January 2021 Monthly

PIP is a well-funded, globally diversified, investor in private equity funds whose flexible mandate means it can exploit the best opportunities available in 2021. In our notes (most recently Returns, resilience and responsibility), we have highlighted how and why PE outperforms in downturns and that re-investment returns immediately post a crisis are above average. Pantheon is well positioned to exploit this with significant cash balances and one of the lowest pre-crisis commitment levels among peers. Unlike many peers, it has been quoted throughout four major crises, with a proven track record of outperformance (11.7% p.a. NAV return since 1987).

• Good opportunities for 2021 new investment: We see sustained interest from i) private companies seeking strong financial backers who can add value post-acquisition; ii) buy and build opportunities where there may be weaker competition; iii) non-core disposals from groups looking to strengthen balance sheets. Post-crisis investments historically have yielded good returns.
• Firepower to exploit it: PIP’s liquid resources and undrawn loan facility give it £444m of available finance, 28% of the portfolio (HVPE $182m inc. Fund level debt, 7% portfolio). PIP’s over-commitment level is 1% of NAV, a fraction of peers (HVPE 40%). It is well positioned to deploy capital at attractive returns.
• Valuation: PIP shares trade at a 21% discount to NAV, despite their long-term outperformance. We believe the “real” NAV is likely to be above the book value on the accounting date, as the company consistently reports uplifts on realisation. PIP re-invests returns for superior capital growth and pays no dividend.
• Risks: We note i) sentiment to the economic cycle (NAV rose every year in the 1990s’ recession and in FY’20), ii) adverse sentiment to illiquid and unquoted investments (PIP has permanent capital and proven exit uplifts), and iii) sentiment to the sustained discount could be an issue. Short term, there can be FX volatility.
• Investment summary: PIP is in an attractive market, can pick the best part of that market and has competitive operational advantages. Its manager selection and portfolio structuring have added value. This has delivered 11.7% annual NAV growth since inception. Corporate governance is strong, and the NAV is conservatively valued. Investors get liquid access to the whole PE market. There are risks around the cycle, and illiquid and unquoted underlying assets, but these, against the historical returns, make the current discount to NAV an anomaly.