Pantheon International (LSE:PIN) is a London-listed investment trust specialising in private equity investments which is now trading well above its pre-pandemic share price, although this is still at a hefty discount of 21% to its NAV.
Pantheon International splits its portfolio between primary, co-investment and secondary investments. Direct company holdings account for 46% of the portfolio. The trust managed to generate significant cash for FY 2021 having realised 22% of opening private equity assets, which is a lot higher than most of its peers.PIN is active in a market – private companies – that it is very hard for smaller investors to get access to. But the private equity sector is flush with cash and able to make moves on big companies that in ordinary times – if those will ever come back – would have been out of the reach of many PE fund managers.
While the shares themselves are outperforming over the longer term, there is that discount to look at.
“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,” says Mark Thomas, an analyst at Hardman & Co. “The weighted average uplift achieved on exit in FY’21 was 26%.”
That discount is admittedly lower than it was in 2020; interest in the portfolio is obviously starting to pick up.
Who are Pantheon Ventures?
Behind PIN sits private equity firm Pantheon Ventures, the UK-based private equity powerhouse which manages over $56bn in assets. It lives at the top table of European PE houses and this we feel gives it access to some prime deals as well as opportunities in the secondary market which smaller private equity managers simply won’t see. It counts for a lot in the world of private assets.
Pantheon in turn is owned by US-listed Affiliated Managers Group (NYSE:AMG), which manages over $700bn in assets at last count. So no minnows here.
Hardman & Co notes in a recent research output on Pantheon International that there is a trend of rising average multiples among the investment trust’s underlying companies, up at 16.1x EV/EBITDA in December 2020 from 13.8x in June 2020. As Hardman notes, this trend has been driven by mix, and reflects the trust’s investments in resilient sectors where valuation ratings have risen.
Overweight healthcare and IT opportunities
There has been a rise in the proportion of higher rated sectors in the portfolio, among them IT and healthcare, and a reduction in industrials. The trust is overweight in both sectors versus MSCI weightings – e.g. 29% in IT against MSCI’s 22.5%.
Distributions from Pantheon International hit a five year high, with the annualised distribution rate in the quarter ending in May 2021 looking especially strong. That’s a full year rate of 22% against 17% in the previous year. Cash is being realised from heightened exit activity from sectors with sustainable revenue streams.
Ultimately, PIN’s cash generation looks much stronger than many of its peers. Commitments to other PE funds remain spread over many years, with 22% of undrawn commitments from older, outside normal investment, periods. After year six, drawings tend to be fund follow-ups into existing portfolio companies.
Pantheon International has delivered 11.9% average annual NAV growth from inception in 1987. That equates to a 4.4% annual outperformance.
