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The 26 May announcement noted i) in April, the NAV fell 2.3%, driven primarily by an adverse 1.8% forex effect, ii) despite the market rally that month, the manager’s provision, which was designed to reflect the timing gap between valuations received from underlying managers and market movements, was left unchanged, iii) the 8% of the portfolio whose valuations were updated saw a 5% fall, iv) its undrawn revolving credit facility was increased from £175m to £300m, and v) with available cash of £114m, ca.80% of undrawn commitments are covered. Investors could not get better proof of the company’s conservatism than its actions in April.

  • Manager’s provision: In March, PIP introduced a manager’s provision of 8% of NAV to update its December valuations to March. This will be released once the actual March numbers are in. The peer announcements below confirm that the number was reasonably conservative at the time.
  • Peer news flow: Harbourvest’s May NAV noted a 6% US$ NAV decline in moving from primarily December to March valuations. ICGT’s April quarterly update noted a 4% portfolio and NAV decline (7% local currency). NBPE’s 1Q update noted a -8.6% NAV total return. SLPE noted a 12.5% constant currency fall over this period.
  • Valuation: PIP trades at a 24% discount to NAV, which includes the conservative manager’s provision. In our initiation report, we noted why PE has historically outperformed quoted markets in downturns. The discount is despite its long-term record of outperformance. PIP aims for capital growth (no dividend).
  • Risks: Sentiment to the economic cycle and private investments is material (noting PIP’s NAV rose every year in the early 1990s’ recession). PIP has conservative accounting/liquidity policies. Forex movements create short-term 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. Corporate governance appears strong, and the “real” value of the assets is, we believe, above their accounting value. Investors are getting liquid access to the whole PE market. There are risks around the cycle, and illiquid and unquoted underlying assets; however, comparing these with the historical returns makes the current discount an anomaly, in our view.

 

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