It’s turning out to be a bumper year for the $1.5 billion London-listed investment company, NB Private Equity (LON:NBPE). The latest monthly report published at the end of September shows that NAV increased 4.8% during the month which means that so far this year, NBPE has delivered NAV total returns of 35.9%, and 54% in the last twelve months.
It’s not surprising then that the share price has been on a steady upward trend, outperforming the FTSE All-Share and the MSCI World Indexes YTD. The share price of around 1821 GBX at time of writing – almost reaching its 52-week high of 1840 GBX – is 50% higher than at the beginning of the year, up 66% on last year and up 104% in the last five years.
What’s driving performance with this investment trust?
NBPE, which is managed by Neuberger Berman, attributes these stellar returns to its investing model. While it invests in a range of private equity firms, it’s main focus is on individual private equity-backed companies – the majority of which are in the US – investing on a transaction-by-transaction basis.In fact, direct equity investments now make up 90% of the portfolio value. At end of August, NBPE’s value appreciation of $363m, up 56% on last year, was mainly driven by direct investing: transactions pricing and realisations accounted for 69% of growth in 2021, compared to 13% growth in 2020. Investing directly can make it more fee efficient states NBPE, although it’s worth noting that there is a performance fee of 7.5% on top of the management fee.
NBPE’s All Weather strategy
The investment trust’s ‘All Weather’ investing strategy essentially focuses on high quality companies with strong management teams as well as firms with protected business models and high barriers to entry. The typical size of a new investment is 1-2% of the investment trust’s NAV, which lowers risk while allowing for material gains on the upside. It also means that the strategy can adapt quickly to market conditions.
NBPE currently invests across 92 companies – the top 50 companies make up 79% of this value – and 55 private equity managers which include KKR and Thoma Bravo.
A quarter of the portfolio is invested in technology and almost half of the portfolio of direct investments consists of companies that have been in the portfolio for 3.5 years or more. RealPage, a software solutions company to the US rental housing industry, Perspecta, an enterprise IT services company serving the US government and ironSource, a business platform for app developers are a few recent investments. Some more well-known UK names include Kroll and Staples. It has also had a fully integrated ESG process since 2007.
Deal flow this year has picked up
In terms of realisations, NBPE has received $244 million of total portfolio realisations YTD and it expects a further $73 million as the remaining announced transactions close in the coming months. This compares to $199m in realisations in 2020. Exit uplift valuations have been strong too – around 75% uplift from 3.3x times exit multiples.
In September NB Private Equity invested $41 million into two new companies (names as yet not disclosed). As of end of September the investment company had $342 million of cash and undrawn credit line available.
But is it still a good investment?
With NBPE trading at a discount of 18% currently, it looks like a good bet, particularly with a dividend policy of 3% of NAV. The latest dividend of $0.72 per share is a 24% increase on last year.
However, factor into that a frothy stock market, high fees and the illiquid nature of the investments themselves and the discount makes more sense.
HarbourVest Global Private Equity (LON:HVPE) and Apax Global Alpha (LON:APAX) are trading at a discount of 18% and 14.9% respectively although Hg Capital Trust (LON:HGT) is trading at a premium of 9.9%. Nevertheless, with opportunities in the pipeline and a focus on direct investing which give investors access to high performing illiquid assets, we anticipate that NBPE will continue to deliver.
