclosed under creditors was £4,130,000 and £nil respectively
(30 November 2022: £2,340,000 and £nil respectively; 31 May 2023:
£2,245,000 and £nil respectively).
Fees paid to the Company's Board of
Directors for the six months to 30 November 2023 totalled £175,000
(six months to 30 November 2022: £157,000; year to 31 May 2023:
£291,000). At 30 November 2023, the amount payable in Directors
fees disclosed under creditors was £62,000 (30 November 2022:
£47,000; 31 May 2023: £45,000).
There are no other identifiable
related parties at the period end.
4. Performance fee
The Manager is entitled to a
performance fee from the Company in respect of each 12 calendar
month period ending on 31 May in each year. The performance fee
payable in respect of each such calculation period is 5% of the
amount by which the NAV at the end of such period exceeds 110% of
the applicable "high-water mark", i.e. the NAV at the end of the
previous calculation period in respect of which a performance fee
was payable, compounded annually at 10% for each subsequent
completed calculation period up to the start of the calculation
period for which the fee is being calculated. For the six month
calculation period ended 30 November 2023, the notional performance
fee hurdle is a NAV per share of 561.22p. The performance fee is
calculated using the adjusted NAV.
The performance fee is calculated so
as to ignore the effect on performance of any performance fee
payable in respect of the period for which the fee is being
calculated or of any of the following:
· Increase or decrease in the net assets of the Company
resulting from any issue, redemption or purchase of any shares or
other securities.
· The
sale of any treasury shares or the issue or cancellation of any
subscription or conversion rights for any shares or other
securities.
· Any
other reduction in the Company's share capital or any distribution
to shareholders.
No performance fee has been paid or
accrued during the period.
5.
Bank Loan
On 19 October 2023, the Company
announced that it has agreed a new £500m equivalent multi-tranche,
multi-currency revolving credit facility agreement (the
"credit facility"),
which on 20 October 2023 replaced the existing £500m equivalent
credit facility and Credit Suisse AG London Branch as a Lender.
There are five Lenders of the new facility, being Lloyds Bank plc,
Mizuho, RBC Europe, Royal Bank of Scotland and State Street. The
new credit Facility
is secured by certain assets of the Company and is split as
follows:
- Facility A: £400m, expiring in
October 2026 with an ongoing option to extend, by agreement, the
maturity date by 364 days at a time; and
- Facility B: £100m, expiring in
October 2024.
The Company has sought to build a
long-term, sustainable, more flexible, and diverse capital
structure as part of this process, further strengthening the
Company's balance sheet. The structure permits Facility A to be
increased from £400m to £700m via an uncommitted accordion option,
subject to the consent of the participating Lenders, with a
covenant package that better supports utilisation under the credit
facility, the announced tender offer and the ongoing share buyback
programme.
Depending on the utilisation of the
"credit facility", PIP will pay a commitment fee of between 0.70%
and 1.15% per annum on the undrawn portion of the credit facility.
The rate of interest payable on the drawn portion is the aggregate
of the relevant benchmark rate plus 2.95% or 2.25% depending on
whether Facility A or B is utilised respectively.
The credit facility had a sterling
equivalent value of £485.1m as at 30 November 2023, at which point
the Company had drawn down £120.6m split £24.2m through Facility A
and £96.4m through Facility B.
6.
Asset Linked Note ("ALN")
As part of the share consolidation
effected on 31 October 2017, the Company issued an ALN with an
initial principal amount of £200m to the Investor. Payments under
the ALN are made quarterly in arrears and are linked to the ALN
share (c. 75%) of the net cash flow from a reference portfolio
which is comprised of interests held by PIP in over 300 of its
oldest private equity funds, substantially 2006 and earlier
vintages. PIP retains the net cash flow relating to the remaining
c. 25% of the reference portfolio.
The ALN is held at fair value
through profit or loss and therefore movements in fair value are
reflected in the Income Statement. The Directors do not believe
there to be a material own credit risk, due to the fact that
repayments are only due when net cash flow is received from the
reference portfolio. Fair value is calculated as the sum of the ALN
share of fair value of the reference portfolio plus the ALN share
of undistributed net cash flow which is equivalent to the amount
which would be required to be repaid had the ALN matured on 30
November 2023. Therefore no fair value movement has occurred during
the period as a result of changes to credit risk.
A pro rata share of the Company's
Total Ongoing Charges is allocated to the ALN, reducing each
quarterly payment ("the Expense Charge") and deducted from Other
Expenses in the Income Statement.
The ALN's share of net cash flow is
calculated after withholding taxation suffered. These amounts are
deducted from Taxation in the Income Statement.
During the six months to 30 November
2023, the Company made repayments totalling £2.1m, representing the
ALN share of the net cash flow for the three month period to 31 May
2023 and three month period to 31 August 2023. The fair value of
the ALN at 30 November 2023 was £31.0m, of which £1.3m represents
the net cash flow for the three months to 30 November 2023, due for
repayment on 28 February 2024.
During the six months to 30 November
2022, the Company made repayments totalling £3.6m, representing the
ALN share of the net cash flow for the three month period to 31 May
2022 and three month period to 31 August 2022. The fair value of
the ALN at 30 November 2022 was £34.8m, of which £0.6m represents
the net cash flow for the three months to 30 November 2022, due for
repayment on 28 February 2023.
During the year to 31 May 2023, the
Company made repayments totalling £5.0m, representing the ALN share
of the net cash flow for the year to 28 February 2023. The fair
value of the ALN at 31 May 2023 was £32.5m, of which £1.2m
represents cash flows for the three months to 31 May 2023, due for
repayment on 31 August 2023.
7.
Called up share capital
|
30 November
2023
|
30 November
2022
|
31 May 2023
|
Allocated, called up and fully
paid:
|
Shares
|
£'000
|
Shares
|
£'000
|
Shares
|
£'000
|
Ordinary shares of 67p each
|
|
|
|
|
|
|
Opening position
|
529,893,457
|
35,503
|
537,493,640
|
36,012
|
537,493,640
|
36,012
|
Cancellation of shares bought back
in Market
|
(2,671,474)
|
(179)
|
(6,350,180)
|
(425)
|
(7,600,183)
|
(509)
|
Cancellation of shares bought back
via tender offer
|
(49,180,327)
|
(3,295)
|
-
|
-
|
-
|
-
|
Closing position in issue
|
478,041,656
|
32,029
|
531,143,457
|
35,587
|
529,893,457
|
35,503
|
Total shares for NAV calculation
|
478,041,656
|
32,029
|
531,143,457
|
35,587
|
529,893,457
|
35,503
|
On 3 August 2023, upon publication
of its annual results for the year ended 31 May 2023, the Company
announced its intention to invest up to £200m in the Company's
portfolio by buying back its own ordinary shares during the
financial year to 31 May 2024. On 25 September 2023, the Company
announced it would undertake a "Tender Offer", conducted as a
reverse auction, for up to £150m in value (at the Strike Price) of
ordinary shares with settlement taking place on 26 October 2023.
Shareholders on the Register on the Record Date of 17 October 2023
were invited to tender for sale some or all (subject to the overall
size limit of the tender offer) of their ordinary
shares.
On 19 October 2023, the result of
the tender offer was announced, being that the Company had acquired
49,180,327 of the Company's ordinary shares. All Shares repurchased
by the Company have been cancelled. Each Share acquired by the
Company in the tender offer was purchased at the Strike Price of
305 pence per ordinary share.
During the period to 30 November
2023 and in addition to the tender offer, 2,671,474 ordinary shares
were bought back by the Company for cancellation at a total cost,
including stamp duty, of £7.4m. In total, during the period to 30
November 2023, the Company acquired, for cancellation, 51,851,801
shares.
During the six months ended 30
November 2022, 6,350,183 ordinary shares were bought back for
cancellation at a total cost, including stamp duty, of
£16.7m.
During the year ended 31 May 2023,
7,600,183 ordinary shares were bought back for cancellation at a
total cost, including stamp duty, of £19.7m.
As at 30 November 2023, there were
478,041,656 ordinary shares in issue (30 November 2022: 531,143,457
ordinary shares; year to 31 May 2023: 529,893,457 ordinary
shares).
8.
Return per share
|
Six months to 30 November
2023
|
Six months to 30 November
2022
|
Year to 31 May
2023
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
Return for the financial period
£'000
|
(11,261)
|
(2,544)
|
(13,805)
|
(12,050)
|
94,841
|
82,791
|
(20,398)
|
62,679
|
42,281
|
Weighted average number of ordinary
shares
|
|
|
516,456,314
|
|
|
534,675,332
|
|
|
532,707,383
|
(Loss)/return per share
|
(2.18)p
|
(0.49)p
|
(2.67)p
|
(2.26)p
|
17.74p
|
15.48p
|
(3.83)p
|
11.77p
|
7.94p
|
There are no dilutive shares in
issue in any period.
9.
Net asset value per share
|
30 November
2023
|
30 November
2022
|
31 May 2023
|
Net assets attributable in
£'000
|
2,277,820
|
2,493,518
|
2,450,072
|
Ordinary shares in issue
|
478,041,656
|
531,143,457
|
529,893,457
|
Net asset value per share
|
476.49p
|
469.46p
|
462.37p
|
10.
Reconciliation of return before financing costs and taxation to net
cash flow from operating activities
|
Six months
to
|
Six months
to
|
Period
to
|
|
30 November
2023
|
30 November
2022
|
31 May
2023
|
|
£'000
|
£'000
|
£'000
|
Return before finance costs and
taxation
|
(7,243)
|
87,515
|
50,141
|
Withholding tax deducted
|
(1,702)
|
(940)
|
(1,494)
|
Losses/(gains) on
investments
|
4,898
|
(82,513)
|
(50,885)
|
Currency gains on cash and
borrowings
|
(4,229)
|
(10,877)
|
(9,179)
|
Increase in creditors
|
1,851
|
388
|
394
|
Increase in other debtors
|
(33)
|
(230)
|
(147)
|
Gains/(reductions) on financial
liabilities at fair value through profit or loss - ALN
|
839
|
(2,758)
|
(3,384)
|
Expenses and taxation associated
with ALN
|
(254)
|
(260)
|
(435)
|
Net
cash outflow from operating activities
|
(5,923)
|
(9,675)
|
(14,989)
|
11.
Fair Value Hierarchy
(i)
Unquoted fixed asset investments are stated at the estimated fair
value
In the case of investments in
private equity funds, this is based on the net asset value of those
funds ascertained from periodic valuations provided by the managers
of the funds and recorded up to the measurement date. Such
valuations are necessarily dependent upon the reasonableness of the
valuations by the fund managers of the underlying investments. In
the absence of contrary information the values are assumed to be
reliable. These valuations are reviewed periodically for
reasonableness and recorded up to the measurement date. If a class
of assets were sold post period end, management would consider the
effect, if any, on the investment portfolio.
The Company may acquire secondary
interests at either a premium or a discount to the fund manager's
valuation. Within the Company's portfolio, those fund holdings are
normally revalued to their stated net asset values at the next
reporting date unless an adjustment against a specific investment
is considered appropriate.
The fair value of each investment is
derived at each reporting date. In the case of direct investments
in unquoted companies, the initial valuation is based on the
transaction price. Where better indications of fair value become
available, such as through subsequent issues of capital or dealings
between third parties, the valuation is adjusted to reflect the new
evidence, at each reporting date. This information may include the
valuations provided by private equity managers that are invested in
the Company.
(ii) Quoted investments are valued at the bid price on the
relevant stock exchange
Private equity funds may contain a
proportion of quoted shares from time to time, for example where
the underlying company investments have been taken public but the
holdings have not yet been sold. The quoted market holdings at the
date of the latest fund accounts are reviewed and compared with the
value of those holdings at the period end.
All investments are initially
recognised and subsequently measured at fair value. Changes in fair
value are recognised in the Income Statement.
(iii) Fair value hierarchy
The fair value hierarchy consists of
the following three levels:
· Level
1 - The unadjusted quoted price in an active market for identical
assets or liabilities that the entity can access at the measurement
date;
· Level
2 - Inputs other than quoted prices included within level 1 that
are observable (i.e. developed using market data) for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e.
derived from prices); and
· Level
3 - Inputs are unobservable (i.e. for which market data is
unavailable) for the asset or liability.
In accordance with FRS 104, the
Company must disclose the fair value hierarchy of financial
instruments.
Financial assets at fair value through profit or loss at 30
November 2023
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
Unlisted holdings
|
-
|
-
|
2,400,933
|
2,400,933
|
Listed holdings
|
3,307
|
-
|
-
|
3,307
|
Total
|
3,307
|
-
|
2,400,933
|
2,404,240
|
Financial liabilities at fair value through profit or
loss at 30 November 2023
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
Asset Linked Note
|
-
|
-
|
30,984
|
30,984
|
Total
|
-
|
-
|
30,984
|
30,984
|
Financial assets at fair value through profit or loss at 30
November 2022
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
Unlisted holdings
|
-
|
-
|
2,472,990
|
2,472,990
|
Listed holdings
|
3,162
|
-
|
-
|
3,162
|
Total
|
3,162
|
-
|
2,472,990
|
2,476,152
|
Financial liabilities at fair value through profit or loss at
30 November 2022
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
Asset Linked Note
|
-
|
-
|
34,776
|
34,776
|
Total
|
-
|
-
|
34,776
|
34,776
|
Financial assets at fair value through profit or loss at 31
May 2023
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
Unlisted holdings
|
-
|
-
|
2,415,800
|
2,415,800
|
Listed holdings
|
1,820
|
-
|
-
|
1,820
|
Total
|
1,820
|
-
|
2,415,800
|
2,417,620
|
Financial liabilities at fair value through profit or
loss at 31 May 2023
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
Asset Linked Note
|
-
|
-
|
32,520
|
32,520
|
Total
|
-
|
-
|
32,520
|
32,520
|
12.
Post balance sheet event
On 12 January 2024, the Company
announced that it has agreed a private placement of $150m (£118m
equivalent) of loan notes, with proceeds being received on 1
February 2024. The loan notes have been structured over different
maturities of 5, 7 and 10 years. Proceeds from the loan notes have
been used to partially repay the existing drawn loan
facilities.
NATIONAL STORAGE
MECHANISM
A copy of the Half-Yearly
Financial Report will be submitted shortly to the National Storage
Mechanism ("NSM") and will be available for inspection at the NSM,
which is situated at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
Ends
LEI: 2138001B3CE5S5PEE928