Pantheon International outlines next phase of its corporate strategy

Pantheon International has published results covering the 12 months ended 31 May 2024. Over that period, the NAV return was 6.1%, behind comparators such as the All-Share (up 15.4%) or, more relevantly, the MSCI World (up 22.2%). Fortunately for shareholders, the board’s efforts to rein in the discount seem to be bearing fruit and that helped generate a 19.1% return to shareholders.

A £200m share buyback programme was completed just after the trust’s financial year end. This contributed 4.7 percentage points of the 6.1% NAV return. As we covered in a story in May, from 1 June 2024, a proportion of adjusted net cash flow is allocated to share buybacks on a tiered basis depending on the prevailing discount at which the shares trade at the time.

The NAV growth may have been modest, but this reflects lower valuation multiples rather than problems within the portfolio. Underlying portfolio company investments generated EBITDA and revenue growth of 17% and 14% respectively during the year. The trust’s loss ratio for all investments, realised and unrealised, made over the last 10 years is just 2.3%.

Highlights

• Direct investments account for majority of the portfolio with 54% of Pantheon’s portfolio invested in co-investments and single-asset secondaries, which are complemented by hard-to-access funds.
• Pantheon had over 400 full exit events during the year. The weighted average uplift from these fully realised exits was 20% and the weighted average uplift since 2012 has been 30%.
• The average cost multiple on exit realisations was 3.2 times during the full year, and that figure since 2012 has been 3.0 times. The cost multiple on the existing portfolio, as implied by the current NAV, is 1.6 times. These figures point to the significant embedded value in Pantheon’s portfolio.
• Pantheon’s portfolio has remained cash-generative during the period with net cash inflow from the portfolio of £37m. Pantheon has generated £1.6bn of net cash over the last 10 years.
• As at 31 May 2024, Pantheon had net available cash of £16m while £83m was drawn down under the £500m credit facility and £118m of sterling equivalent loan notes were outstanding.
• Therefore as at 31 May 2024, Pantheon’s net debt to NAV, excluding the asset linked note, was conservative at 8.1%. The board currently does not expect net leverage to exceed 10% of NAV under normal market conditions.
• As at 31 May 2024, Pantheon’s financing cover was 3.9x and its undrawn coverage ratio was comfortable at 89%.

Next phase of corporate strategy

Following on from the success of the initial buyback and the new capital allocation policy, the board has a third element to its plans. The chairman outlines this here:

“The overall objective is to build on the momentum created by steps one and two to create more demand for PIP’s – and the listed private equity sector’s – shares, which should over time narrow the discount between the share price and NAV sustainably, in a way in which steps one and two alone could not be expected to achieve. Our mission is to optimise the relevance and attraction of our offering to both existing and new retail and institutional investors, through two-way exchanges of conversation and ideas with investors, brokers, investment bodies, and fellow chairs of other investment trusts, complemented by a more assertive marketing strategy. As a sector, we must come together to address the concerns of shareholders, so that a rerating of our sector can be earned.

Misunderstandings in the sector persist, such as perceptions of inflated valuations, fees and the lack of consistent disclosure. Investors complain of inadequate disclosure in areas of policy like leverage and buybacks, and they are sometimes suspicious of the relationship between boards, managers and shareholders. Bringing colleagues across the industry together to provide education and tackle these misconceptions would be for the good of the sector overall and should help to remove many of the obstacles that currently dampen demand for listed private equity.

As a sector, we must come together to address the concerns of shareholders, so that a well-deserved re-rating of our sector can take place.

Together with sector-wide initiatives to dispel myths, we plan to increase our PIP marketing effort. I am delighted to report that, since the interim statement, the marketing committee embarked on a process to identify and appoint a marketing agency, which was recently completed. Our work over the coming months will focus on clarity of branding, communication and reasons to purchase and hold PIP shares for the long term through increased marketing spend. With our marketing agency, we are increasing the resources and attention dedicated to segmentation analysis. We believe these efforts will result in maintaining existing and attracting new retail and institutional investment.

My deeply held belief is that building on the trust and goodwill that we have created in the market will bring in new investors who, even when educated about the benefits of private equity, feel uneasy about entrusting money to what can appear as a complex and opaque industry. It is incumbent on us to explain the “why” at the heart of what we do at PIP and “for whom” we are doing it. Our deep culture and values have been embedded over decades into investing shareholder capital and help us maintain our clear focus on investor interests and ensure they are put first.”

[We find it incredibly frustrating that journalists and commentators often trot out the same old untruths about the private equity sector, tarring the whole sector with the worst excesses of a handful of players. We welcome this initiative and will do what we can to support it. The statement quotes average returns for Pantheon of 10.9% per annum since 1987. That is a remarkable record and deserving of a much better rating than Pantheon’s current 34% discount.]

PIN : Pantheon International outlines next phase of its corporate strategy