NB Private Equity Partners (LON:NBPE) is the topic of conversation when Hardman & Co’s Analyst Mark Thomas caught up with DirectorsTalk for an exclusive interview.
Q1: Your recent report sits behind a disclaimer. What can you tell us about that?
A1: It is just the standard disclaimer that many investment companies have. In essence, for regulatory reasons, there are some countries, like the US, where the report should not be read. In the UK, because private equity – PE – is not a simple asset class, the report should be looked at only by professional/qualified investors.
Q2: You called your recent piece ‘ NB: adding value in attractive co-investment sector’, what can you tell us about it?
A2: In our initiation, we highlighted that NB Private Equity Partners is uniquely focused in the co-investment sector of PE. Our report underlined why this sector has especially appealing return, cashflow, asset selection, risk management, and GP access characteristics.
In this note, we review how the manager, NB, adds value in this attractive market. Inter alia, NB has i) the resources to understand the investee company dynamics, ii) excellent GP relationships and iii) experience/skills that add value to the GPs. Its success is evidenced by the growing deal flow in a subdued PE market.
Also, NB is focused on the mid-market, which, in our view, has more value creation options than large deals.
Q3: What evidence is there of the added value?
A3: We highlight the company’s i) growing number of co-investment opportunities, 3x the level of 10 years ago, in a slowing market, ii) above-peer investee company revenue and EBITDA growth in 2023, iii) broad spread of this growth, and iv) above-average 5-/10-year shareholder returns.
Q4: So, how does the manager add value?
A4: Neuberger Berman is very big and established in Private Markets. It has a team of more than 410 private markets professionals and since inception in 1987, the PE team has made $115bn+ in active capital commitments – as of June 2024 – including $37 billion to co-investments. It has active commitments to over 770 PE investments and sits on 420+ advisory boards. The PE team operates from 17 offices.
What does this scale bring?
Firstly, resources for co-investment selection as it involves not only knowing a PE manager really well but also understanding specific companies for investment.
Secondly, it assists deal execution. NB’s resources mean it is active in all the sub-sectors of co-investment, some of which are highly complex.
Thirdly, it gives access to deals in a market where GP relationships are key.
We also believe Neuberger Berman adds value by being focused in the mid-market, in portfolio management and by having a conservative culture.
Q5: You say co-investments are especially attractive, can you remind us why?
We went into this in some detail in our initiation, on pages 18-22 for those who want more detail. In summary, over the long term it offers better than PE-average returns, better cash management, less asset selection risk, a double layer of due diligence on investment, access to usually inaccessible GPs and great portfolio flexibility.
So, quite a list of advantages there.
Q6: What about the risk?
Sentiment to costs, the cycle, residual positions in highly rated listed companies following IPOs in 2020-21, the duration of the discount and valuation are the key issues for NB Private Equity Partners, as they are across the whole listed sector.
As we detail in our report, in our view, they are sentiment issues, and do not reflect reality, as we see it. The benefits from the current strategy may not yet be fully appreciated.
