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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Pantheon International Plc | LSE:PIN | London | Ordinary Share | GB00BP37WF17 | ORD 6.7P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 1.00 | 0.31% | 321.00 | 320.00 | 321.00 | 323.00 | 318.00 | 320.00 | 629,309 | 16:35:08 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Unit Inv Tr, Closed-end Mgmt | 82.02M | 42.28M | 0.0894 | 35.79 | 1.51B |
From Apr 2019 to Apr 2024
TIDMPIN
RNS Number : 1593I
Pantheon International PLC
07 August 2019
For immediate release
The information contained in this announcement is restricted and is not for publication, release or distribution in the United States of America, any member state of the European Economic Area (other than the United Kingdom or to professional investors in Finland and Sweden), Canada, Australia, Japan or the Republic of South Africa.
PANTHEON INTERNATIONAL PLC (the "Company" or "PIP")
ANNUAL REPORT FOR THE YEARED 31 MAY 2019
The full Annual Report and Accounts can be accessed via the Company's website at www.piplc.com or by contacting the Company Secretary by telephone on +44 (0)1392 477500.
Pantheon International Plc (the "Company" or "PIP")
Pantheon International Plc, an investment trust that provides access to a global and diversified portfolio of private equity, today publishes its Annual Report for the year ended 31 May 2019.
PIP has continued to execute its objective of generating capital gains which outperform the equity returns of broader public markets over the long term. PIP had a positive year during which its portfolio delivered a strong performance and it continued to invest for the future.
Annualised performance as at 31 MAY 2019
Hot Features
Premium
Since inception
1 yr 3 yrs 5 yrs 10y yrs (1987)
Nav per share 14.7% 16.8% 14.9% 11.2% 11.9%
------ ------- ------- --------- ----------------
Ordinary share price 10.7% 19.6% 14.3% 18.9% 11.5%
------ ------- ------- --------- ----------------
FTSE All Share,
TR -3.2% 8.7% 5.3% 9.6% 7.7%
------ ------- ------- --------- ----------------
MSCI World, TR (Sterling) 2.5% 13.8% 11.8% 13.0% 7.8%
------ ------- ------- --------- ----------------
Share price outperformance
Versus FTSE All
Share, TR +13.9% +10.9% +9.0% +9.3% +3.8%
Versus MSCI World,
TR (Sterling) +8.2% +5.8% +2.5% +5.9% +3.7%
------- ------- ------- ------- -------
HIGHLIGHTS - 12 MONTHSED 31 MAY 2019
Performance update
-- NAV per share grew by 14.7% to 2,770.6p, reflecting a strong performance from the underlying portfolio, positive FX movements and a share buyback.
-- Net assets at 31 May 2019 increased to GBP1,499m (May 2018: GBP1,307m). -- The ordinary share price increased from 2,010.0p to 2,225.0p, an increase of 10.7%. -- Five-year cumulative Total Shareholder Return was +95%.
Portfolio update
-- Assets in the portfolio generated underlying (pre-FX) returns of 12.9%. This figure excludes returns attributable to the Asset Linked Note.
-- Distributions received in the 12 months to 31 May 2019 were GBP277m, equivalent on an annualised basis to 24% of the opening attributable portfolio. After funding GBP107m of calls, net cash flow from the portfolio totalled GBP170m.
-- GBP341m was committed to 59 new investments during the year of which GBP165m was funded at the time of purchase.
Financial position update
-- New four-year GBP175m multi-currency credit facility agreed in June 2018 to replace facility that was due to expire in November 2018; the facility remains undrawn.
-- Undrawn commitment cover comfortable at 3.4x.
Company update
-- Founder and Director, Rhoddy Swire, to retire from the Board at the conclusion of the Company's 2019 AGM and Audit Committee Chairman, Ian Barby, to retire from the Board by the 2020 AGM.
-- Mary Ann Sieghart to be appointed to the Board in October 2019.
Commenting on PIP's performance for the full year, Sir Laurie Magnus, Chairman, said:
"PIP has continued its 32-year record of growth this year with both its NAV per share and share price significantly outperforming the benchmark public market indices on a one-year basis as well as since inception. PIP's strong performance was primarily driven by the gains in the underlying portfolio. The distributions from exits have been redeployed by the Manager into carefully selected new investments with some of the best private equity managers in the world. We have announced that Rhoddy Swire will retire from the Board at the forthcoming AGM. Rhoddy's contribution towards PIP's success and growth into a FTSE 250 company cannot be overstated and he leaves the Board with our warmest thanks and best wishes. We are delighted that Mary Ann Sieghart will join the Board in October and we look forward to welcoming her. As we look ahead, the Board is confident that PIP is well placed to continue to source a global, diversified portfolio of high quality private equity assets that can deliver impressive returns for the benefit of its shareholders over the long term."
For more information please contact:
Vicki Bradley
Pantheon
+44 (0)20 3356 1800
A video of the team at Pantheon, discussing PIP's financial year is available on our website at www.piplc.com.
STRATEGIC REPORT
CHAIRMAN'S STATEMENT
A positive year of capital growth and investment for the future
PIP has continued its 32-year record of growth this year, with net assets reaching GBP1.5bn and a market capitalisation of GBP1.2bn. Your Board is confident that the strategy it has agreed with Pantheon, the Manager, provides shareholders with access to a high quality portfolio of private equity assets with more opportunities for growth than a conventional investment fund focused primarily on listed securities.
IN SUMMARY Strong performance from the underlying portfolio We made 59 new investments amounting to GBP341m in commitments PIP's portfolio provides an attractive means of maximising long-term capital growth for shareholders KEY STATISTICS 11.9% Average annual NAV growth since inception 14.7% NAV per share growth in the year 10.7% Share price growth in the year GBP1,499m Net asset value GBP170m Portfolio net cash flow
Performance for 12 months to 31 May 2019
During the 12 months to 31 May 2019, PIP's NAV per share increased by 14.7% to 2,770.6p and net assets increased from GBP1,307m to GBP1,499m. The NAV growth (stated net movements in the Asset Linked Note) reflected the strong performance from the underlying portfolio with investment gains (+11.8%), share buybacks (+0.3p) and foreign exchange effects (+4.5%) materially exceeding expenses and taxes (-1.6%). During the 12 months to 31 May 2019, PIP's share price rose by approximately 11%. The share price increase and PIP's NAV growth outperformed the MSCI World index by +12.2% and +8.2% respectively during the same period.
Despite the Company's positive performance, the discount on the shares has remained disappointingly wide and was 19.7% at the end of the financial year. The Board remains frustrated by the continuing share price discount as it believes that this does not reflect the Company's track record both on a medium and long-term basis. PIP has generated average annual NAV growth of 11.9% since inception and 14.9% over the last five years, significantly outperforming the benchmark public market indices over these time periods. The five-year cumulative total shareholder return, which measures the return to investors after taking into account share price movements, was +95% at 31 May 2019. The Board is committed to narrowing the share price discount and, to this end, has agreed a more intensive marketing plan with the Manager's dedicated investor relations team with the aim of extending the Company's reach to potential new buyers and boosting demand for its shares.
PIP's investment strategy is to maintain a healthy mix of all stages in its portfolio, with an emphasis on the buyout and growth stages and a particular focus on the mid-market, which offers attractive prospects for long-term value creation and multiple routes to exit. Buyout and growth represent more than half of PIP's portfolio and the small/mid buyout and growth segments performed strongly during the period. This resulted from a combination of factors including the strong exits achieved by some of our managers, successful bolt-on acquisition activity and good organic growth in the underlying businesses. A number of company-specific events adversely impacted returns in the large buyout portfolio while the negative performance in special situations (consisting of energy, distressed and mezzanine funds) was primarily due to headwinds experienced in the energy sector. Venture, which is a relatively small part of PIP's portfolio, contributed positively to performance during the period.
Investment and realisation activity
During the period, PIP generated GBP277m of distributions attributable to shareholders, equivalent to 24% of the opening attributable portfolio. In a generally supportive exit environment, secondary buyouts and sales to corporate buyers remained the most significant sources of exits. Calls from existing commitments to private equity funds during the period amounted to GBP107m, equivalent to 24% of opening undrawn commitments. Overall, PIP generated a net cash inflow of GBP170m during the period before taking account of new investments.
PIP made 59 new investments during the year, amounting to GBP340.7m in commitments, of which GBP164.7m was drawn at the time of purchase. These investments comprised GBP159.8m committed to 20 primaries, GBP104.9m committed to 13 secondaries and GBP76m committed to 26 co-investments. Since the period end, PIP has committed a further GBP7.3m to two investments.
The issuance of the ALN has allowed the Company significantly to reduce the weighted average age of its fund and co-investment commitments and the evidence of this is clear when the average age of 5.2 years at 31 May 2019 is compared to the average age of 6.7 years at the year end in May 2017. The maturity profile of the portfolio is designed to allow PIP to remain cash-generative and an active investor well placed to refresh its investment participations through the cycle.
During the period, the Company bought back 25,000 shares for cancellation. PIP will continue its policy of opportunistically purchasing its own shares for investment purposes.
An increasing number of businesses are turning to the private equity markets globally not only as a source of capital, but also with an expectation of benefitting from the strategic and operational expertise that is offered to them by well-established private equity managers. Selecting the best managers and deals is critical to PIP's success in generating good long-term relative performance, particularly at a time when entry prices have been inflated by the high values prevailing generally for all equity assets. PIP's approach to achieving its strategic goal of long-term capital growth is to construct a diversified, global portfolio of high quality assets that can benefit from the specialised expertise of managers experienced in adding value to investments, which are sourced via Pantheon's well-established platform and its deep manager relationships that span several decades.
Careful consideration of environmental, social and governance ("ESG") issues is a key priority for many investors when deploying capital. The Board is satisfied that Pantheon takes these responsibilities seriously, investing with diligence, integrity and conviction on behalf of PIP, and that the processes employed by Pantheon, both in terms of the detailed due diligence conducted at the pre-investment stage as well as the ongoing monitoring once an investment has been made, are robust. The Board also recognises Pantheon's inclusive, progressive culture which is reflected across its entire global workforce where creative investment thinking is encouraged and developed. The Board remains confident that the Manager's approach and its ability to use its extensive network and access to privileged information enables it to source compelling investment opportunities for PIP.
Financial position and strength
PIP's balance sheet is managed to ensure that the Company can finance its undrawn commitments, which are themselves carefully controlled relative to its assets and available liquidity. This disciplined approach enables the Company to be well positioned to withstand periods of volatility and to take advantage of any compelling investment opportunities that may arise during a downturn.
The unlisted Asset Linked Note ("ALN") was issued with an initial principal value of GBP200m in October 2017 and is due to mature in August 2027. Repayment of the ALN is only made out of the cash distributions that have been received from a reference portfolio of older investment assets, mainly dating from 2006 and earlier. PIP has made total ALN payments of GBP122m since it was issued and, as at 31 May 2019, the residual ALN was valued at GBP94m. The issuance of the ALN has contributed 0.5% to shareholder returns during the year.
In June 2018, PIP announced that it had agreed a new GBP175m multi-currency revolving credit facility to replace the GBP150m loan facility agreement that was due to expire in November 2018. The facility, denominated as to US$163m and EUR60m, will expire in June 2022 and has an option to extend, by agreement, the maturity date by another year. As at 31 May 2019, PIP held net available cash of GBP141m and the undrawn facility was equivalent to GBP182m, giving the Company total liquid resources of GBP323m. With undrawn commitments of GBP521m as at 31 May 2019, PIP's undrawn commitment cover, which measures the sum of PIP's undrawn commitments against its available financing and the value of its private equity portfolio, was comfortable at 3.4 times.
Change of auditor
Grant Thornton has been the Company's auditor since 1987. PIP's Audit Committee, taking account of the regulations for the length of auditor tenure, carried out an external audit tender process during the second half of the financial year. The Audit Committee has recommended to the Board that Ernst & Young LLP ("EY"), whose audit team has extensive experience in auditing investment trusts, should be appointed to replace Grant Thornton as the independent external Auditor of the Company. I would like on behalf of the Board, to thank Grant Thornton for their audit work and assistance to the Audit Committee and the Board over many years.
Board changes
The Board regularly reviews its composition, taking into account the need to refresh its membership and diversity whilst ensuring that there is the necessary degree of continuity in recognition of the long-term nature of many of PIP's investments and its relationships with many of its underlying managers.
Ian Barby, who became a Director in 2005, has indicated that he wishes to retire no later than at the Company's AGM in 2020. Ian has been an outstanding Chairman of the Audit Committee since July 2005 and has recently led the selection process to appoint EY as the Company's auditors (in succession to Grant Thornton) for the current financial year ending 31 May 2020. The Board considers it important that Ian remains in post during the transition of audit responsibility to EY over the next few months before leaving the Board and being succeeded as Chairman of the Audit Committee by David Melvin, a Chartered Accountant, who has been on PIP's Board and Audit Committee since 2015.
Rhoddy Swire, who has been a Director since the Company's inception in 1987, will be retiring from the Board at the forthcoming AGM. He was instrumental in the foundation of PIP and has been a major contributor towards its transformation from a small investment trust with net assets of just GBP12m to a FTSE 250 company with net assets of over GBP1.5 billion today. Rhoddy's long history with the Company and in-depth familiarity with the Company's investment portfolio and its managers is not readily replaceable, particularly in relation to the older vintage investment positions. The Board therefore expects, after he retires as a Director, to retain access to Rhoddy through the Manager whereby, at no cost to the Company it can request his advice specifically in relation to issues concerning the investment portfolio.
Since the period end, the Board has conducted a formal search to complement the skills of the Board and add to its diversity. It has been announced today that. Mary Ann Sieghart will be appointed to the Board upon conclusion of the forthcoming AGM on 30 October. Mary Ann has spent most of her career as a journalist and broadcaster working for prestigious UK broadsheet publications and the BBC. She brings significant experience through serving on the boards of other investment trusts.
My fellow Directors and I are delighted that Mary Ann has agreed to join the Board and look forward to welcoming her in the coming months. Rhoddy leaves the Board with our warmest thanks and best wishes.
Outlook
The geopolitical tensions seen in 2018 have continued and there are signs of an economic slowdown in many parts of the world. While private equity is not immune to the effects of this, PIP's flexible investment approach - by investing directly in primary and secondary deals and in companies through co-investments - means that it can respond effectively to market conditions. PIP has been through a number of cycles during its 32 year history. It backs managers who themselves have experience of managing assets through times of uncertainty, have demonstrated a selective approach to the use of debt and who are able to take advantage of market dislocations by identifying those defensive and exciting high-growth businesses with compelling potential over the long term.
The private equity market is growing strongly, but the barriers to entry remain high for those seeking to invest with the top tier managers who have proven track records of generating high quality and sustainable returns from their assets. The Board believes that PIP is continuing to benefit from its ability to identify and secure access to such managers through Pantheon's global investment team of over 80 professionals with their longstanding relationships, collaborative and inclusive culture and extensive experience of private equity investing.
The Board is confident that this, coupled with PIP's conservatively managed balance sheet and its disciplined, selective investment approach, leaves the Company well-positioned to deliver healthy returns for shareholders over the long term.
The Strategic Report within the full Annual Report has been approved and signed on behalf of the Board.
Sir Laurie Magnus
Chairman
6 August 2019
What we offer our investors
We offer a simple and differentiated entry point to the impressive returns that private equity can provide.
We aim to deliver attractive and consistent returns to shareholders through actively managed private equity investments.
At a glance as at 31 May 2019
14.7% NAV per share growth in the year 10.7% Share price increase in the year 11.9% Average annual NAV growth since 1987 GBP1.5bn Net asset value GBP1.2bn Market capitalisation 1.22% AIC ongoing charges(1)
1 Including financing costs, PIP's total ongoing charges would be 1.39%.
PIP's track record
PIP is the longest established private equity fund-of-funds on the London Stock Exchange.
A carefully constructed, diversified portfolio of assets
Since PIP's inception, we have been able to generate excellent returns while structuring our portfolio to minimise the risks typically associated with private equity investments. Our established portfolio of assets has been carefully selected, based on the strengths of our appointed managers, actively monitored and diversified to reduce specific timing, regional and sector risks, and managed to maximise growth and liquidity over time.
Investment type(1)
Flexible approach to portfolio construction increases potential for outperformance.
Secondary 40% Co-investments 33% Primary 27%
Fund region(1)
Weighted towards the more developed private equity markets in the USA and Europe while Asia and EM provide access to faster-growing economies.
USA 55% Europe 26% Asia and EM(2) 12% Global(3) 7%
Fund stage(1)
Well diversified across different investment stages with a particular focus on small/mid-market buyout and growth funds.
Small/mid buyout 39% Large/mega buyout 24% Growth 20% Special situations 12% Venture 5%
Fund maturity(1)
Maturity profile is managed to enhance performance while maintaining a cash-generative portfolio.
Of which investments
2018 and later 14% 6%
2017 13% 8%
2016 16% 8%
2015 17% 7%
2014 6% 2%
2013 4% 2%
2012 5% 0%
2011 4% 0%
2010 1% 0%
2009 2% 0%
2008 7% 0%
2007 7% 0%
2006 and earlier 4% 0%
(1) Fund investment type, region, stage and maturity charts in the full Annual Report are based upon underlying fund valuations and account for 100% of PIP's overall portfolio value. The above exclude the portion of the reference portfolio attributable to the Asset Linked Note.
(2) EM: Emerging Markets.
(3) Global category contains funds with no target allocation to any particular region equal to or exceeding 60%.
Key Performance Indicators
We are focused on maximising capital growth over the long term.
What it is How we have Link to our Examples of
performed strategic related
objectives factors that we
monitor
----------------- ----------------- ----------------- ------------------------ ----------------- ----------------
Performance
5-Year Total 1 year PIP's ordinary --Maximise --Rate of NAV
cumulative shareholder 10.7% shares had a closing shareholder growth relative
total return price of 2,225.0p returns through to listed
shareholder demonstrates 3 years (cum) at the year end. long-term markets.
return the return to 71.2% capital
95.2% investors, after Discount to NAV growth. --Trading
taking into 5 years (cum) was 19.7% as at volumes
account 95.2% the year-end --Promote better for the
share price market liquidity Company's
movements by building shares.
(capital growth) demand for the
and, if Company's --Share price
applicable, shares. discount to
any dividends NAV.
paid during the
period.
NAV per share Net asset value 11M to 31 May -- NAV per share -- Investing -- Valuations
growth during ("NAV") per 2017 increased by 355.8p flexibly provided by
the year share 16.9% to 2,770.6p during with top-tier private
14.7%* reflects the the year. private equity equity
attributable 12M to 31 May managers to managers.
value of a 2018 -- Strong performance maximise
shareholder's 10.3% further enhanced long-term -- Fluctuations
holding in PIP. by the impact capital in currency
The provision 12M to 31 May of foreign exchange growth. exchange
of consistent 2019 movements rates.
long-term NAV 14.7% -- Containing
per share growth costs and risks -- Ongoing
is central to by constructing charges
our strategy. a relative to NAV
well-diversified growth and
NAV per share portfolio in a private
growth in any cost-efficient equity peer
period is shown manner. group.
net of all costs
associated with -- Potential
running the for
Company. tax leakage
from
investments.
-- Effect of
financing
(cash drag) on
performance.
Portfolio Portfolio 11M to 31 May -- Strong performance -- Maximise -- Performance
investment investment 2017 in the underlying shareholder relative to
return return measures 16.2% portfolio. returns through listed
12.9%* the total long-term markets and
movement 12M to 31 May -- PIP continues capital private
in the valuation 2018 to benefit from growth. equity peer
of the 15.4% good earnings group.
underlying growth in its
funds and 12M to 31 May underlying portfolio -- Valuations
companies 2019 and from the provided by
comprising PIP's 12.9% favourable exit private
portfolio environment. equity
expressed managers.
as a percentage
of the opening
portfolio value,
before taking
foreign exchange
effects and
other
expenses into
account.
----------------- ----------------- ----------------- ------------------------ ----------------- ----------------
Liquidity
Net portfolio Net portfolio 11M to 31 May -- PIP's portfolio -- Maximise -- Relationship
cash flow cash flow is 2017 generated GBP277m long-term between
GBP170m* equal GBP211m of distributions capital growth outstanding
to fund versus GBP107m through ongoing commitments and
distributions 12M to 31 May of calls. portfolio NAV.
less capital 2018 renewal
calls GBP194m -- The Company while -- Portfolio
to finance made new commitments controlling maturity
investments, 12M to 31 May of GBP341m during financing risk. and
and reflects the 2019 the year, GBP165m distribution
Company's GBP170m of which was drawn rates by
capacity at the time of vintage.
to finance calls purchase.
from existing -- Commitment
investment -- PIP's portfolio rate to new
commitments. has a weighted investment
average fund age opportunities.
PIP manages its of 5.2 years(1)
maturity profile
through a mix
of primaries,
secondaries and
co-investments
to ensure that
its portfolio
remains
cash-generative
at the same time
as maximising
the potential
for growth.
Undrawn coverage The undrawn 11M to 31 May -- The -- Flexibility -- Relative
ratio coverage 2017 current in portfolio weighting
90%* ratio is the 101% level of construction, of primary,
ratio commitments allowing the secondary
of available 12M to 31 May is Company and
financing 2018 consistent to select a mix co-investments
and 10% of 99% with PIP's of primary, in the
private conservative secondary portfolio.
equity assets 12M to 31 May approach to and
to undrawn 2019 balance co-investments, -- Level of
commitments. 90% sheet and vary undrawn
The undrawn management. investment commitments
coverage pace, to achieve relative
ratio is an -- In line long-term to gross
indicator with capital assets.
of the Company's historical growth.
ability to meet experience, -- Trend in
outstanding the Company distribution
commitments, expects rates.
even in the undrawn
event commitments -- Ability to
of a market to be funded access debt
downturn. over markets
a period of on favourable
Under the terms several terms.
of its current years.
loan facilities,
PIP can continue
to make new
undrawn
commitments
unless
and until the
undrawn coverage
ratio falls
below
33%
* Excludes valuation gains and / or cash flows associated with the Asset Linked Note.
(1) Excludes the portfolio of the reference portfolio attributable to the Asset Linked Note.
Our Business Model
We aim to deliver attractive and consistent returns over the long term.
OUR INVESTMENT PROCESS
1. Deals are originated via Pantheon's well-established platform
2. Within our diversified portfolio, we back the best managers globally that are able to identify and create value in growing companies
3. Cash generated when those companies are sold is returned to PIP and redeployed into new investment opportunities
INVESTMENT STRATEGIES
Primary
We invest in a new private equity fund when it is established
-- Captures exposure to top-tier, well recognised managers as well as to smaller niche funds that are generally hard to access.
-- Targets leading managers predominantly in the USA and Europe, with a focus on funds rarely available in the secondary market.
Secondary
We purchase the interests of an investor in a fund or funds typically late into, or after, the investment period
-- Targets favoured funds at a stage when the underlying assets' performance is visible and the funds are realising investments, returning cash to PIP more quickly.
-- One of the advantages of investing in secondaries is that earlier fees will have been borne by the seller so total expenses are lower.
Co-investments
We invest in a portfolio company directly, alongside a private equity fund, during the investment period.
-- Invests in the securities of individual companies with attractive characteristics at the exclusive invitation of Pantheon's private equity managers.
-- This boosts performance potential because there are typically very low or no fees, making it a cost-effective way of capitalising on the high value added by Pantheon's selected managers.
What we do
PIP invests in private equity funds and co-invests (alongside selected private equity managers) directly into private companies worldwide.
An investment in PIP offers shareholders exposure to a growing market worth c.$4tn* globally where the best private equity managers might otherwise be inaccessible to shareholders.
We aim to deliver attractive and consistent returns to shareholders over the long term, and at relatively low risk.
*Preqin April 2019.
Why we do it
Through Pantheon, we have an opportunity to invest with many of the best private equity managers globally based on the trust and experience built up over the more than 35 years during which Pantheon has been making investments.
It is our aim to bring the strong credentials of private equity and its track record of outperforming public markets to a wider set of investors.
It is our mission to generate sustainably high investment returns through a well-managed, institutional grade portfolio built by investing with the best managers globally.
How we do it
PIP's manager, Pantheon, has a well-established platform built on three strategic pillars of investment: primary, secondary and co-investments, with each offering their own merits.
We believe that by combining the three ways of accessing private equity investments, we are able to:
-- Build and maintain a well-balanced portfolio in a combination that we monitor and manage with the aim of maximising capital growth;
-- Manage the maturity profile of our assets so that our portfolio remains naturally cash-generative on a sustainable basis;
-- Ensure that the vehicle remains as cost-effective as possible for our shareholders by reducing any potential drag on returns.
Private equity managers take controlling or influential positions in companies where they believe they can create value with a view to exiting their position at a multiple to their original investment. As portfolio companies are sold by the managers, PIP's share of the cash that is generated from those sales is deployed into new investment opportunities.
For more information on the commitments that PIP has made during the year, see the full Annual Report.
What sets us apart
Track record
For 32 years, PIP has been able to adapt quickly and effectively to changing market conditions. This flexible and proactive approach means that PIP is well placed to continue to deliver on its strategic objectives. PIP has outperformed its benchmark indices on a 1, 3, 5 and 10 year basis and since the Company's inception in 1987.
Culture
Pantheon has a strong culture of collaborative and inclusive teamwork and diversity, as well as a long history of investing its clients' capital responsibly.
Broad and deep relationships
With investments in the USA, Europe, Asia and Emerging Markets, PIP provides a carefully constructed, broad-based portfolio for investors. The presence of Pantheon's dedicated investment team of 84(1) people in six offices around the world means that they are on the ground locally, working with their extensive networks of relationships with private equity managers and taking advantage of proprietary information flows and access to opportunities. These relationships enable Pantheon to source and respond quickly to the best deal flow in those regions.
(1) As at 1 July 2019.
Independence
PIP is offered the opportunity to participate in the full range of private equity investments that Pantheon sources, and it invests alongside other Pantheon managed funds into third party funds and underlying companies rather than as a feeder into Pantheon's other investment vehicles. The Board believes that this offers several benefits to PIP and its shareholders, including:
-- Control of investment strategy, overseen by the Board;
-- Reduction of financing risk by being able to accept or decline investments offered to it by Pantheon according to its financial resources at the time;
-- The flexibility to vary the size of its commitments as appropriate and in line with any adjustments to its investment strategy;
-- Lower cost due to the elimination of expenses that can arise in intermediate vehicles.
For more information on PIP's strategic objectives, see below.
Our Strategy
Our independent and experienced Board ensures that our strategy puts shareholders first.
The role of the PIP Board
Safeguarding shareholders' interests
The independent Board of Directors is responsible for ensuring that PIP is managed in a way that achieves the best outcome for its shareholders. As part of this, it monitors the Manager's investment strategy to ensure that it is relevant, adheres to the Company's investment policy, and is constructed around seeking the best performing assets worldwide that can generate above average returns over the long term.
Monitoring of ongoing investment strategy
At the start of each year, PIP's investment strategy is considered by the Board together with the Manager. Throughout the year, there is an ongoing dialogue between the Board and the Manager who reports regularly to the Board on progress. In addition, the manager highlights any obstacles or changes in market conditions which may impact the Company's ability to achieve its strategic goals. In cases where this may occur, the Manager will propose solutions for which it will seek the support of the Board. Equally, the Board maintains the flexibility to propose amendments to the strategy as it deems necessary.
The Manager and the Board consider how PIP can most profitably deploy capital in the prevailing investment environment. In addition, the Board also reviews individual investments that exceed exposure limits, which are set appropriate (and below the hard limits in the Company's investment policy) to reflect a diversified approach. At times, the Manager may make recommendations to the Board and seek approval for certain investments that fall outside of any limits expressed in the agreed strategic approach, but which the Manager believes to be a good investment opportunity for PIP. The Board maintains its independence at all times and robustly challenges such recommendations to ensure that they are in the best interests of shareholders.
This year, the Board assessed progress against the more detailed strategic review held in 2018 which explored how the Company's historically strong NAV performance could be built upon and improved. In addition, the Board also focused on PIP's marketing and investor relations activities, considering new initiatives that could help to increase PIP's exposure and reach potential new investors in the Company. It is the Board's view that a relentless focus on optimising investment performance is critical in attracting demand for the Company's shares and this, supported by the comprehensive marketing plan that has been agreed with the Board, could then lead to a narrowing of the discount at which the shares currently trade. The main conclusions of the Board's assessment are outlined as follows.
Maintain a diversified approach while increasing potential for outperformance
As Manager of PIP, Pantheon focuses on selecting the best private equity managers and the companies they back worldwide and thoughtfully constructing and maintaining a mature portfolio that has exposure to different parts of the investment life cycle. PIP's portfolio is carefully diversified by manager, investment type, stage, geography, fund age (vintage) and sector. One of the key advantages of this approach is that it reduces the risk of any individual underperforming company or fund having a disproportionately material adverse effect on the Company's overall performance.
This year, the Board has agreed with the Manager that the Company will continue to maintain its diversified approach recognising that its increased focus on portfolio construction, as explained below, may materially reduce the number of third party managers and companies to which the portfolio is principally exposed. The Board also confirmed it is satisfied that the Manager should continue to exercise slightly more flexibility in the types and size of investments that it makes; this is discussed in more detail below.
The Board believes that this approach gives shareholders the best of both worlds: manageable risk in the Company's portfolio by remaining diversified, while at the same time increasing the potential for outperformance. The improved transparency of PIP's underlying portfolio, and increased investment flexibility, should create a clearer link between the strongest performing companies in the portfolio and the potential to boost NAV growth in the future.
Remain flexible but controlled in approach to portfolio construction
The Company has traditionally emphasised secondaries as PIP makes new investments. Secondary investments offer very attractive characteristics as highlighted in the Business Model above, however as part of the strategic review conducted in 2018, it was recognised that certain secondary opportunities may not always be the best fit for PIP's portfolio.
There is a recent tendency in the market for some recent secondary opportunities to be dominated by older assets, defined as those in funds which are 10 years or older at the time of purchase. Although those assets often generate good levels of cash, extensive analysis has shown that the rate of value increase tends to be lower than that offered by younger assets and therefore can be a drag on overall performance. The issuance of the ALN at the end of 2017 has allowed PIP actively to de-emphasise the older funds in PIP's portfolio and tilt it towards younger funds which the Board believe will perform better as a whole relative to the portfolio prior to the ALN issue. As PIP seeks to maximise capital growth and avoid older assets becoming over-weighted in the portfolio, it was agreed by the Board that the Company would benefit from Pantheon's greater control over allocation, giving it the ability to put capital to work in primary and co-investment opportunities as well as secondaries where they represented a more compelling investment proposition. While secondaries should continue to represent a significant portion of PIP's portfolio, it is recognised that over time these three different investment types may take on more equal weightings.
The benefits of this approach are clear: Pantheon can remain highly selective and disciplined when assessing deal flow while at the same time reducing the risk of PIP being excluded from exciting opportunities due to investment constraints.
The Board recognises that on occasion, the discounts at which the Company's shares trade may make them an attractive investment proposition for PIP when considered alongside other new investment opportunities. The Manager reports to the Board on a regular basis on the investment market conditions and on those occasions, the Board may authorise the Company to buy back a specified amount of its own shares.
Focus on mid--market and growth opportunities
PIP's portfolio is diversified by stage, which ranges across venture, late stage growth, small/mid and large/mega buyout opportunities, as well as those classified as special situations. While the Company's strategy is to maintain a healthy mix of all stages, Pantheon favours growth and buyout funds with a particular focus on the mid-market. The mid-market offers distinct characteristics, when compared with large deals, such as:
-- More attractively priced assets which tend to have lower levels of leverage than the broader market average;
-- Greater visibility of the value drivers and the levers to pull to improve operational efficiency to better drive growth, both organically and through buy-and-build strategies;
-- More routes to exit including strategic acquisitions, sales to other private equity managers or initial public offerings ("IPOs").
While late stage growth opportunities remain attractive, it is our view that the return profile of early stage venture can often be too protracted to be suitable for PIP's portfolio. Therefore any investment activity by PIP in early stage venture funds is focused on investing with top tier venture managers, mainly through primary fund investments, who are able to spot innovative opportunities with the potential to generate significant outperformance. While special situations includes funds with unique characteristics offering potential for outperformance, it is the Board's intention that special situations investments will be only a small minority of the overall portfolio.
Identify inefficiencies and growth potential in sectors and geographies
The Board is committed to offering investors a global portfolio with investments in the USA, Europe, Asia and Emerging Markets. It takes an active approach towards the weightings of those geographies in response to market conditions but supports the majority of the Company's capital being invested in the USA and Europe where the private equity markets are well-established and have been resilient.
The Board relies on Pantheon's investment teams around the world that are on the ground locally, to take advantage of proprietary information flows and access to opportunities through their extensive networks of relationships. The Board is confident that these relationships enable Pantheon to source and respond quickly to the best deal flow in those regions to optimise risk-adjusted performance.
It is our objective to seek managers globally that are able to take a thematic approach and focus on high growth sectors, many of which may not be fully represented by the public markets. In addition, Pantheon has a deliberate strategy of targeting sectors experiencing dislocation as well as niches where underlying growth is less correlated to GDP growth. Recent examples of this have been technology, education and healthcare.
For more information on the sectors in which PIP is invested, see the full Annual Report.
The Board believes that its oversight of the Manager's activities while at the same time allowing Pantheon the flexibility that it needs to make the appropriate investment decisions on the Company's behalf, ensures that PIP is able to deliver on its strategic objectives for shareholders over the long term.
PIP's approach to ESG and employment issues
The Company has no employees and the Board consists entirely of Non-Executive Directors. At the end of the period under review, the Board was comprised of six male Directors and one female Director.
Upon conclusion of the forthcoming Annual General Meeting, Mr Rhoddy Swire will step down from the Board. Since the period end, the Company has announced that a new female Director will be appointed to the Board on 30 October 2019.
As an investment trust, PIP has no direct impact on the community or the environment. However, Pantheon is careful through its due diligence and ongoing monitoring processes to encourage a sustainably positive impact of our investments, with a view to generating consistently high returns over the long term. Pantheon's commitment to leading the practice of responsible investment for many years meant it was one of the first signatories to the UN's Principles for Responsible Investment in 2007. Pantheon continues to explore ways in which it can promote accountability for Environmental, Social and Governance ("ESG") ethics through its investment process and the managers that it backs. For more information on Pantheon's approach to responsible investment, see the full Annual Report.
Our Investment Policy
Our investment policy is constructed around maximising capital growth
The Company's policy is to make unquoted investments. It does so by subscribing to investments in new private equity funds ("Primary investment"), buying secondary interests in existing private equity funds ("Secondary investment"), and acquiring direct holdings in unquoted companies ("Co-investments"), usually either where a vendor is seeking to sell a combined portfolio of fund interests and direct holdings or where there is a private equity manager, well known to the Company's Manager, investing on substantially the same terms.
The Company may from time to time hold quoted investments as a consequence of such investments being distributed to the Company from its fund investments as the result of an investment in an unquoted company becoming quoted. In addition, the Company may invest in private equity funds which are quoted. The Company will not otherwise normally invest in quoted securities, although it reserves the right to do so should this be deemed to be in the interests of the Company.
The Company may invest in any type of financial instrument, including equity and non-equity shares, debt securities, subscription and conversion rights and options in relation to such shares and securities and interests in partnerships and limited partnerships and other forms of collective investment schemes. Investments in funds and companies may be made either directly or indirectly, through one or more holding, special purpose or investment vehicles in which one or more co-investors may also have an interest.
The Company employs a policy of overcommitment. This means that the Company may commit more than its available uninvested assets to investments in private equity funds on the basis that such commitments can be met from anticipated future cash flows to the Company and through the use of borrowings and capital raisings where necessary.
The Company's policy is to adopt a global investment approach. The Company's strategy is to mitigate investment risk through diversification of its underlying portfolio by geography, sector and investment stage. Since the Company's assets are invested globally on the basis, primarily, of the merits of individual investment opportunities, the Company does not adopt maximum or minimum exposures to specific geographic regions, industry sectors or the investment stage of underlying investments.
In addition, the Company adopts the following limitations for the purpose of diversifying investment risk:
-- That no holding in a company will represent more than 15% by value of the Company's investments at the time of investment (in accordance with the requirement for approval as an investment trust which applied to the Company in relation to its accounting periods ended on and before 30 June 2012);
-- The aggregate of all the amounts invested by the Company in (including commitments to or in respect of) funds managed by a single management group may not, in consequence of any such investment being made, from more than 20% of the aggregate of the most recently determined gross asset value of the Company and the Company's aggregate outstanding commitments in respect of investments at the time such investment is made;
-- The Company will invest no more than 15% of its total assets in other UK-listed closed-ended investment funds (including UK-listed investment trusts).
The Company may invest in funds and other vehicles established and managed or advised by Pantheon or any Pantheon affiliate. In determining the diversification of its portfolio and applying the manager diversification requirement referred to above, the Company looks through vehicles established and managed or advised by Pantheon or any Pantheon affiliate.
The Company may enter into derivatives transactions for the purposes of efficient portfolio management and hedging (for example, hedging interest rate, currency or market exposures).
Surplus cash of the Company may be invested in fixed interest securities, bank deposits or other similar securities.
The Company may borrow to make investments and typically uses its borrowing facilities to manage its cash flows flexibly, enabling the Company to make investments as and when suitable opportunities arise and to meet calls in relation to existing investments without having to retain significant cash balances for such purposes. Under the Company's articles of association, the Company's borrowings may not at any time exceed 100% of the Company's net asset value. Typically, the Company does not expect its gearing to exceed 30% of gross assets. However, gearing may exceed this in the event that, for example, the Company's future cash flows alter.
The Company may invest in private equity funds, unquoted companies or special purpose or investment holding vehicles which are geared by loan facilities that rank ahead of the Company's investment. The Company does not adopt restrictions on the extent to which it is exposed to gearing in funds or companies in which it invests.
PRINCIPAL RISKS AND UNCERTAINTIES
The Company is exposed to a variety of risks and uncertainties. The Board, through delegation to the Audit Committee, has undertaken a robust assessment and review of the principal risks facing PIP, together with a review of any new risks that may have arisen during the year to 31 May 2019, including those that would threaten its business model, future performance, solvency or liquidity. A summary of the risk management and internal control processes can be found in the Statement on Corporate Governance in the full Annual Report.
Investment risk
Type and Description of Potential Impact Risk Management Outcome for the Year
Risk
Insufficient liquid Investment losses and PIP has a mature portfolio The total available
resources reputational that is naturally cash financing as at 31 May
to meet outstanding damage arising from the generative. 2019 stood at GBP323m,
commitments inability to meet capital comprising GBP141m in
to private equity funds call obligations. In the event that cash net available cash
balances and cash balances
distributions and a GBP182m undrawn
are insufficient to revolving credit facility.
cover capital calls, Total available financing
PIP has the ability along with the private
to draw funds from a equity portfolio exceeded
credit facility. outstanding commitments
by a factor of 3.4 times
The Board manages the
Company so that undrawn
commitments remain at
an acceptable level
relative to its portfolio
assets and available
financing.
The Board conducts a
comprehensive review
of the Company's cash
flow model on a regular
basis.
----------------------------- ----------------------------- ---------------------------
Lack of suitable Change in risk profile Pantheon has put in During the year, PIP
investment as a result of manager, place a dedicated investment has invested within
opportunities to meet fund or company exposures management process designed strategic limits for
strategic that are materially to achieve the Board's vintage year, geography
diversification objectives different intended investment and stage allocations,
from the Company's intended strategy. as well as within
strategy. concentration
The Board regularly limits for individual
reviews investment and managers, funds and
financial reports to Companies.
monitor the effectiveness
of the Manager's investment
processes.
----------------------------- ----------------------------- ---------------------------
Private equity investments Potential decline in PIP pursues a flexible The Company's flexible
are long term in nature realisation investment strategy, investment strategy
and it may be some years activity which may impact combining secondary has resulted in a
before they can be portfolio performance. investments which typically portfolio
realised have shorter exit horizons, with a healthy mix of
with co-investments likely exit horizons.
and primary commitments.
----------------------------- ----------------------------- ---------------------------
Investments in unquoted Illiquidity of underlying As part of its investment Strong realisation
Companies carry a higher assets may have an adverse process, Pantheon assesses activity
degree of risk relative impact on realisations the approach of its during the year, with
to investments in quoted and portfolio performance. managers to company distributions of GBP277m
securities illiquidity as well and a distribution rate,
as projected exit outcomes. equivalent to 24% of
opening portfolio assets.
----------------------------- ----------------------------- ---------------------------
Gearing, whether at the Potential impact on PIP's Articles of The Company had no gearing
vehicle (PIP), fund or performance Association at a vehicle level as
company level, could cause and liquidity, especially and Investment Policy at the end of the current
the magnification of gains in the event of a market impose limits on the financial year.
and losses in the asset downturn. amount of gearing that
value of the Company the Company can take
on.
The principal covenant
of the loan facility
ensures that the Company
is limited to a maximum
gearing (excluding the
ALN) of 34% of adjusted
gross asset value (excluding
the ALN.)
The Board conducts regular
reviews of the balance
sheet and long-term
cash flow projections.
----------------------------- ----------------------------- ---------------------------
Non-sterling investments Unhedged foreign exchange The Manager monitors Foreign exchange had
expose the Company to rate movements could impact the Company's underlying a positive impact on
fluctuations NAV total returns. foreign currency exposure. performance during the
in currency exchange rates year.
As part of its investment
process, the Manager
takes currency denominations
into account when assessing
the risk/return profile
of a specific investment.
Multi-currency credit
facility is a natural
hedge for currency
fluctuations
relating to outstanding
commitments.
----------------------------- ----------------------------- ---------------------------
Changes in the Company's Failure to understand tax Pantheon's investment Taxes had a minimal
tax status or in tax risks when investing or process incorporates effect on overall NAV
legislation divesting could lead to an assessment of tax. performance in the year.
and practice tax exposure or financial
loss. The Manager reviews
the appropriateness
of an investment's legal
structure to minimise
the potential tax impact
on the Company.
----------------------------- ----------------------------- ---------------------------
Possibility that another Counterparty defaults can PIP invests in high Approximately 50% of
investor in a fund is have unintended consequences quality funds alongside new commitments made
unable on the remaining investors' institutional private in the year were funded
or unwilling to meet obligations and investment equity investors. at the time of
future exposure. acquisition.
capital calls A considerable proportion
of PIP's investments
are in funded positions.
----------------------------- ----------------------------- ---------------------------
Non-investment risk
Type and Description of Potential Impact Risk Management Outcome for the Year
Risk
Market factors such as Impact of general economic Pantheon's investment PIP continued to maintain
interest rates, inflation conditions on underlying process incorporates a diversified approach
and equity market fund and company an assessment of market to portfolio construction.
performance, valuations, risk.
can affect the value of exit opportunities and Quoted asset exposure
investments. the availability of credit. Active management of was below 10% as at
investments to ensure 31 May 2019.
diversification by
geography,
stage, vintage and sector.
---------------------------- ---------------------------- ----------------------------
Reliance on the accuracy Risk of errors in financial The valuation of No material misstatements
of information provided statements and NAV investments concerning the valuation
by General Partners when reporting. is based on periodically and existence of
valuing investments. audited valuations that investments
are provided by the during the year.
private equity managers.
Pantheon carries out
a formal valuation process
involving monthly reviews
of valuations, the
verification
of audit reports and
a review of any potential
adjustments required
to ensure reasonable
valuations in accordance
to fair market value
principles under GAAP.
---------------------------- ---------------------------- ----------------------------
PIP relies on the services Business disruption should The Board keeps the The Board has approved
of Pantheon as its Manager the services of Pantheon services of the Manager the continuing appointment
and other third party and other third party and third party suppliers of the Manager and other
service suppliers cease to be under continual review. service providers following
providers. available to the Company. an assessment of their
The Management Agreement respective performance
is subject to a notice during the year.
period of two years,
giving the Board adequate
time to make alternative
arrangements in the
event that the services
of Pantheon cease to
be available
---------------------------- ---------------------------- ----------------------------
High dependency on Significant disruption Pantheon has a No material issues to
effective to IT systems may result comprehensive report for the year.
information technology in financial losses, the set of policies, standards
systems to support key inability to perform and procedures related
business functions and business to information technology.
the safeguarding of critical functions,
sensitive regulatory Ongoing investment and
information. censure, legal liability training to improve
and reputational damage. the reliability and
resilience of Pantheon's
information technology
processes and systems.
---------------------------- ---------------------------- ----------------------------
Uncertainty around the Market and currency Pantheon has been Pantheon has opened
Brexit process will have volatility monitoring an office in Dublin,
consequences for the may adversely impact policy developments with Pantheon Ireland
Company. returns. and reviewing aspects authorised to conduct
The Company's ability of the Company's business regulated activities
to market its shares to that rely on pan-EU within the EU on behalf
European Investors may arrangements. of Pantheon, ensuring
also be at risk. that Brexit will have
a minimal impact on
Pantheon's ability to
operate in Europe.
---------------------------- ---------------------------- ----------------------------
Retail investors advised by IFAs
The Company currently conducts its affairs so that its shares can be recommended by independent financial advisers to retail private investors in accordance with the FCA's rules in relation to non-mainstream investment products.
The shares are excluded from the FCA's restrictions which apply to non-mainstream investment products because they are shares in a UK-listed investment trust.
Viability statement
Pursuant to provision C.2.2 of the UK Corporate Governance Code 2016, the Board has assessed the viability of the Company over a three year period from 31 May 2019. It has chosen this period as it falls within the Board's strategic planning horizon. The Company invests in an internationally diversified portfolio of private equity assets, both through funds and by co-investing directly into companies alongside selected private equity managers. The Company invests significantly in the private equity secondaries market as this allows the Company to maintain a more mature portfolio profile that is naturally cash-generative in any particular year.
Commitments to new funds are restricted relative to the Company's assets and its available liquid financial resources so as to maintain a reasonable expectation of being able to finance the calls, which arise from such commitments, out of cash flow that is generated internally. In addition, the Company has put in place a revolving credit facility to ensure that it is in a position to finance such calls in the event that distributions received from investments in the period are insufficient to finance calls. The Board reviews the Company's financing arrangements at least quarterly to ensure that the Company is in a strong position to finance all outstanding commitments on existing investments as well as being able to finance new investments.
In reviewing the Company's viability, the Board has considered the Company's position with reference to its business model, its business objectives, the principal risks and uncertainties as detailed within the full Annual Report and of its present and expected financial position. In addition, the Board has also considered the Company's conservative approach to balance sheet management, which allows it to take advantage of significant investment opportunities, and the appropriateness of the Company's current investment objectives in the prevailing investment market and environment. The Board regularly reviews the prospects for the Company's portfolio and the opportunities for new investment under a range of potential scenarios to ensure it can expect to be able to continue to finance its activities for the medium-term future. Based on its review, the Board has a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over a three year period.
On behalf of the Board
Sir Laurie Magnus
6 August 2019
Manager's Review
We access top private equity managers who can actively add value to growing companies.
How private equity managers add value
The best managers consistently transform companies to create long-term value
What is Private Equity?
Private equity is the term used for privately negotiated investments typically made in non-public companies. It covers a range of stages of a business's life, from start-ups to well-established firms. It is an attractive asset class for a broad range of investors as it can boost the performance of their investment portfolios and provide differentiated returns.
Barriers to entry are high
For the most part, capital in the industry is managed in non-listed structures typically limited partnerships. Investors wishing to invest directly in a private equity fund are often expected to lock up their capital for at least ten years and many private equity firms only accept high minimum commitments to their funds from selected investors.
We make the private, public
However, by buying shares in a listed private equity investment trust such as PIP, investors can gain ready access to private equity opportunities. For the price of one share, investors can participate in a managed, globally diversified private equity portfolio. Investors can also benefit from the administrative simplicity and liquidity obtained from being able to buy and sell shares trading on a recognised stock exchange. In addition, the capital gains that arise are retained within an investment trust structure, and are not subject to corporation tax.
Private equity managers have clear objectives
-- Acquire influential or controlling stakes in high quality companies that are typically privately owned.
-- Operate according to a long-term investment horizon.
-- Offer hands-on management support to implement strategic and or operational change to enhance a company's value.
-- Invest alongside company management, to ensure alignment of interests, while using leverage to create an efficient capital structure.
Businesses offering significant growth potential are key
-- Managers are often industry sector experts and use their knowledge and resources to create value in their portfolio companies.
-- Highly skilled managers are able to manage assets through economic cycles.
-- Experienced managers take advantage of mispricing and dislocations when identifying attractive investment opportunities.
-- Managers take environmental, social and governance risks into account when making an investment and aim to improve their companies' performance on these metrics over time.
Top quartile private equity managers are able to produce public market-beating returns
-- The spread of performance in private equity is much wider than in other asset classes.
-- Managers have significant influence on performance: the same company could produce differing returns depending on the private equity manager that owns it.
Value is crystallised when the companies are sold at a profit to a variety of buyers
-- Private equity managers focus on potential exit strategies when identifying target companies, and during due diligence.
-- Private equity managers are able to position their investments for sale and can time their realisations, exploring each major potential exit route.
-- Private equity positions can be exited in three main ways:
- Corporate/strategic buyers;
- Secondary sale to another private equity manager;
- Initial public offerings.
Manager's Market Review
Andrew Lebus and Helen Steers, Partners at Pantheon, discuss the private equity market, Pantheon's activities in the past year and their expectations for the year ahead.
With an estimated value of just under $4tn(1) in 2018, the global private equity market seems to be achieving scale. What have been the key developments in the past year?
HS: The private equity market is expanding strongly, but when we consider its size relative to the assets under management of some of the largest global investors, in traditional asset classes, there seems to be further room for growth.
Those of us working in private equity tend to think of it as a mainstream asset class, however over a third of institutional investors still do not allocate to private equity.
Of those investors that do allocate to private equity, many are planning to increase their exposure. Fundraising remains robust - with $461bn(2) raised in 2018 - albeit at a slightly lower level than in the previous year. Investment activity also remains robust, keeping pace with funds raised, and exits continue to generate strong cash flow.
AL: At Pantheon, we have had another busy 12 months working with the best managers globally to source attractive investments for PIP's portfolio. These manager relationships are not formed overnight, they are the result of the tireless work of our global investment team of over 80 professionals who are able to use their extensive networks, built up over many years, and their access to privileged information to tap into the exciting deal flow that we continue to see in our pipeline.
There is an estimated $1.2tn(3) of private equity "dry powder" (capital raised and available to invest but not yet deployed) globally and many private equity investors are paying relatively high prices for assets. How is Pantheon ensuring that PIP is not overpaying for assets?
HS: During the almost 30 years that I have been in private equity, including 15 years at Pantheon, there have often been concerns about "too much capital chasing too few deals". While it is true that the amount of dry powder is high, it is important that we put this into context and compare it with capital deployment. New investment appears to be keeping pace with fundraising, resulting in a ratio of deal activity to dry powder that has been steady over the past few years.
In addition, dry powder tends to be concentrated in the mega buyout segment of the market. At Pantheon we are more focused on the mid-market, where we frequently see greater growth potential in the underlying businesses and with more routes to exit. Our mid-market managers, or General Partners ("GPs"), may choose to sell assets to these larger managers, who can then take those businesses forward into their next stages of development.
AL: Undeniably, valuations continue to be high but we think that this is true of all equity investments. Our managers are responding to this and mitigating valuation multiples by employing buy-and-build strategies, where smaller accretive acquisitions can be completed. Managers will also implement operational improvements to maximise the growth potential in the investee businesses, entering into more complex transactions, for which many strategic buyers may not have the required expertise or resources, and by specialising in sector and deal types where private equity involvement can really boost the potential of those businesses.
Amidst the growing geopolitical tensions, especially between the USA and China, and uncertainty affecting many investment decisions, to what degree is PIP exposed to businesses that could bear the brunt of such disruption?
AL: Asia (and Emerging Markets) represent a smaller part of PIP's portfolio, compared to the USA and Europe, and for the past decade Pantheon's investment focus in China has been on domestic consumption. There is negligible exposure in PIP's portfolio to companies that could be directly impacted by the US-China trade dispute, however there is no doubt that sentiment is starting to weigh on business and consumer spending through the erosion of confidence. How this plays out will very much depend on the length and intensity of the trade war and its outcome. This applies not only to China and the USA, but also to other economies through their roles in the global supply chain.
Closer to home for PIP, as it is a pound sterling - quoted stock, is the continued uncertainty around Brexit in the UK and the question of how and when the UK will leave the European Union. While Pantheon and our managers are taking a careful approach to deploying capital in the UK, it continues to be a relatively attractive jurisdiction from a private equity perspective, which is focused on long-term investment. Having said that, the UK only represents around 8% of PIP's total underlying portfolio.
HS: This highlights the importance of how PIP invests - PIP's regional and sector exposure can be increased or decreased as appropriate in response to market conditions. But even in regions or sectors where there is pressure, our managers are still able to spot compelling opportunities and take advantage of market dislocations where there are attractive growth prospects over the long term.
AL: We still see the most opportunities in the USA, which has the deepest and most established private equity market, and we expect that to continue. In Europe, many of the managers that Pantheon backs are regional or pan-European managers who are able to deploy capital in different countries as economic events unfold during an investment period.
The healthy US economy appears to be an outlier as GDP growth is slowing elsewhere, particularly in Europe and China. How well is PIP prepared for when the economic cycle turns?
AL: It is likely that the US economy has been buoyed by the changes in tax allowances, which has bolstered investment there. It appears that the emerging economies, particularly China, India and Korea, have been the main drivers behind global economic growth in recent years so any decline there will contribute to a downturn. In its more than 30 year history, PIP has been through multiple cycles, and we believe that the strength of PIP's balance sheet, with the careful control of its undrawn commitments and liquidity ratio, means that it is well positioned to withstand a downturn.
HS: Also, we are backing managers who themselves have been through a number of cycles and have experience of managing assets in less favourable conditions. Let's not forget that one of the key characteristics of private equity is that our managers are not under any pressure to sell their assets and indeed they may choose not to sell if they do not believe that the timing is right for a particular business. A key part of Pantheon's due diligence process is assessing how a manager has performed in previous downturns so that we are able to build up a picture of how they might respond and perform in the future.
AL: From all my time in private equity, of which 25 years have been at Pantheon, I have seen how our managers are able to adapt and be flexible. As they are out of the public eye, our managers have the space and time to respond to events and implement changes to grow businesses over the long term. We believe that this is one of the reasons why companies are choosing to stay private for longer before listing on public markets.
Given that risk and performance are actively managed in PIP's portfolio through its diversified approach and full control over portfolio construction, are there sectors that you are avoiding or focusing on in particular?
AL: I think that the pressures being experienced in the retail sector are well documented and so we are staying away from consumer discretionary businesses that are excessively exposed to the economic cycle. Instead we prefer defensive sectors, such as healthcare and education, that offer growth via innovation or demographics rather than being correlated to GDP.
HS: Technology disruption can be seen as a threat but it is also an opportunity. Many managers are recognising that there are overlaps between technology and other sectors, and are not only establishing technology verticals but also using technology horizontally within their existing platforms. They are driving innovation and using advanced data analytics to optimise operations and launch new products.
Pantheon is alert to the opportunities that this presents for value creation in our underlying portfolio companies and we talk about this in more detail in the full Annual Report.
The global secondary market is growing and, with an estimated record $74bn(4) of deal volume in 2018, this trend looks set to continue. As pioneers in this space, how has Pantheon kept up with these developments?
AL: I sit on the Global Secondary Investment Committee at Pantheon and have seen first hand how the secondary market has become a more established channel through which both investors and private equity managers can facilitate liquidity or reshape their portfolios.
GP-led transactions - where the GPs themselves are actively involved in finding liquidity for an investor in their fund - are an increasing part of the market and represented 32% of the total secondary volume in 2018, up from 20% in 2014(4) . The types of secondary transactions are evolving and, in addition to traditional secondary deals, now also include restructuring programmes and tenders. Single-asset deals, where GPs carve out individual assets that they do not yet wish to sell, are also increasing. A long-established, experienced secondary market player such as Pantheon is an attractive investor for these kinds of deals and we often work with our managers to shape the deal itself.
Pricing in the secondary market has remained broadly flat with good quality buyout funds, which are Pantheon's focus, tending to trade at around NAV. At Pantheon, we have manager relationships that span decades and through our platform, we are able to identify deals that offer embedded value. Maintaining discipline and selectivity is paramount and we use our in-house expertise to choose our investments carefully. We are actively avoiding early stage venture funds and deals where there is poor alignment with the GP, underperforming assets, a mixed quality GP track record, a lack of visibility around the exit or if the rationale for the secondary transaction is unclear. Instead, we focus on acquiring concentrated positions in more recent (younger than 10 years) vintages where the attributes for outperformance are more pronounced.
The co-investment market is becoming increasingly competitive - how is Pantheon able to continue to source good deal flow for PIP's portfolio?
HS: I am a long-standing member of the Global Co-investment Committee at Pantheon and have observed that our platform continues to yield significant co-investment opportunities. As with all our investments, we have maintained our disciplined approach and only invest in deals where the targeted business is a good fit for the manager in terms of their sector and geographic expertise. The valuation environment has been aggressive, and our dedicated and experienced co-investment team works continuously with our managers to understand their valuation metrics and challenge them.
Pantheon remains an attractive co-investor for several reasons - we do not compete against our managers, we are reliable, and we have the scale and ability to deploy capital quickly and efficiently. In addition, we can also co-underwrite transactions alongside our managers.
We have talked about the opportunities but what keeps you awake at night?
AL: We have discussed the high valuations but debt levels have been rising as well. However, there are some mitigating factors to this - the percentage of equity invested into businesses is healthy, there are more covenant-lite structures which allow GPs some flexibility if companies underperform and finally, and perhaps most reassuringly, many of our managers remember the Global Financial Crisis and still have the scars on their backs. Several GPs have in-house debt teams to ensure that they are making the best use of the leverage available to them on attractive terms and, importantly, are disciplined enough to decline the amount of leverage on offer if it isn't appropriate.
HS: We have also observed an increasingly complex environment for our GPs, including changing investor dynamics, greater regulation affecting operational strategies, and more detailed reporting and transparency requirements. This is why Pantheon's ability to assess the risks as well as the opportunities as part of its detailed due diligence process is so important. In my roles on the European Investment, International Investment and Co-investment Committees at Pantheon, I see most of the deals that Pantheon is sourcing for PIP and I often say that assessing those deals is both an art and a science. It's not just about the numbers - although they matter of course - but of equal importance is understanding the mechanics of how a manager operates and whether they have the right people, strategy and tools in place to be able to respond quickly to events and deliver good performance in the future.
As with any industry, there are some misconceptions about private equity - in your opinion, what are the most common ones?
AL: Sometimes private equity is portrayed in a negative light and it is true that there have been some high-profile cases of things going wrong. However, it is important to understand that the best managers operate with long-term investment horizons, looking for high quality companies that are often in niche sectors and demonstrate real growth potential. They focus on creating value in their investee businesses through hands-on operational and strategic support and there is a real alignment of interest between the investors, private equity manager and a company's management with everyone crystallising equity value at the same time once the value-creation plan has been achieved.
HS: In addition, there seems to be a belief that environmental, social and governance factors are not considered in private equity investment. This couldn't be further from the truth and our colleagues Alex Scott and Jie Gong discuss this in more detail in the full Annual Report.
Finally, what are your expectations and priorities for the year ahead?
HS: As I said at the beginning, the private equity market is growing but still has much further to go. This presents a wealth of opportunities for an established, long-term investor such as Pantheon. Even if entry prices for private equity investments remain high, we believe that there will be greater recognition of the role of private equity in stimulating growth, transforming businesses and providing attractive returns. The corollary of expanding private markets is the shrinkage that we are seeing in public markets. Investors are finding that private markets are providing access to faster growing, younger and more innovative companies.
AL: We will continue to focus on building a diversified portfolio for PIP, which we are able to achieve flexibly through our three pillars of investment - primaries, secondaries and co-investments - that we believe is capable of delivering healthy returns and of continuing to outperform benchmark public market indices over the long term.
(1) Source: Preqin April 2019, data as at June 2018.
(2) Source: Preqin, April 2019.
(3) Source: Preqin April 2019, data as at June 2018.
4 Source: Greenhill-Cogent, Global Secondary Market Trends, January 2019.
Performance
Overall, PIP's underlying portfolio continues to deliver strong returns
Private equity portfolio movements
-- Excluding returns attributable to the ALN share of the portfolio, PIP's portfolio generated returns of 12.9% during the year.
-- PIP's total portfolio generated investment returns, prior to foreign exchange effects, of 12.5%.
Valuation gains by stage(1)
-- PIP experienced strong performance from growth and small/mid-market buyout funds, driven by both strong exits and growth in underlying portfolio company valuations.
-- Large buyout returns were more modest, impacted by a number of company specific events.
-- Negative performance in special situations due to valuation declines in the energy sector, outweighed by strong performance across the rest of the portfolio.
Return Closing
(%) portfolio
NAV
(%)
Growth 31.3 20
Small/Mid buyout 16.2 39
Venture 14.9 5
Large/Mega buyout 7.7 24
Special situations -6.2 12
Valuation gains by region(1)
-- European investments made an important contribution to overall performance during the year.
-- USA performance was negatively impacted by a handful of buyout investments.
Return Closing
(%) portfolio
NAV
(%)
USA 9.5 55
Europe 25.0 26
Asia and EM 5.0 12
Global 14.2 7
(1) Portfolio returns include income, exclude gains and losses from foreign exchange movements, and look through feeders and funds-of-funds to the underlying funds. Portfolio returns exclude returns generated by the portion of the reference portfolio attributable to the Asset Linked Note, and are calculated by dividing valuation gains by opening portfolio values.
Valuation gains by type
-- Strong co-investment performance underpinned by a number of exits at significant uplifts to carrying value.
-- Stronger performance from recent secondary investments offset by a deadline in value or energy secondaries..
-- Primary performance driven by more recent vintage fund investments.
Return Closing
(%) portfolio
NAV
(%)
Co-investment 19.6 33
Primary 15.7 27
Secondary 8.0 40
Sector Themes
Every sector is experiencing digital disruption
Disruptive technology is changing the way private equity does business. Our investment strategies are evolving, while there are many opportunities for our managers to source new types of deals and use technology to add value to our portfolio companies.
Investing
-- Private equity managers are establishing technology verticals within their existing platforms, hiring senior technology-focused investment professionals from other industries and consulting firms, and partnering with top universities to attract technical talent
-- Buyout GPs are actively building relationships with venture communities and acquiring venture and growth capital backed companies
-- Private equity managers are employing advanced data analytics to enhance deal sourcing.
-- Leading GPs' investment strategies and due diligence techniques are evolving to reflect the impact of technology
Managing
-- Private equity managers are helping founder/owners develop their technologies for commercial use, and expand their application to new products and services
-- GPs are accelerating the adoption of technology in portfolio companies in order to boost value creation through:
- driving faster revenue growth (e.g. by using digital marketing)
- reducing costs by optimising operations (e.g. digitalisation of supply chain management)
-- Increasing valuation multiples by strategically repositioning businesses (e.g. transforming offline retail into a multiple channel approach).
Sector Themes
Pantheon assesses deals across many sectors and has seen interesting opportunities in information technology and healthcare as well as attractive deal dynamics in certain energy and financial sector transactions and areas in the consumer sector. Investing in, or alongside, managers who have the expertise to identify and capitalise on shifting sector trends gives PIP access to the most promising segments within these sectors. The industry reclassification(1) of certain media companies globally from Consumer to Communication Services contributed to the reduction in exposure to the Consumer sector in PIP's portfolio during the year.
Company Sectors(2)
Information Technology 24% Healthcare 18% Consumer 16% Financials 12% Industrials 9% Energy 9% Communication Services 7% Other 5%
(1) Industry reclassification undertaken by the Global Industry Classification Standard ('GICS')
(2) The above is based on underlying company valuations as at 31 March 2019 and account for over 98% of PIP's overall portfolio value.
DISTRIBUTIONS
PIP received more than 1,500(1) distributions in the year, with many reflecting realisations at significant uplifts to carrying value. PIP's mature portfolio should continue to generate significant distributions.
(1) This figure looks through feeders and funds-of-funds.
Distribution by Region and Stage
PIP received GBP277m in proceeds from PIP's portfolio in the year to 31 May 2019 equivalent to 24%(2) of opening private equity assets. The USA accounted for the majority of PIP's distributions, where market conditions supported a good level of exits, particularly from buyouts.
(2) Including distributions attributable to the asset linked note, the distribution rate for the year was 25%.
Distributions by region
USA 55% Europe 31% Asia and EM 6% Global 8%
Distribution by stage
Large/mega buyout 34% Small/mid buyout 33% Growth 23% Special situations 6% Venture 4%
Quarterly Distribution Rates
Strong quarterly distribution rates reflect the maturity of PIP's portfolio.
Distribution Rates by Vintage
With a weighted average fund maturity of 5.2 years(3) , PIP's portfolio should continue to generate significant levels of cash.
(3) Calculation for weighted average age excludes the portion of the reference portfolio attributable to the Asset Linked Note.
Cost multiples on exit realisations for the year to 31 May 2019(1)
The average cost multiple of the sample was 3.3 times, highlighting value creation over the course of an investment.
Uplifts on exit realisations for the year to 31 May 2019(1)
The value-weighted average uplift in the year was 36%, consistent with our view that realisations can be significantly incremental to returns.
The method used to calculate the average uplift has been changed in this period to compare the value at exit with the value twelve months, rather than the value six months, prior to exit. The reason for this change is that six month prior valuations now more commonly reflect the value implied by an impending realisation event and may not give a true reflection of the uplift achieved through exit, particularly for co-investments which represent
a growing proportion of realisation activity.
(1) See the Alternative Performance Measures section within the full Annual Report for sample calculations and disclosures.
Exit Realisations by Sector and Type
The portfolio benefited from strong realisation activity, particularly in the information technology and consumer sectors.
Secondary buyouts and trade sales represented the most significant source of exit activity during the year. The data in the sample provide coverage for 100% (for exit realisations by sector) and 89% (for exit realisations by type) of proceeds from exit realisations received during the period.
Exit realisation by sector
Information Technology 35% Consumer 28% Industrials 12% Financials 8% Healthcare 7% Energy 5% Others 5%
Exit realisation by type
Secondary buyout 40% Trade Sale 39% Public Market Sale 16% Refinancing and Recapitalisation 5%
Calls
Calls during the year were used to finance investments in businesses such as healthcare facilities, application software developers, insurance brokers and education services companies.
Calls by Region and Stage
PIP paid GBP107m to finance calls on undrawn commitments during the year.
The calls were predominantly made by managers in the buyout and growth segments.
Calls by region USA 52% Europe 29% Asia & EM 12% Global 7% Calls by stage Small/mid buyout 38% Large/mega buyout 28% Growth 22% Special Situations 11% Venture 1%
Calls by Sector
A large proportion of calls were for investments made in the healthcare, information technology, consumer and financial sectors.
Calls by sector Healthcare 19% Information Technology 19% Consumer 16% Financials 13% Industrials 12% Energy 9% Telecom Services 6% Materials 3% Others 3%
Quarterly Call Rate(1)
The average annualised call rate for the year to 31 May 2019 was 24%.
(1) Call rate equals calls in the period (annualised) divided by opening undrawn commitments. All call figures exclude the acquisition cost of new secondary and co-investment transactions.
New Commitments
Through PIP's access to an active pipeline of high quality deal flow, it committed GBP341m to 59 new investments during the year.
Of the total commitment made, GBP165m was drawn at the time of purchase.
New Commitments by Region
The majority of commitments made in the year were to US and European private equity opportunities.
USA 51% Europe 26% Asia and EM 7% Global 16%
New Commitments by Stage
The majority of new commitments made in the year were in the buyout segment, with particular emphasis on small and medium buyouts.
Small/mid buyout 40% Large/mega buyout 25% Growth 20% Special Situations 15%
New Commitments by Investment Type
New commitment during the year reflect the attractiveness of opportunities across the spectrum of PIP"s investment activity.
Primary 47% Secondary 31% Co-investment 22%
New Commitments by Vintage
Primaries and co-investments, which accounted for over two thirds of total commitments during the year offer exposure to current vintages. Secondary investments made during the period were mostly in 2015 and later funds, consistent with PIP's strategy of focusing on recent vintage investments while reducing its weighting to older tail-end funds.
2019 35% 2018 54% 2017 3% 2015 2% 2013 2% 2011 2% 2009 and earlier 1%
Secondary Commitments(1)
GBP105m committed to 13 secondary transactions during the year.
Secondary investments allow the Company to access funds at a stage when the assets are generating cash distributions.
The private equity secondary market has grown significantly over the last ten years, both in scale and complexity. Despite strong competition, PIP continues to originate compelling opportunities derived from Pantheon's global platform and its expertise in executing complex secondary transactions over which it may have proprietary access. Over the last 12 months, in addition to traditional secondary transactions, PIP has participated in preferred capital investments and deals that involved single asset investments with significant upside potential.
GBP105m committed to 13 secondary transactions during the year.
(1.) Funds acquired in secondary transactions are not named due to non-disclosure agreements.
Examples of Secondary Commitments made during the year:
REGION STAGE DESCRIPTION COMMITMENTS FUNDED
GBPM %(2)
---------- ----------- ----------------------------- -------------- ---------
Portfolio of four
USA Growth US growth funds 19.2 95%
UK mid-market buyout
Europe Small/mid fund 13.2 61%
Secondary acquisition
of a minority interest
in an ophthalmology
USA Small/mid company 13.0 100%
Special European special situations
Europe sits fund 12.5 89%
Secondary investment
Special in a US oil and gas
USA sits producer 12.1 100%
(2) Funding level does not include deferred payments.
Primary Commitments
GBP160m committed to 20 primaries during the year.
Investing in primary funds allows PIP to gain exposure to top tier, well recognised managers as well as to smaller niche funds that might not typically be traded on the secondary market. Our focus remains on investing with high quality managers who have the proven ability to drive value at the underlying company level, and generate strong returns across market cycles. In addition, we target funds with market leading specialisms in high growth sectors such as healthcare and information technology.
Examples of Primary Commitments made during the year
INVESTMENT STAGE DESCRIPTION COMMITMENTS GBPM
Advent Global Private
Equity IX USD Large/mega Global large buyout fund 23.8
-------------- ------------------------------- -------------------
Searchlight Capital Global special situations
III Special sits fund 20.5
-------------- ------------------------------- -------------------
European mid-market buyout
fund focused on the Nordic
Altor Fund V Small/mid region 19.4
-------------- ------------------------------- -------------------
Mid-market growth buyout
ECI 11 Small/mid fund focused on the UK 15.0
-------------- ------------------------------- -------------------
North American fund targeting
growth-stage technology
Growth Fund(3) Growth companies 11.0
-------------- ------------------------------- -------------------
(3) Confidential.
Co-investments
GBP76m committed to 26 co-investments during the year
PIP's co-investment programme benefits from Pantheon's extensive primary investment platform which has enabled PIP to participate in proprietary mid-market deals that would otherwise be difficult to access. PIP invests alongside managers who have the sector expertise to source and acquire attractively priced assets and build value through operational enhancements, organic growth and buy-and-build strategies.
The healthcare, information technology and financials sectors in the USA in particular, offered compelling investment opportunities.
Co-investment by Geography USA 67% Europe 12% Asia & EM 18% Global 3% Co-investment by Sector Healthcare 28% Information Technology 24% Financials 24% Industrials 11% Consumer 7% Energy 6%
Undrawn Commitments
PIP's undrawn commitments(1) enable the Company to participate in future investments in underlying companies as private equity managers build their portfolios
(1) Capital committed to funds that to date remains undrawn.
Movement in Undrawn Commitments for the Year to 31 May 2019(2)
PIP's undrawn commitments to investments increased to GBP521m as at 31 May 2019 from GBP440m as at 31 May 2018. The Company paid calls of GBP107m and added GBP176m of undrawn commitments associated with new investments made in the year. Foreign exchange effects and fund terminations accounted for the remainder of the movement.
(2) Includes undrawn commitments attributable to the reference portfolio underlying the Asset Linked Note.
Undrawn Commitments by Region
The USA and Europe have the largest undrawn commitments, reflecting the Company's investment emphasis on more developed private equity markets. Commitments to Asia and other regions provide access to faster growing economies.
USA 50% Europe 30% Asia and EM 8% Global 12%
Undrawn Commitments by Stage
PIP's undrawn commitments are diversified by stage, with an emphasis on small and mid-market buyout managers.
Small/mid buyout 39% Large/mega buyout 32% Growth 15% Special situations 13% Venture 1%
Undrawn Commitments by Vintage
Approximately 22% of PIP's undrawn commitments are in vintage 2013 or older funds, where drawdowns may naturally occur at a slower pace. It is likely that a portion of these commitments will not be drawn. The rise in more recent vintages reflects PIP's recent primary commitment activity.
2019 19% 2018 24% 2017 13% 2016 12% 2015 8% 2014 2% 2013 2% 2012 2% 2009 - 2011 2% 2008 4% 2007 6% 2006 and earlier 6%
Finance and Share Buybacks
Efficient balance sheet management supports PIP's investment strategy.
Cash and Available Bank Facility
At 31 May 2019, PIP had net available cash(1) balances of GBP141m. In addition to these cash balances, PIP can also finance investments out of its multi-currency revolving credit facility agreement ("Loan Facility") which was renewed in June 2018. The Loan Facility is due to expire in June 2022 and comprises facilities of $163m and EUR60m which, using exchange rates at 31 May 2019, amounted to a sterling equivalent of GBP182m. At 31 May 2019, the Loan Facility remained fully undrawn.
(1) The available cash and loan figure excludes the current portion payable under the Asset Linked Note, which amounted to GBP2.1m as at 31 May 2019.
Asset Linked Note
As part of the share consolidation effected on 31 October 2017, PIP issued an Asset Linked Note ("ALN") with an initial principal amount of GBP200m to the noteholder. Repayments under the ALN are made quarterly in arrears and are linked to the ALN share (approximately 75%) of the net cash flow from a reference portfolio which is comprised of interests held by PIP in over 300 of its oldest private equity funds, substantially 2006 and earlier vintages. PIP retains the net cash flow relating to the remaining c.25% of the reference portfolio.
The ALN is unlisted and subordinated to PIP's existing Loan Facility (and any refinancing), and is not transferable, other than to an affiliate of the noteholder. The ALN is expected to mature on 31 August 2027, at which point the Company will make the final repayment under the ALN. PIP has made total repayments of GBP122m since it was issued and as at 31 May 2019, the ALN was valued at GBP94m.
Undrawn Commitment Cover
At 31 May 2019, the Company had GBP323m of available financing, comprising its net available cash balance and Loan Facility less the current portion payable under the ALN. The sum of PIP's available financing and private equity portfolio provide 3.4 times cover relative to undrawn commitments. Generally, when a fund is past its investment period, which is typically between five and six years, it cannot make any new investments and only draws capital to fund follow-on investments into existing portfolio companies, or to pay expenses. As a result, the rate of capital calls by these older funds tends to slow dramatically. Approximately 22% of the Company's undrawn commitments are in fund vintages that are older than six years.
Share Buybacks
In the year to 31 May 2019, PIP bought back 25,000 ordinary shares at a discount of 18% to the NAV per share as at 31 May 2018 NAV, resulting in a total uplift to NAV per share of 0.3p. The discounts at which the Company's shares trade from time to time may make buybacks an attractive investment
opportunity relative to other potential new investment commitments.
Other Information
The Largest 50 Managers by Value
% OF PIP'S TOTAL
PRIVATE EQUITY
RANK MANAGER REGION(2) STAGE ASSET VALUE(1)
------- ------------------------------ ------------ ------------------- ----------------------------
1 Providence Equity Partners USA Buyout, Growth 6.2%
2 Venture Funds(3) USA Venture 4.0%
3 Essex Woodlands USA Growth 3.7%
Baring Private Equity Asia Asia &
4 Ltd EM Growth 2.9%
5 Energy Minerals Group USA Special situations 2.8%
6 Ares Management USA Buyout 2.7%
7 Apax Partners SA Europe Buyout 2.5%
8 NMS Management USA Buyout 2.4%
9 Warburg Pincus Capital Global Growth 2.3%
10 IK Investment Partners Europe Buyout 2.2%
11 Texas Pacific Group USA Buyout 1.9%
12 Quantum Energy Partners USA Special Situations 1.6%
13 Growth Funds(3) Europe Growth 1.6%
14 J.C. Flowers & Co USA Buyout 1.6%
15 Mid-Europa Partners Europe Buyout 1.5%
16 Calera Capital USA Buyout 1.4%
17 Hellman & Friedman USA Buyout 1.3%
18 ABRY Partners USA Buyout 1.3%
19 HIG Capital USA Buyout 1.2%
20 First Reserve Corporation USA Special situations 1.2%
21 Veritas Capital USA Buyout 1.2%
22 Yorktown Partners USA Special Situations 1.1%
23 Gemini Capital Europe Venture 1.1%
Asia &
24 IVF Advisors EM Buyout 1.0%
25 Growth Funds(3) USA Growth 1.0%
26 Lee Equity Partners USA Growth 1.0%
27 Francisco Partners Management USA Buyout 1.0%
28 Buyout Funds(3) USA Buyout 0.9%
29 Searchlight Capital Partners Global Special situations 0.9%
30 Marguerite Europe Special situations 0.9%
Asia &
31 LYFE Capital EM Growth 0.9%
Avenue Broadway Partners
32 LLC Europe Buyout 0.9%
33 Altor Capital Europe Buyout 0.8%
34 Altas Partners USA Buyout 0.8%
35 Advent International Global Buyout 0.8%
36 Parthenon Capital USA Buyout 0.8%
37 Abris Capital Europe Buyout 0.8%
38 The Vistria Group USA Buyout 0.8%
39 Equistone Partners Europe Buyout 0.7%
40 ECI Partners Europe Buyout 0.7%
41 ABS Capital Growth Venture 0.7%
42 Shamrock Capital Advisors USA Buyout 0.7%
Asia &
43 TPG Asia EM Buyout 0.7%
44 Lyceum Capital Europe Buyout 0.7%
45 Chequers Partenaires SA Europe Buyout 0.7%
Asia &
46 CHAMP Private Equity EM Buyout 0.6%
47 Apollo Advisors USA Buyout 0.6%
Asia &
48 Oak HC/FT Associates EM Buyout 0.5%
49 1901 Partners USA Special situations 0.5%
50 The Barc Funds Company USA Growth 0.5%
------- ------------------------------ ------------ ------------------- ----------------------------
COVERAGE OF PIP'S PRIVATE EQUITY ASSET VALUE(1) 70.6%
-------------------------------------------------------------------------- ----------------------------
(1) Percentages look through feeders and funds-of-funds and excludes the portion of the reference portfolio attributable to the Asset Linked Note.
(2) Refers to the regional exposure of funds.
(3) Confidential.
The Largest 50 Companies by Value(1)
SECTOR % of PIP'S
COMPANY COUNTRY NAV
--- -------------------------- --------------- ----------------------- ---------------
1 EUSA Pharma(2) United Kingdom Healthcare 2.7%
2 Energy Company(2,4) USA Energy 1.4%
3 Abacus Data Systems USA Information Technology 1.2%
4 Dermatology Company(4) USA Healthcare 1.1%
5 Ophthalmology Company(4) USA Healthcare 1.1%
6 Insurance Company(4) USA Financials 0.9%
7 LBX Pharmacy(3) China Consumer 0.9%
8 Software Company(2,4) USA Information Technology 0.8%
9 Vistra Group(2) Hong Kong Financials 0.8%
10 Permian Resources(2) USA Energy 0.8%
11 Apollo Education USA Consumer 0.7%
Atria Convergence
12 Technologies(2) India Communication Services 0.7%
Education Services
13 Company(4) Luxembourg Consumer 0.7%
14 Adyen(3) Netherlands Information Technology 0.6%
15 Vertical Bridge(2) USA Communication Services 0.6%
16 Centric Group(2) USA Consumer 0.6%
17 ZeniMax Media USA Communication Services 0.6%
18 ALM Media(2) USA Communication Services 0.6%
National Veterinary
19 Associates USA Consumer 0.6%
20 Nexi(2,3) Italy Financials 0.6%
21 Melita(2) Malta Communication Services 0.6%
22 Kyobo Life Insurance South Korea Financials 0.6%
GE Capital Services
23 India(2) India Financials 0.6%
24 Salad Signature(2) Belgium Consumer 0.5%
25 Arnott Industries(2) USA Consumer 0.5%
26 Groupe Inseec(2) France Consumer 0.5%
Communications
27 Company(2,4) France Communication Services 0.5%
28 Colisée(2) France Healthcare 0.5%
Capital Vision
29 Services USA Healthcare 0.5%
30 Profi Rom(2) Romania Consumer 0.4%
31 Mobilitie(2) USA Industrials 0.4%
32 Navitas USA Energy 0.4%
33 Nord Anglia(2) Hong Kong Consumer 0.4%
34 Confie Seguros(2) USA Financials 0.4%
35 Ministry Brands(2) USA Information Technology 0.4%
36 NIBC Bank Netherlands Financials 0.4%
37 CIPRES(2) France Financials 0.4%
38 RightPoint Consulting(2) USA Industrials 0.4%
39 Jfrog Israel Information Technology 0.4%
40 Hoffmaster Group USA Consumer 0.4%
41 Acuon Capital South Korea Financials 0.4%
42 OWP Butendiek Germany Utilities 0.4%
Thomson Reuters
43 Intellectual Property(3) USA Information Technology 0.3%
44 Engencap Holding Mexico Financials 0.3%
45 Shawbrook(2) United Kingdom Financials 0.3%
46 Southern Dental(2) USA Healthcare 0.3%
47 HUB International(2) USA Financials 0.3%
48 CallRail(2) USA Information Technology 0.3%
Alion Science and
49 Technology(2) USA Industrials 0.3%
Affinity Education
50 Group(2) Australia Consumer 0.3%
--- -------------------------- --------------- ----------------------- ---------------
COVERAGE OF PIP'S PRIVATE EQUITY ASSET VALUE 30.4%
------------------------------------------------------------------------- ---------------
(1) The largest 50 companies table is based upon underlying company valuations at 31 December 2018 adjusted for known call and distributions to 31 May 2019, and includes the portion of the reference portfolio attributable to the Asset Linked Note.
(2) Co-investments/directs.
(3) Listed companies.
(4) Confidential
Portfolio Concentration as at 31 May 2019
Approximately 70 managers and 550 companies account for 80% of PIP's total exposure(1) .
(1) Exposure Is equivalent to the sum of the NAV and undrawn commitments.
THE DIRECTORS
The Directors in office at the date of this report are:
Sir Laurie Magnus* (Chairman)
Susannah Nicklin* (Senior Independent Director)
Ian Barby* (Audit Committee Chairman)
Rhoddy Swire
David Melvin*
John Burgess*
John Singer*
* Independent of the Manager
EXTRACTS FROM THE DIRECTORS' REPORT
Share Capital
As at 31 May 2019 and as at the date of this Report, the Company had shares in issue as shown in the table below, all of which were listed on the official list maintained by the FCA and admitted to trading on the London Stock Exchange. No shares were held in treasury at the year end.
During the year, the Company purchased 25,000 ordinary shares for cancellation (with a nominal value of GBP16,750) at a total cost of GBP499,729. This represented 0.05% of the issued share capital at 31 May 2019. Since 31 May 2019, the Company has not purchased any further shares.
Share Capital and Voting Rights Number Voting rights Number of
at 31 May 2019 of Shares attached shares held
in issue to each share in treasury
Ordinary shares at GBP0.67 each 54,089,447 1 -
Total voting rights 54,089,447 - -
Going Concern
The Company's business activities, together with the factors likely to affect its future development, performance and position, including its financial position, are set out in the Strategic Report and Manager's Review in the full Annual Report.
At each Board meeting, the Directors review the Company's latest management accounts and other financial information. Its commitments to private equity investments are reviewed, together with its financial resources, including cash held and the Company's borrowing capability. One-year cash flow scenarios are also presented to each meeting and discussed.
After due consideration of the Balance Sheet and activities of the Company, its assets, liabilities, commitments and financial resources, the Directors have concluded that the Company has adequate resources to continue in operation for at least 12 months from the approval of the financial statements. For this reason, they consider it appropriate to continue to adopt the going concern basis in preparing the financial statements.
Directors' Responsibility Statement
The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable laws and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company as at the end of each financial year and of the profit or loss of the Company for that period.
In preparing these financial statements, the Directors are required to:
-- Present a true and fair view of the financial position, financial performance and cash flows of the Company;
-- Select suitable accounting policies in accordance with United Kingdom GAAP and then apply them consistently;
-- Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
-- Make judgements and estimates that are reasonable and prudent;
-- State whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
-- Prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are also responsible for preparing the Strategic Report, the Directors' Report, the Directors' Remuneration Report, the Corporate Governance Statement and the Report of the Audit Committee in accordance with the Companies Act 2006 and applicable regulations, including the requirements of the Listing Rules and the Disclosure Guidance and Transparency Rules. The Directors have delegated responsibility to the Investment Manager for the maintenance and integrity of the Company's corporate and financial information included on the Company's website (www.piplc.com). Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Each of the Directors, whose names are listed above, confirms that to the best of their knowledge:
-- The financial statements, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and
-- The Strategic Report contained in the annual report and financial statements includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.
The UK Corporate Governance Code requires Directors to ensure that the annual report and financial statements are fair, balanced and understandable. In order to reach a conclusion on this matter, the Board has requested that the Audit Committee advises on whether it considers that the annual report and financial statements fulfil these requirements. The process by which the Audit Committee has reached these conclusions is set out in the full Annual Report. As a result, the Board has concluded that the annual report and financial statements for the year ended 31 May 2019, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.
Signed on behalf of the Board by
Sir Laurie Magnus
Chairman
6 August 2019
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the Company's statutory accounts for the year ended 31 May 2019 and period ended 31 May 2018 but is derived from those accounts. Statutory accounts for 2018 have been delivered to the Registrar of Companies, and those for 2019 will be delivered in due course. The Auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditors' report can be found in the Company's full Annual Report and financial statements at www.piplc.com.
Income Statement
Year ended 31 May 2019
Year ended 31 May 2019 Year ended 31 May 2018
---------------------------------------- ----- ---------------------------------- -------------------------------
Revenue Capital Total* Revenue Capital Total*
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------- ----- ---------- --------- ----------- --------- --------- ---------
Gains on investments at fair value
through profit or loss** 9b - 204,473 204,473 - 149,778 149,778
Losses on financial liabilities
at fair value through profit or
loss - ALN** 13 (1,229) (8,815) (10,044) (1,083) (10,083) (11,166)
Currency gains/(losses) on cash
and borrowings 17 - 6,810 6,810 - (1,929) (1,929)
Investment income 2 13,222 - 13,222 15,504 - 15,504
Investment management fees 3 (16,584) - (16,584) (15,020) - (15,020)
Other expenses 4 (5) (568) (573) (296) (2,974) (3,270)
---------------------------------------- ----- ---------- --------- ----------- --------- --------- ---------
Return before financing and taxation (4,596) 201,900 197,304 (895) 134,792 133,897
Interest payable and similar expenses 6 (2,386) - (2,386) (1,950) - (1,950)
---------------------------------------- ----- ---------- --------- ----------- --------- --------- ---------
Return before taxation (6,982) 201,900 194,918 (2,845) 134,792 131,947
Taxation 7 (2,594) - (2,594) (9,170) - (9,170)
---------------------------------------- ----- ---------- --------- ----------- --------- --------- ---------
Return for the year, being total
comprehensive income for the year (9,576) 201,900 192,324 (12,015) 134,792 122,777
---------------------------------------- ----- ---------- --------- ----------- --------- --------- ---------
Return per ordinary share 8 (17.70)p 373.17p 355.47p (20.72)p 232.48p 211.76p
---------------------------------------- ----- ---------- --------- ----------- --------- --------- ---------
* The Company does not have any income or expense that is not included in the return for the year and therefore the return for the year is also the total comprehensive income for the year. The supplementary revenue and capital columns are prepared under guidance published in the Statement of Recommended Practice ("SORP") issued by the Association of Investment Companies ("AIC").
** Includes currency movements on investments.
All revenue and capital items in the above statement relate to continuing operations.
The total column of the statement represents the Company's Statement of Total Comprehensive Income prepared in accordance with Financial Reporting Standards ("FRS").
No operations were acquired or discontinued during the period.
There were no recognised gains or losses other than those passing through the Income Statement. The Notes form part of these financial statements.
Statement of Changes in Equity
Year ended 31 May 2019
Capital
Capital Other reserve on
Share Share redemption capital investments Revenue
capital premium reserve reserve held reserve* Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Movement for the year
ended
31 May 2019
Opening equity
shareholders' funds 36,257 269,535 3,308 572,278 500,079 (74,693) 1,306,764
Return for the year - - - 163,326 38,574 (9,576) 192,324
Ordinary shares bought
back for cancellation (17) - 17 (500) - - (500)
--------------------------- ---------- ---------- ------------- ---------- ------------- ----------- ----------
Closing equity
shareholders' funds 36,240 269,535 3,325 735,104 538,653 (84,269) 1,498,588
Movement for the year
ended
31 May 2018
Opening equity
shareholders' funds 22,456 283,555 3,089 645,011 496,100 (62,678) 1,387,533
Return for the year - - - 130,813 3,979 (12,015) 122,777
Ordinary shares bought
back for cancellation (128) - 128 (3,546) - - (3,546)
Redemption of redeemable
shares to ALN (91) - 91 (200,000) - - (200,000)
Bonus issue of deferred
shares to redeemable
shareholders 14,020 (14,020) - - - - -
Conversion of deferred and
redeemable shares to
ordinary shares (14,232) - - - - - (14,232)
Ordinary shares issued
following conversion of
deferred and redeemable
shares as part of the
share class consolidation 14,232 - - - - - 14,232
---------- ---------- ------------- ---------- ------------- ----------- ----------
Closing equity
shareholders' funds 36,257 269,535 3,308 572,278 500,079 (74,693) 1,306,764
--------------------------- ---------- ---------- ------------- ---------- ------------- ----------- ----------
* Reserves that are distributable by way of dividends. In addition, the Other Capital Reserve can be used for share buybacks.
The Notes form part of these financial statements.
Balance Sheet
As at 31 May 2019
31 May 2019 30 May 2018
Note GBP'000 GBP'000
----------------------------------------------- ------- ----------- -----------
Fixed assets
Investments at fair value 9a/b 1,449,634 1,274,737
----------------------------------------------- ------- ----------- -----------
Current assets
Debtors 11 3,222 3,891
Cash at bank 142,773 162,292
----------------------------------------------- ------- ----------- -----------
145,995 166,183
----------------------------------------------- ------- ----------- -----------
Creditors: Amounts falling due within one year
Other creditors 12 4,682 19,046
----------------------------------------------- ------- ----------- -----------
4,682 19,046
----------------------------------------------- ------- ----------- -----------
Net current assets 141,313 147,137
----------------------------------------------- ------- ----------- -----------
Total assets less current liabilities 1,590,947 1,421,874
----------------------------------------------- ------- ----------- -----------
Creditors: Amounts falling due after one year
Asset Linked Loan 13 92,359 115,110
----------------------------------------------- ------- ----------- -----------
92,359 115,110
----------------------------------------------- ------- ----------- -----------
Net assets 1,498,588 1,306,764
----------------------------------------------- ------- ----------- -----------
Capital and reserves
Called-up share capital 14 36,240 36,257
Share premium 15 269,535 269,535
Capital redemption reserve 15 3,325 3,308
Other capital reserve 15 735,104 572,278
Capital reserve on investments held 15 538,653 500,079
Revenue reserve 15 (84,269) (74,693)
----------------------------------------------- ------- ----------- -----------
Total equity shareholders' funds 1,498,588 1,306,764
----------------------------------------------- ------- ----------- -----------
Net asset value per share - ordinary 16 2,770.57p 2,414.82p
----------------------------------------------- ------- ----------- -----------
The Notes form part of these financial statements.
The financial statements were approved by the Board of Pantheon International Plc on 6 August 2019 and were signed on its behalf by
Sir Laurie Magnus
Chairman
Company No. 2147984
Cash Flow Statement
Year ended 31 May 2019
Year ended Year ended
31 May 2019 31 May 2018
Note GBP'000 GBP'000
Cash flow from operating activities
Investment income received 12,818 13,619
Deposit and other interest received 1,359 830
Investment management fees paid (16,401) (14,969)
Secretarial fees paid (231) (223)
Depositary fees paid (191) (229)
Other cash payments 405 (5,857)
Withholding tax deducted (3,407) (10,483)
Net cash outflow from operating activities 17 (5,648) (17,312)
----------------------------------------------------- ---- ----------- -----------
Cash flows from investing activities
Purchases of investments (285,326) (254,426)
Disposals of investments 313,330 351,335
----------------------------------------------------- ---- ----------- -----------
Net cash inflow from investing activities 28,004 96,909
----------------------------------------------------- ---- ----------- -----------
Cash flows from financing activities
ALN repayments (44,909) (77,152)
Ordinary shares purchased for cancellation (500) (3,546)
Loan commitment and arrangement fees paid (3,286) (1,577)
Net cash outflow from financing activities (48,695) (82,275)
Decrease in cash in the year (26,339) (2,678)
Cash and cash equivalents at beginning of the period 162,292 167,252
Foreign exchange gains/(losses) 6,820 (2,282)
----------------------------------------------------- ---- ----------- -----------
Cash and cash equivalents at end of the year 142,773 162,292
----------------------------------------------------- ---- ----------- -----------
The Notes form part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
1. Accounting Policies
PIP is a listed public limited company incorporated in England and Wales. The registered office is detailed in the full Annual Report. A summary of the principal accounting policies and measurement bases, all of which have been applied consistently throughout the year, is set out below.
A. Basis of Preparation
The Company's financial statements have been prepared in compliance with FRS 102 as it applies to the financial statements of the Company for the year ended 31 May 2019. They have also been prepared on the assumption that approval as an investment trust will continue to be granted. The Company's financial statements are presented in sterling and all values are rounded to the nearest thousand pounds (GBP'000) except when indicated otherwise.
The financial statements have been prepared on a going concern basis and under the historical cost basis of accounting, modified to include the revaluation of certain assets at fair value.
On 18 April 2017, the Board of the Company approved, with immediate effect, a change in the Company's accounting reference date from 30 June to 31 May of each year. The change in accounting reference date and quicker publication of results enables the Company to provide more up-to-date information on its underlying portfolio.
B. AIC SORP
The financial statements have been prepared in accordance with the SORP (as amended in November 2014 and updated in January 2017 and February 2018 with consequential amendments) for the financial statements of investment trust companies and venture capital trusts issued by the AIC.
C. Segmental Reporting
The Directors are of the opinion that the Company is engaged in a single segment of business, being an investment business.
D. Valuation of Investments
Given the nature of the Company's assets which comprise predominantly unlisted fund investments, while the Company operates a robust and consistent valuation process, there is significant estimation uncertainty in the underlying fund valuations estimated at a point in time. Accordingly, while the Company considers circumstances where it might be appropriate to apply an override, for instance in response to a market crash, this will be exercised only where it is judged necessary to show a true and fair view. Similarly, while relevant information received after the measurement date is considered, the Directors will only consider an adjustment to the financial statements if it were to have a significant impact. In the view of the Directors, a significant impact would be a movement of greater than 5% of the overall estimate of the value of the investment portfolio made at the measurement date.
The Company has fully adopted sections 11 and 12 of FRS 102. All investments held by the Company are classified as "fair value through profit or loss". As the Company's business is investing in financial assets with a view to profiting from their total return in the form of interest, dividends or increases in fair value, investments are recognised at fair value on initial recognition. The Company manages and evaluates the performance of these investments on a fair value basis in accordance with its investment strategy. For investments actively traded in organised financial markets, fair value is generally determined by reference to Stock Exchange quoted market bid prices at the close of business at the Balance Sheet date. For investments that are not actively traded in organised financial markets, fair value is determined using reliable valuation techniques as described below:
i Unquoted fixed asset investments are stated at the estimated fair value.
In the case of investments in private equity funds, this is based on the net asset value of those funds ascertained from periodic valuations provided by the managers of the funds and recorded up to the measurement date. Such valuations are necessarily dependent upon the reasonableness of the valuations by the fund managers of the underlying investments. In the absence of contrary information the values are assumed to be reliable. These valuations are reviewed periodically for reasonableness and recorded up to the measurement date. If a class of assets were sold post period end, management would consider the effect, if any, on the investment portfolio.
The Company may acquire secondary interests at either a premium or a discount to the fund manager's valuation. Within the Company's portfolio, those fund holdings purchased at a premium are normally revalued to their stated net asset values at the next reporting date. Those fund holdings purchased at a discount are normally held at cost until the receipt of a valuation from the fund manager in respect of a date after acquisition, when they are revalued to their stated net asset values, unless an adjustment against a specific investment is considered appropriate.
In the case of direct investments in unquoted companies, the initial valuation is based on the transaction price. Where better indications of fair value become available, such as through subsequent issues of capital or dealings between third parties, the valuation is adjusted to reflect the new evidence. This information may include the valuations provided by private equity managers who are also invested in the company. Valuations are reduced where the company's performance is not considered satisfactory.
ii Quoted investments are valued at the bid price on the relevant stock exchange.
Private equity funds may contain a proportion of quoted shares from time to time, for example, where the underlying company investments have been taken public but the holdings have not yet been sold. The quoted market holdings at the date of the latest fund accounts are reviewed and compared with the value of those holdings at the period end. If there has been a material movement in the value of these holdings, the valuation is adjusted to reflect this.
iii Deferred payments transactions
The Company may engage in deferred payments transactions. Where the Company engages in deferred payment transactions the Company initially measures the financial liability at the present value of the future payments discounted at a market rate of interest for a similar debt instrument. The difference between the present value and the undiscounted value is amortised over the life of the transaction and shown as a finance cost in the revenue column in the Income Statement.
E. Asset Linked Note
As part of the share consolidation effected on 31 October 2017 the Company issued an ALN with an initial principal amount of GBP200m to the Investor. Payments under the ALN are made quarterly in arrears and are linked to the ALN share (c.75%) of the net cash flows from a reference portfolio which is comprised of interests held by the Company in over 300 of its oldest private equity funds, substantially 2006 and earlier vintages. The Company retains the net cash flows relating to the remaining c.25% of the reference portfolio.
The ALN is held at fair value through profit or loss and therefore movements in fair value are reflected in the Income Statement. Fair value is calculated as the sum of the ALN share of fair value of the reference portfolio plus the ALN share of undistributed net cash flow. The fair value movement is allocated between revenue and capital pro rata to the fair value gains and income generated movements in the reference portfolio.
A pro rata share of the Company's total ongoing charges is allocated to the ALN, reducing each quarterly payment ("the Expense Charge") and deducted from Other Expenses through the revenue account in the Income Statement.
The ALN's share of net cash flow is calculated after withholding taxation suffered. These amounts are deducted from Taxation through the revenue account in the Income Statement.
See Note 13 for further information.
F. Income
Dividends receivable on quoted equity shares are brought into account on the ex-dividend date.
Dividends receivable on equity shares where no ex-dividend date is quoted are brought into account when the Company's right to receive payment is established. The fixed return on a debt security is recognised on a time apportionment basis so as to reflect the effective interest rate on the security.
Other interest receivable is included on an accruals basis.
G. Taxation
Corporation tax payable is based on the taxable profit for the period. The charge for taxation takes into account taxation deferred or accelerated because of timing differences between the treatment of certain items for accounting and taxation purposes. Full provision for deferred taxation is made under the liability method, without discounting, on all timing differences that have arisen but not reversed by the Balance Sheet date.
The tax effect of different items of income/gain and expenditure/loss is allocated between capital and revenue on the same basis as the particular item to which it relates, using the marginal method.
Dividends receivable are recognised at an amount that may include withholding tax (but excludes other taxes, such as attributable tax credits). Any withholding tax suffered is shown as part of the revenue account tax charge.
H. Expenses
All expenses are accounted for on an accruals basis. Expenses, including investment management fees, are charged through the revenue account except as follows:
-- Expenses which are incidental to the acquisition or disposal of an investment are treated as capital costs and separately identified and disclosed in Note 4;
-- Expenses of a capital nature are accounted for through the capital account; and -- Investment performance fees.
I. Foreign Currency
The currency of the Primary Economic Environment in which the Company operates ("the functional currency") is pounds sterling ("sterling"), which is also the presentation currency. Transactions denominated in foreign currencies are recorded in the local currency at actual exchange rates as at the date of transaction. Monetary assets and liabilities denominated in foreign currencies at the period end are reported at the rates of exchange prevailing at the period end. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss in the revenue or capital column of the Income Statement depending on whether the gain or loss is of a capital or revenue nature. For non-monetary assets these are covered by fair value adjustments. For details of transactions included in the capital column of the Income Statement please see (J) and (K) below.
J. Other Capital Reserve
The following are accounted for in this reserve:
-- Investment performance fees; -- Gains and losses on the realisation of investments; -- Realised exchange differences of a capital nature; and -- Expenses of a capital nature.
Capital distributions from investments are accounted for on a reducing cost basis; cash received is first applied to reducing the historical cost of an investment; any gain will be recognised as realised only when the cost has been reduced to nil.
K. Capital Reserve on Investments Held
The following are accounted for in this reserve:
-- Increases and decreases in the value of investments held at the year end and the ALN.
L. Investment Performance Fee
The Manager is entitled to a performance fee from the Company in respect of each 12 calendar month period ending on 31 May in each year and, prior to 31 May 2017, the period of 12 calendar months ending 30 June in each year. The performance fee payable in respect of each such calculation period is 5% of the amount by which the net asset value at the end of such period exceeds 110% of the applicable "high-water mark", i.e. the net asset value at the end of the previous calculation period in respect of which a performance fee was payable, compounded annually at 10% for each subsequent completed calculation period up to the start of the calculation period for which the fee is being calculated. For the calculation period ended 31 May 2019, the notional performance fee hurdle is a net asset value per share of 3,454.52p. The performance fee is calculated using the adjusted net asset value.
The performance fee is calculated so as to ignore the effect on performance of any performance fee payable in respect of the period for which the fee is being calculated or of any increase or decrease in the net assets of the Company resulting from any issue, redemption or purchase of any shares or other securities, the sale of any treasury shares or the issue or cancellation of any subscription or conversion rights for any shares or other securities and any other reduction in the Company's share capital or any distribution to shareholders.
M. Significant Judgements and Estimates
The preparation of financial statements requires the Manager to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities at the financial reporting date and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from these estimates. Details of any estimates are provided in section (D) of this Note, in the Valuation of Investments policy and also within the Market Price Risk section in Note 19.
2. Income
31 May 2019 31 May 2018
GBP'000 GBP'000
------------------------------- ------------ ------------
Income from investments
Investment income 11,905 14,618
------------------------------- ------------ ------------
11,905 14,618
------------------------------- ------------ ------------
Other income
Interest 1,320 884
Exchange difference on income (3) 2
------------------------------- ------------ ------------
1,317 886
------------------------------- ------------ ------------
Total income 13,222 15,504
------------------------------- ------------ ------------
Total income comprises
Dividends 11,905 14,618
Bank interest 1,320 884
Exchange difference on income (3) 2
------------------------------- ------------ ------------
13,222 15,504
------------------------------- ------------ ------------
Analysis of income from
investments
Unlisted 11,905 14,618
------------------------------- ------------ ------------
11,905 14,618
------------------------------- ------------ ------------
Geographical analysis
UK 134 803
USA 7,344 9,568
Other overseas 4,427 4,247
------------------------------- ------------ ------------
11,905 14,618
------------------------------- ------------ ------------
3. Investment Management Fees
31 May 2019 31 May 2018
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment management
fees 16,584 - 16,584 15,020 - 15,020
----------------------- --------- --------- --------- --------- --------- ---------
16,584 - 16,584 15,020 - 15,020
----------------------- --------- --------- --------- --------- --------- ---------
The investment management fee is payable monthly in arrears at the rate set out in the Directors' Report within the full Annual Report.
During the year, services with a total value of GBP17,046,000 (year to 31 May 2018: GBP15,510,000), being GBP16,584,000 (year to 31 May 2018: GBP15,020,000) directly from Pantheon Ventures (UK) LLP and GBP462,000 (year to 31 May 2018: GBP490,000) via Pantheon managed fund investments were purchased by the Company.
The value of investments in and outstanding commitments to, investment funds managed or advised by the Pantheon Group ("Pantheon Funds") are excluded in calculating the monthly management fee and the commitment fee. The value of holdings in investments managed by the Pantheon Group totalled GBP18,050,000 as at 31 May 2019 (31 May 2018: GBP24,014,000). In addition, the Manager has agreed that the total fees (including performance fees) payable by Pantheon Funds to members of the Pantheon Group and attributable to the Company's investments in Pantheon Funds shall be less than the total fees (excluding the performance fee) that the Company would have been charged under the Management Agreement had it invested directly in all of the underlying investments of the relevant Pantheon Funds instead of through the relevant Pantheon Funds.
At 31 May 2019, GBP1,467,000 (31 May 2018: GBP1,284,000) was owed for investment management fees. No performance fee is payable in respect of the year to 31 May 2019 (31 May 2018: nil). The basis upon which the performance fee is calculated is explained in Note 1(L) and in the Directors' Report within the Company's full Annual Report.
4. Other Expenses
31 May 2019 31 May 2018
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------------------------------ -------- -------- -------- -------- -------- --------
Secretarial and accountancy services 239 - 239 235 - 235
Depositary fees 211 - 211 221 - 221
Fees payable to the Company's Auditor
for the
audit of the annual financial statements 55 - 55 64 - 64
Fees payable to the Company's Auditor
for
* audit-related assurance services - Half-Yearly report 9 - 9 8 - 8
* other non-audit services not covered above - net
asset value calculations 27 - 27 25 - 25
Directors' remuneration (see Note
5) 264 - 264 264 - 264
Employer's National Insurance 31 - 31 26 - 26
Irrecoverable VAT 56 - 56 142 - 142
Legal and professional fees 152 570 722 144 972 1,116
Printing 93 - 93 52 - 52
Other* 326 - 326 319 - 319
ALN issue costs - (2) (2) - 2,002 2,002
ALN Expense Charge (see Note 1 (E)) (1,458) - (1,458) (1,204) - (1,204)
------------------------------------------------------------------ -------- -------- -------- -------- -------- --------
5 568 573 296 2,974 3,270
------------------------------------------------------------------ -------- -------- -------- -------- -------- --------
The Directors do not consider that the provision of non-audit work to the Company affects the independence of the Auditor.
* See Note 9b for detailed information.
5. Directors' Remuneration
Directors' emoluments comprise Directors' fees. A breakdown is provided in the Directors' Remuneration Report in the full Annual Report.
6. Interest Payable and Similar Expenses
31 May 2019 31 May 2018
GBP'000 GBP'000
--------------------------------- ------------ ------------
Negative bank interest 25 18
Loan commitment and arrangement
fees 2,361 1,932
--------------------------------- ------------ ------------
2,386 1,950
--------------------------------- ------------ ------------
On 1 June 2018, the Company agreed a new four-year GBP175m multi-currency revolving credit facility agreement, arranged by Lloyds Bank and NatWest Markets. This replaced the four-year GBP150m loan facility agreement, with the Royal Bank of Scotland plc and Lloyds Bank plc, which was due to expire in November 2018.
The new GBP175m four-year loan facility has been redenominated using current exchange rates to $163.0m and EUR59.8m. The terms of the new facility are materially the same as those of the previous facility but will expire in June 2022 with an option after one year to extend, by agreement, the maturity date by another year.
Upfront fees of GBP1.575m are being amortised over the four-year life of the facility. A commitment fee of 0.94% per annum is payable quarterly, in respect of the amounts available for drawdown. Interest payable on any drawn down amount is payable for the duration of the drawdown period.
The new loan facility provides a margin of additional assurance that the Company has the ability to finance its unfunded commitments in the future. At 31 May 2019 and 31 May 2018 the loan facility remained fully undrawn.
7. Taxation
31 May 2019 31 May 2018
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- --------- --------- --------- --------- --------- ---------
Withholding tax
deducted from distributions 2,594 - 2,594 9,170 - 9,170
------------------------------- --------- --------- --------- --------- --------- ---------
Tax charge
The tax charge for the year differs from the standard rate of corporation tax in the UK (19%). The differences are explained below:
Net return before
tax (6,982) 201,900 194,918 (2,845) 134,792 131,947
------------------------------ -------- --------- --------- -------- --------- ---------
Theoretical tax
at UK corporation
tax rate of 19%
(31 May 2018: 19%) (1,327) 38,361 37,034 (540) 25,610 (25,070)
Non-taxable investment,
derivative and currency
gains - (38,469) (38,469) - (26,175) (26,175)
Effect of expenses
in excess of taxable
income - 108 108 - 185 185
Expenses disallowable
for tax purposes - - - - 380 380
Carry forward management
expenses 1,327 - 1,327 540 - 540
Withholding tax
deducted from distributions (2,594) - (2,594) (9,170) - (9,170)
------------------------------ -------- --------- --------- -------- --------- ---------
(2,594) - (2,594) (9,170) - (9,170)
------------------------------ -------- --------- --------- -------- --------- ---------
Factors That May Affect Future Tax Charges
The Company is an investment trust and therefore is not subject to tax on capital gains. Deferred tax is not provided on capital gains and losses arising on the revaluation or disposal of investments because the Company meets (and intends to meet for the foreseeable future) the conditions for approval as an investment trust company.
No deferred tax asset has been recognised in respect of excess management expenses and expenses in excess of taxable income as they will only be recoverable to the extent that there is sufficient future taxable revenue. As at 31 May 2019, excess management expenses are estimated to be in excess of GBP180m (31 May 2018: GBP165m).
At 31 May 2019, the Company had no unprovided deferred tax liabilities (31 May 2018: GBPnil).
8. Return per Share
31 May 2019 31 May 2018
Revenue Capital Total Revenue Capital Total
------------------- --------- -------- ----------- --------- -------- -----------
Return for the
financial period
in GBP'000 (9,576) 201,900 192,324 (12,015) 134,792 122,777
Weighted average
ordinary shares 54,104,721 57,980,242
Return per share (17.70)p 373.17p 355.47p (20.72)p 232.48p 211.76p
------------------- --------- -------- ----------- --------- -------- -----------
There are no dilutive effects to earnings per share.
9a. Movements on Investments
31 May 2019 31 May 2018
GBP'000 GBP'000
---------------------------------------- ------------ ------------
Book cost brought forward 764,575 729,164
Acquisitions at cost 284,846 251,327
Capital distributions - proceeds (314,341) (350,693)
Capital distributions - realised
gains on sales 157,003 134,777
---------------------------------------- ------------ ------------
Book cost at year end 892,083 764,575
---------------------------------------- ------------ ------------
Unrealised appreciation of investments
Unlisted investments 551,852 509,592
Listed investments 5,699 570
---------------------------------------- ------------ ------------
Valuation of investments at year
end 1,449,634 1,274,737
---------------------------------------- ------------ ------------
9b. Analysis of Investments
31 May 2019 31 May 2018
GBP'000 GBP'000
------------------------------------- ------------ ------------
Sterling
Unlisted investments 43,155 26,694
43,155 26,694
------------------------------------- ------------ ------------
US dollar
Unlisted investments 1,141,081 980,063
Listed investments 5,698 568
1,146,779 980,631
------------------------------------- ------------ ------------
Euro
Unlisted investments 235,188 238,925
235,188 238,925
------------------------------------- ------------ ------------
Other
Unlisted investments 24,511 28,485
Listed investments 1 2
------------------------------------- ------------ ------------
24,512 28,457
------------------------------------- ------------ ------------
1,449,634 1,274,737
------------------------------------- ------------ ------------
Realised gains on sales 157,003 134,777
Amounts previously recognised
as unrealised appreciation on
those sales 570 1,364
Increase in unrealised appreciation 46,819 13,820
Revaluation of amounts owed
in respect of transactions 81 (183)
------------------------------------- ------------ ------------
Gains on investments 204,473 149,778
------------------------------------- ------------ ------------
Further analysis of the investment portfolio is provided in the Manager's Review above.
Transaction costs (incurred at the point of the transaction) incidental to the acquisition of investments totalled GBPnil (31 May 2018: GBPnil) and to the disposals of investments totalled GBP6,000 (31 May 2018: GBP11,000) for the year. In addition, legal fees incidental to the acquisition of investments totalled GBP568,000 (31 May 2018: GBP972,000) and the ALN issue costs totalled (GBP2,000) being a write back of over-accrued expenses (31 May 2018: GBP2,002,000) as disclosed in Note 4, have been taken to the capital column in the Income Statement since they are capital in nature.
9c. Material Investment
At the year end, the Company held the following material holdings in the following investments:
Closing net
assets value
Investment % ownership GBPm
------------------------------ ------------ --------------
Ares Corporate Opportunities
Fund IV 0.9% 31.7
10. Fair Value Hierarchy
Financial Assets at Fair Value Through Profit or Loss at 31 May 2019
Level
Level 1 Level 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------- --------- --------- ---------- ----------
Unlisted holdings - - 1,443,395 1,443,935
Listed holdings 5,699 - - 5,699
------------------- --------- --------- ---------- ----------
5,699 - 1,443,935 1,449,634
------------------- --------- --------- ---------- ----------
Financial Assets at Fair Value Through Profit or Loss at 31 May 2018
Level Level Level
1 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------- --------- --------- ---------- ----------
Unlisted holdings - - 1,274,167 1,274,167
Listed holdings 570 - - 570
------------------- --------- --------- ---------- ----------
570 - 1,274,167 1,274,737
------------------- --------- --------- ---------- ----------
Financial Liabilities at Fair Value Through Profit or Loss at 31 May 2019
Level Level Level
1 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------- ---------- ---------- --------- ---------
Asset Linked Note - - 94,449 94,449
------------------- ---------- ---------- --------- ---------
- - 94,449 94,449
---------- ------------------------------ --------- ---------
Financial Liabilities at Fair Value Through Profit or Loss at 31 May 2018
Level Level Level
1 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------- ---------- ---------- --------- ---------
Asset Linked Note - - 131,585 131,585
------------------- ---------- ---------- --------- ---------
- - 131,585 131,585
---------- ------------------------------ --------- ---------
11. Debtors
31 May 2019 31 May 2018
GBP'000 GBP'000
-------------------------------- ------------ ------------
Amounts owed by investment
funds 1,808 724
Prepayments and accrued income 1,414 3,167
-------------------------------- ------------ ------------
3,222 3,891
-------------------------------- ------------ ------------
12. Creditors Amounts Falling Due Within One Year
31 May 2019 31 May 2018
GBP'000 GBP'000
------------------------------- ------------ ------------
Investment management fees 1,467 1,284
Amounts owed in respect of
transactions 339 478
ALN repayment to the Investor 2,090 16,475
Other creditors and accruals 786 809
------------------------------- ------------ ------------
4,682 19,046
------------------------------- ------------ ------------
13. Creditors Amounts Falling Due After One Year - Asset Linked Note
31 May 2019 31 May 2018
GBP'000 GBP'000
--------------------------------- ------------ ------------
Opening value of ALN 131,585 -
Initial principal amount issued - 200,000
Repayments of net cashflows
received (44,909) (77,152)
Fair value movements through
profit or loss 10,044 11,166
Expense Charge and ALN share
of witholding taxes (2,271) (2,429)
--------------------------------- ------------ ------------
Closing Value of ALN 94,449 131,585
Transfer to creditors due
within one year (2,090) (16,475)
--------------------------------- ------------ ------------
92,359 115,100
--------------------------------- ------------ ------------
As part of the share consolidation effected on 31 October 2017, the Company issued an ALN with an initial principal amount of GBP200m to the Investor. Payments under the ALN are made quarterly in arrears and are linked to the ALN share (c75%) of the net cash flow from a reference portfolio which is comprised of interests held by PIP in over 300 of its oldest private equity funds, substantially 2006 and earlier vintages. PIP retains the net cash flow relating to the remaining c25% of the reference portfolio.
The ALN is held at fair value through profit or loss and therefore movements in fair value are reflected in the Income Statement. The Directors do not believe there to be a material own credit risk, due to the fact that repayments are only due when net cash flow is received from the reference portfolio. Fair value is calculated as the sum of the ALN share of fair value of the reference portfolio plus the ALN share of undistributed net cash flow which is equivalent to the amount which would be required to be repaid had the ALN matured on 31 May 2019. Therefore no fair value movement has occurred during the year as a result of changes to credit risk.
A pro rata share of the Company's Total Ongoing Charges is allocated to the ALN, reducing each quarterly payment ("the Expense Charge") and deducted from Other Expenses in the Income Statement.
The ALN's share of net cash flow is calculated after withholding taxation suffered. These amounts are deducted from Taxation in the Income Statement.
During the year, the Company made repayments totalling GBP44.9m, representing the ALN share of net cash flow for the year to 28 February 2019. The fair value of the ALN at 31 May 2019 was GBP94.4m, of which GBP2.1m represents the net cash flow for the three months to 31 May 2019, due for repayment on 31 August 2019. This amount has therefore been transferred to amounts due within one year (see Note 12).
14. Called-up Share Capital
31 May 2019 31 May 2018
Shares GBP'000 Shares GBP'000
----------------------------- ----------- -------- ------------- ---------
Allotted, called-up and
fully paid:
Ordinary shares of 67p
each
Opening position 54,114,447 36,257 33,062,013 22,153
Issue of shares following
conversion - - 21,242,434 14,232
Cancellation of shares (25,000) (17) (190,000) (128)
----------------------------- ----------- -------- ------------- ---------
Closing position 54,089,447 36,240 54,114,447 36,257
----------------------------- ----------- -------- ------------- ---------
Redeemable shares of 1p
each
Opening position - - 30,297,534 303
Redemption of shares to
ALN - - (9,055,100) (91)
Conversion to ordinary
shares - - (21,242,434) (212)
----------------------------- ----------- -------- ------------- ---------
Closing position - - - -
----------------------------- ----------- -------- ------------- ---------
Deferred shares of 66p
each
Opening position - - - -
Bonus issue of shares
to redeemable shareholders - - 21,242,434 14,020
Conversion to ordinary
shares - - (21,242,434) (14,020)
----------------------------- ----------- -------- ------------- ---------
Closing position - - - -
----------------------------- ----------- -------- ------------- ---------
Total shares in issue 54,089,447 36,240 54,114,447 36,257
----------------------------- ----------- -------- ------------- ---------
During the year to 31 May 2018, the Company consolidated its ordinary and redeemable share capital into a single class of ordinary shares. The Company also issued an unlisted ALN (see Note 13 for further information).
The reorganisation of the share capital was implemented on 31 October 2017 and consisted of:
a) a redemption by the Company of 9,055,100 redeemable shares owned by the largest holder of the redeemable shares ("the Investor") for an aggregate consideration of GBP200m and the subsequent application of these redemption proceeds for the subscription for the ALN by the Investor;
b) a bonus issue of new deferred shares of 66p each in the capital of the Company; and
c) the subsequent consolidation, sub-division and redesignation of the remaining redeemable shares and the new deferred shares into new ordinary shares of 67p each in the capital of the Company, ranking pari passu in all respects with the existing ordinary shares.
During the period 25,000 ordinary shares (31 May 2018: 190,000) were bought back in the market for cancellation. The total consideration paid, including commission and stamp duty, was GBP500,000 (31 May 2018: GBP128,000).
Each holder of ordinary shares is entitled, on a show of hands, to one vote and, on a poll, to one vote for each ordinary share held.
15. Reserves
Capital
Capital Other reserve
Share redemption capital on Revenue
premium reserve reserve investments reserve*
GBP'000 GBP'000 GBP'000 held GBP'000
GBP'000
----------------------------------------- ---------- ------------- ---------- ------------- -----------
Beginning of year 269,535 3,308 572,278 500,079 (74,693)
Net gain on realisation of investments - - 157,003 - -
Increase in unrealised appreciation - - - 46,819 -
Losses on financial instruments at
fair value through profit or loss -
ALN - - - (8,815) -
Transfer on disposal of investments - - - 570 -
Revaluation of amounts owed in respect - - 81 - -
of transactions
Exchange differences on currency - - 6,820 - -
Exchange differences on other capital - - (10) - -
items
Legal and professional expenses charged - - (570) - -
to capital
Other expenses charged to capital - - 2 - -
Share buybacks - 17 (500) - -
Revenue return for the year - - - - (9,576)
----------------------------------------- ---------- ------------- ---------- ------------- -----------
End of Year 269,535 3,325 735,104 538,653 (84,269)
----------------------------------------- ---------- ------------- ---------- ------------- -----------
* Reserves that are distributable by way of dividends. In addition, the Other Capital Reserve can be used for share buybacks.
16. Net Asset Value per Share
31 May 2019 31 May 2018
---------------------------- ------------ ------------
Net assets attributable in
GBP'000 1,498,588 1,306,764
ordinary shares 54,089,447 54,114,447
Net asset value per share
- ordinary 2,770.57p 2,414.82p
---------------------------- ------------ ------------
The Company had redeemable shares which were converted to ordinary shares on 31 October 2017 and were admitted to trading on the Main Market of the London Stock Exchange on 1 November 2017. As at 31 May 2018 and 2019 there are only ordinary shares in issue.
17. Reconciliation of Return Before Financing Costs and Taxation to Net Cash Flow from Operating Activities
31 May 2019 31 May 2018
GBP'000 GBP'000
------------------------------------ ------------ ------------
Return before taxation and finance
costs 197,304 133,897
Withholding tax deducted (2,594) (9,170)
Gains on investments (204,473) (149,778)
Currency (gains)/losses on cash
and borrowings (6,810) 1,929
Increase/(decrease) in creditors 398 (31)
Decrease/increase in other debtors 2,754 (2,896)
Losses on financial liabilities
at fair value through profit or
loss 10,044 11,166
Expenses and taxation associated
with ALN (2,271) (2,429)
------------------------------------ ------------ ------------
Net cash outflow from operating
activities (5,648) (17,312)
------------------------------------ ------------ ------------
18. Contingencies, Guarantees and Financial Commitments
At 31 May 2019, there were financial commitments of GBP521.0m (31 May 2018: GBP440.2m) in respect of investments in partly paid shares and interests in private equity funds.
Further detail of the available finance cover is provided in Note 19.
19. Analysis of Financial Assets and Liabilities
The primary investment objective of the Company is to seek to maximise long-term capital growth for its shareholders by investing in funds specialising in unquoted investments, acquiring unquoted portfolios and participating directly in private placements. Investments are not restricted to a single market but are made when the opportunity arises and on an international basis.
The Company's financial instruments comprise securities and other investments, cash balances and debtors and creditors that arise from its operations, for example sales and purchases awaiting settlement and debtors for accrued income.
The principal risks the Company faces in its portfolio management activities are:
-- Liquidity/marketability risk; -- Interest rate risk; -- Market price risk; and -- Foreign currency risk.
The Company has little exposure to credit risk. The Manager monitors the financial risks affecting the Company on a daily basis and the Directors regularly receive financial information, which is used to identify and monitor risk.
In accordance with FRS 102 an analysis of financial assets and liabilities, which identifies the risk to the Company of holding such items, is given below.
Liquidity Risk
Due to the nature of the Company's investment policy, the largest proportion of the portfolio is invested in unquoted securities, many of which are less readily marketable than, for example, "blue-chip" UK equities. The Directors believe that the Company, as a closed-end fund with no fixed wind-up date, is ideally suited to making long-term investments in instruments with limited marketability. The investments in unquoted securities are monitored by the Board on a regular basis.
There are times when opportunities for the Company to acquire secondary unquoted portfolios of interests or co-investments may be limited due to the cyclical nature of their occurrence. As a result, at times of low investment opportunity, some funds may be held on deposit or invested in gilts and other fixed interest government bonds. It is the nature of investment in private equity that a commitment (see Note 18 for outstanding commitments as at 31 May 2019) to invest will be made and that calls for payments will then be received from the unlisted investee entity. These payments are usually on an ad-hoc basis and may be called at any instance over a number of years. The Company's ability to meet these commitments is dependent upon it receiving cash distributions from its private equity investments and, to the extent these are insufficient, on the availability of financing facilities. In order to cover any shortfalls, the Company entered into a multi-currency revolving credit facility with The Royal Bank of Scotland plc and Lloyds Bank plc and comprising facilities of $139m and EUR67m of which at 31 May 2018 the sterling equivalent of GBPnil was drawn down.
On 1 June 2018, the Company agreed a new four-year GBP175m multi-currency revolving credit facility agreement, arranged by Lloyds Bank and NatWest Markets. This replaces the GBP150m loan facility agreement which was due to expire in November 2018, of which GBPnil was drawn down as at 31 May 2019, (see Note 6 for further information).
The principal covenant that applies to the loan facility is that gross borrowings do not exceed 34% of adjusted gross asset value.
Total available financing as at 31 May 2019 stood at GBP323.0m (31 May 2018: GBP308.6m), comprising GBP140.7m (31 May 2018: GBP145.8m) in available cash balances and GBP182.3m (31 May 2018: GBP162.8m) (sterling equivalent) in undrawn bank facilities. The available financing along with the private equity portfolio exceeded the outstanding commitments by 3.4 times (31 May 2018: 3.6 times).
Interest Rate Risk
The Company may use gearing to achieve its investment objectives and manage cash flows and uses a multi-currency revolving credit facility for this purpose.
Interest on the revolving credit facility is payable at variable rates determined subject to drawdown. Variable rates are defined as LIBOR or EURIBOR + 2.35%, dependent on the currency drawn. The interest rate is then fixed for the duration that the loan is drawn down. At 31 May 2019, there was the sterling equivalent of GBPnil funds drawn down on the loan facilities (31 May 2018: GBPnil). A commitment fee of 0.94% per annum is payable in respect of the amounts available for drawdown available under the facility.
Non-interest rate exposure
The remainder of the Company's portfolio and current assets are not subject to interest rate risks.
Financial assets for 2019 and 2018 consisted of investments, cash and debtors (excluding prepayments). As at 31 May 2019, the interest rate risk and maturity profile of the Company's financial assets was as follows
Fixed
interest
No Matures Matures average
maturity within after interest
Total date 1 year 1 year rate
31 May 2019 GBP'000 GBP'000 GBP'000 GBP'000 %
--------------- ---------- ----------- ---------- ---------- ----------
Risk financial assets fair value
of no interest rate
Sterling 61,807 61,807 - - -
US dollar 1,267,221 1,267,221 - - -
Euro 238,169 238,169 - - -
Other 27,129 27,129 - - -
--------------- ---------- ----------- ---------- ---------- ----------
1,594,326 1,594,326 - - -
--------------- ---------- ----------- ---------- ---------- ----------
The interest rate and maturity profile of the Company's financial assets as at 31 May 2018 was as follows:
Fixed
interest
No Matures Matures average
Maturity within after interest
Total Date 1 year 1 year rate
31 May 2018 GBP'000 GBP'000 GBP'000 GBP'000 %
--------------- ---------- ----------- ---------- ---------- ----------
Rate risk financial assets fair
value of no interest
Sterling 58,993 58,993 - - -
US dollar 1,109,499 1,109,499 - - -
Euro 241,035 241,035 - - -
Other 29,347 29,347 - - -
--------------- ---------- ----------- ---------- ---------- ----------
1,438,874 1,438,874 - - -
--------------- ---------- ----------- ---------- ---------- ----------
Financial Liabilities
At 31 May 2019 the Company had drawn the sterling equivalent of GBPnil (31 May 2018: GBPnil) of its new four-year committed revolving multi currency credit facility, expiring June 2022, with Lloyds Bank and NatWest Markets. Interest is incurred at a variable rate as agreed at the time of drawdown and is payable at the maturity date of each advance. At the year end, interest of GBPnil (31 May 2018: GBPnil) was accruing as the facilities were unutilised.
At 31 May 2019 and 31 May 2018, other than the ALN, all financial liabilities were due within one year and comprised short-term creditors. The ALN is repayable by no later than 31 August 2027.
Market Price Risk
The method of valuation of the fixed asset investments is described in Note 1(D) above. The nature of the Company's fixed asset investments, with a high proportion of the portfolio invested in unquoted securities, means that the investments are valued by the Directors after due consideration of the most recent available information from the underlying investments.
PIP's portfolio is well diversified by the sectors in which the underlying companies operate. This sectoral diversification helps to minimise the effects of cyclical trends within particular industry segments.
If the investment portfolio fell by 20% from the 31 May 2019 valuation, with all other variables held constant, there would have been a reduction of GBP289,927,000 (31 May 2018 based on a fall of 20%: GBP254,958,000) in the return before taxation. An increase of 20% would have increased the return before taxation by an equal and opposite amount.
Foreign Currency Risk
Since it is the Company's policy to invest in a diverse portfolio of investments based in a number of countries, the Company is exposed to the risk of movement in a number of foreign exchange rates. A geographical analysis of the portfolio and hence its exposure to currency risk is provided above and in Note 9b. Although it is permitted to do so, the Company did not hedge the portfolio against the movement in exchange rates during the financial period.
The investment approach and the Manager's consideration of the associated risk are discussed in further detail in the Strategic Report and the Manager's Review above.
The Company settles its transactions from its bank accounts at an agreed rate of exchange at the date on which the bargain was made. As at 31 May 2019, realised exchange losses of GBP10,000 (31 May 2018: realised exchange gains of GBP353,000) and realised gains relating to currency of GBP6,820,000 (31 May 2018: realised losses of GBP2,282,000) have been taken to the capital reserve.
The Company's exposure to foreign currency excluding private equity investments is shown below. In relation to this exposure, if the sterling/dollar and sterling/euro exchange rate had reduced by 10% from that obtained at 31 May 2019, it would have the effect, with all other variables held constant, of increasing equity shareholders' funds by GBP11,012,000 (31 May 2018: GBP13,592,000). If there had been an increase in the sterling/dollar and sterling/euro exchange rate of 10% it would have the effect of decreasing equity shareholders' funds by GBP13,768,000 (31 May 2018: GBP12,686,000). The calculations are based on the financial assets and liabilities and the exchange rate as at 31 May 2019 of 1.2597 (31 May 2018: 1.33035) sterling/dollar and 1.1309 (31 May 2018: 1.13945) sterling/euro. The Company's investment currency exposure is disclosed in Note 9b.
An analysis of the Company's exposure excluding investments to foreign currency is given below:
31 May 31 May 31 May 31 May
2019 2019 2018 2018
Assets Liabilities Assets Liabilities
GBP'000 GBP'000 GBP'000 GBP'000
------------------- ---------- -------------- ---------- --------------
US dollar 118,523 638 128,812 731
Euro 2,981 122 2,110 118
Swedish krone 1,597 - 95 -
Norwegian krone 569 - 113 -
Australian dollar 451 - 653 -
124,121 760 131,783 849
------------------- ---------- -------------- ---------- --------------
Managing Capital
The Company's equity comprises ordinary shares and redeemable shares as described in Note 14. Capital is managed so as to maximise the return to shareholders while maintaining a capital base that allows the Company to operate effectively in the marketplace and sustain future development of the business.
As at 31 May 2019 and 31 May 2018 the Company had bank debt facilities to increase the Company's liquidity. Details of available borrowings at the year end can be found earlier in this Note.
The Company's assets and borrowing levels are reviewed regularly by the Board of Directors with reference to the loan covenants.
The Company's capital requirement is reviewed regularly by the Board of Directors.
20. Transactions with the Manager and Related Parties
The amounts paid to the Manager, together with the details of the Investment Management Agreement, are disclosed in Note 3. The existence of an Independent Board of Directors demonstrates that the Company is free to pursue its own financial and operating policies and therefore, under the AIC SORP, the Manager is not considered to be a related party.
The Company's related parties are its Directors. Fees paid to the Company's Board are disclosed in the Directors' Remuneration Report, which is provided in the full Annual Report. The Company's National Insurance contribution in relation to Directors' remuneration is disclosed in Note 4.
There are no other identifiable related parties at the year end.
ANNUAL GENERAL MEETING
The Company's Annual General Meeting will be held on Wednesday, 30 October 2019 at 10.30am at The British Academy, 10-11 Carlton House Terrace, London SW1Y 5AH.
NATIONAL STORAGE MECHANISM
A copy of the Annual Report and Financial Statements will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at: www.morningstar.co.uk/uk/nsm.
ENDS
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this document (or any other website) is incorporated into, or forms part of, this announcement.
LEI: 2138001B3CE5S5PEE928
For more information please visit PIP's website at www.piplc.com or contact:
Andrew Lebus or Vicki Bradley
Pantheon Ventures (UK) LLP
020 3356 1800
Important Information
A copy of this announcement will be available on the Company's website at www.piplc.com Neither the content of the Company's website, nor the content on any website accessible from hyperlinks on its website for any other website, is incorporated into, or forms part of, this announcement nor, unless previously published by means of a recognised information service, should any such content be relied upon in reaching a decision as to whether or not to acquire, continue to hold, or dispose of, securities in the Company.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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