On 4 May 2022, Helen Steers, Partner and Manager of Pantheon International plc (LON:PIN), joined Hardman & Co for an open forum discussion about the role of private equity (PE) in financing entrepreneurship, innovation and growth. The presentation highlighted that, even in a difficult period, PE is well-positioned because it adds value to its investee companies, with hands-on operational and sector-specific expertise, exercised with good governance and aligned interests. It is much more than capital support. PIN gives privileged access to carefully selected PE investments globally, and has delivered long-term outperformance.
- Why PE delivers growth: PE helps companies adapt and evolve into new growth areas of the economy, inter alia, through more rapid digitalisation, customer acquisition, product development, and smarter supply chain management across numerous critical sub-sectors. Investee companies access central resources and expertise otherwise unavailable to them, developing new products and markets, and reducing operational risk.
- Why PIN: The presentation highlighted that Pantheon International’s shares have outperformed the FTSE All-Share total return by 6.8%, 8.9%, 8.1%, 7.8% and 3.9% p.a. over one, three, five and ten years, and since inception timescales, respectively. Against the MSCI World index, the relative performance has been 3.9%, -0.9%, 1.0%, 1.3% and 3.0%.
- Valuation: PIN shares trade at a 36% discount to NAV, despite the long-term outperformance of PIN’s NAV. We believe the “real” NAV is likely to be above the book value on the accounting date, given the consistent uplift to carrying value achieved on exits, over long periods of time. The weighted average uplift achieved on exit in FY’21 was 26%.
- 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 (PIN has permanent capital and proven exit uplifts), and iii) that sentiment to the sustained discount could be an issue. Short term, there could be forex volatility.
- Investment summary: Pantheon International is in an attractive market, can pick the best part of that market, and has competitive operational advantages. Its manager and deal selection, and portfolio structuring, add value. To end-March, this delivered 12.1% annual NAV growth since inception in 1987. Corporate governance is strong, and the NAV is conservatively valued. Investors get liquid access to the global PE market. There are risks around the cycle, and illiquid and unquoted underlying assets. The discount appears anomalous with risk-adjusted returns.
