Pantheon demonstrates undervaluation of private equity

Pantheon International has had a milestone year

Pantheon demonstrates undervaluation of private equity – Pantheon International has published results for the year ended 31 May 2020. These capture the panic and subsequent recovery in markets related to COVID-19. Pantheon’s NAV return was +4% over the year, which compares to -11.2% for the UK market and +7.4% for the MSCI World Index. This resilience in returns was not reflected in the share price – as the discount widened to 28%, the return to shareholders was -7.2%. [We think these falls have been overdone – relative to equity markets at least].

  • Assets in the portfolio generated underlying (pre-FX) returns of 3.9%.
  • Distributions received in the twelve months to 31 May 2020 were £228m, equivalent to 17% of the opening attributable portfolio.
  • After funding £118m of calls, net cash inflow from the portfolio totalled £110m.
  • The average age of PIP’s funds at the year-end was 5.1 years (May 2019: 5.2 years).
  • £245m was committed to 44 new investments during the year, of which £109m was funded at the time of purchase.
  • At the year end, Pantheon had liquid resources of £431m and undrawn commitments of £541m. The board is confident that tight control of undrawn commitments relative to its available financing will enable the fund to finance its future calls even if distributions were to decline for a period.

The chairman says that “The small/mid-market buyout segment, which forms PIP’s core area of focus, generated the strongest returns during the 12 months, with growth investments also performing well. The large buyout segment of the portfolio also delivered healthy returns due to the strong exits achieved by our managers. Special situations, which account for just 8% of the overall portfolio, underperformed, principally because of valuation declines in companies with energy exposure, which were significantly impacted by the large falls in energy prices. This decline also weighed on the performance of PIP’s secondary investments and its North American portfolio. At the year end, energy assets represented 5% of PIP’s portfolio (31 May 2019: 9%). As investments are realised, we would expect to see the energy assets decline further over time as a proportion of the Company’s NAV. Venture, which is a relatively small part of PIP’s portfolio, contributed positively to performance during the period.”

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