Pantheon International plc (LON:PIN) is the topic of conversation when Hardman and 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, private equity (PE) is seen as a complex investment, and the report is targeted at professional/qualified investors.
Q2: So, you called your note 1H strong performance, actively managed portfolio. What can you tell us about it?
A2: We believe a key message from these strong results is that Pantheon International’s platform (and so PIN’s investments) gives it the opportunity to capture the best PE opportunities wherever they arise.
With ca.45% of the portfolio now made directly into companies, and an increasingly selective choice of manager, PIN offers investors a focused, but global, exposure to what has been a very strong PE market. The NAV per share grew 22% in six months. Portfolio valuation gains of 19.7% were achieved, with 16%+ gains seen across all regions and investment strategies. The weighted average uplift from fully realised exits was 43%, and the average cost multiple was 3.3x.
Q3: So, tell us a bit more about the value added by their platform?
A3: PIN’s key competitive advantages come from leveraging their platform of often decades-long relationships with high-quality PE managers, its scale and expertise, global presence, footprint across all major PE strategies, a focus on the mid-market (where PE can add the most value to underlying companies), and a conservative approach to liquidity. This brings competitive advantages in origination, information flows, speed to completion and expertise in investment diligence and management.
Q4: Is there anything in particular you would pick out about the how the company actively manages that platform to the advantage of PIN’s shareholders?
A4: With the greater concentration I mentioned earlier, PIN offers investors a focused but global exposure to the strong PE market. It adds value in the asset selection process with significant expertise and longstanding, high-quality relationships and as, Helen Steers, the manager, said on the results call “They don’t want to buy the market”, highlighting that the dispersion of returns in PE is so wide that picking the winners is a key driver to performance.
PIN leverages this strong platform with i) expertise in manager and asset due diligence, ii) a solution-driven deal approach, iii) streamlined processes, delivering rapid decisions, iv) portfolio construction, v) through-cycle capital certainty, and vi) post-investment value-added input.
Q5: And can you give some more colour on the overall market conditions?
A5: Once again, Pantheon International’s underlying investee company saw market-beating revenue growth (nearly 15% in this period), reflecting investment in high-growth sectors, the choice of sector-beating companies, tech-enablement, and the other operational, financial and strategic value added by PE managers.
Secondly, we saw valuation gains were well spread by geography and by approach, with a minimum 16%+ constant currency gain in all reported regions and investment strategies in the six months.
Thirdly, there were strong exit multiples with a significant bias to higher-multiple exits and an extremely low number of low-multiple exits. The proportion on 5x cost exits was twice the average of FY’14-FY’21. The call rate in 1HFY’22 was above its medium-term average (23%), while the distribution rate was in line (22%) with PIN remaining strongly cash-generative in the period. There was a small increase in debt multiples at investee company level in 1HFY’22, to support bolt-on deals taking advantage of market opportunities.
Finally, the average uplift on exit was 43% – the highest level achieved since the company started tracking this metric in 2011. This is important as it shows again the conservatism in the accounting and reported net asset value. Quite a lot going on there, but the business message is a good strong market.
