NB Private Equiy Partners (LON:NBPE) key takeaways from its 2025 Capital Markets day were i) high-quality portfolio (strong underlying operating performance, particularly among larger positions), ii) well positioned for improving exits (mature portfolio with a number of exit-ready companies), iii) balance sheet strength (flexibility to increase investment in attractive new opportunities in addition to returning capital to shareholders, iv) optimal access via co-investments (NB’s differentiated co-investment platform provides efficient access to attractive opportunities alongside high-quality managers), and v) attractive investment pipeline (focus on mid-life co-investments providing exposure to companies already in the value-creation phase).
- Attractive returns: NB’s base case deal returns have been stable for many years. Accelerating revenue and margin growth, the majority of the return, are under management control. Co-investments, typically, are fee-free, and double due diligence is conducted. NB is selective in its deals, focusing on secular growth.
- Capital allocation: The updated capital allocation framework announced an acceleration of the previous $120m three-year share buyback programme, an increased allocation to new investments over the next 3-6 months ($100m+), and maintained dividend. All of these are possible because of the flexibility of the model, strength of the balance sheet and improved exit environment.
- Valuation: The 26% discount is in line with direct peers (average 26% exc. HGT), but it rose sharply in 2022, to well above historical levels (10%-15%). In this note, we consider what may lead to a reversion to these levels. The discount appears absolutely and relatively anomalous with a resilient, conservative NAV.
- Risks: Sentiment to costs, the cycle, the duration of the discount and valuation are the key issues for NB Private Equiy Partners, as they are across the whole listed sector. 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.
- Investment summary: With 98% of the portfolio invested in direct equity, co-investments, NB Private Equiy Partners is the most focused listed vehicle in this lower-fee, lower-risk, capital efficient, high-return, PE subsector. Company and GP selection have proved resilient in downturns, and ongoing premiums on exit should give investors comfort in the NAV valuation. Its portfolio is diversified by geography, name, sector and GP, but it has enough concentration for individual investments to add value: effectively giving the diversity benefit of a fund of funds but with direct company exposure. The discount is anomalous with long-term, market-beating returns.
