NB Private Equity Partners (NBPE) is a London-listed private equity investment fund. It is unique in this sector, in that the underlying portfolio largely consists of equity co-investments made with a broad range of different private equity managers.
The managers and their approach differentiate NBPE from all of the other LPE funds. However, as we discuss in the Performance section, the recent sell-off negatively affected NBPE’s share price – both relative to wider equity markets and to the LPE sector (as represented by the Morningstar LPE ex 3i Index).
NBPE’s board and manager took decisive steps as a reaction to the unprecedented events of this year. The trust has drawn down an additional $160m of the credit facility so that at the end of April 2020, it had liquidity of $205m. Alongside this cash, Neuberger Berman (NB) has provided information that as at 30 April 2020, the ‘adjusted’ commitments (i.e. net of those unlikely to be called) amount to c. $126m. As such, the commitment cover ratio is 163%.
As we discuss in the Portfolio section, NBPE is largely exposed to North America (74% of the portfolio), with Europe at 22% and RoW at 4%. By sector, the portfolio is relatively well diversified, with exposure to areas which might be more resilient to the economic slowdown. These include healthcare, financials and TMT, together adding up to c. 50% of the portfolio. On the other hand, companies in the consumer, industrials, energy and business-services sectors together account for 46%.
Based on the most recently published NAV (31 March 2020), and adjusting for quoted holdings movements, NBPE trades on a discount of 42% (Source: Numis).
NBPE’s portfolio is invested in high-quality businesses, alongside a range of top private-equity managers. All companies will be affected by the pandemic, and we’d expect the NAV to fall once the impact becomes clearer. However, in drawing down $250m of the $300m credit facility, NBPE has taken steps to ensure it does not face a financing squeeze. This, alongside publishing the updated commitment cover, sends a strong statement that this is unlikely to be a financial crisis for NBPE.
Given the emphasis on strengthening the balance sheet of the trust, it seems unlikely dividends will continue. NB has stated that private-equity managers are relatively well placed to nimbly react to business issues. While NBPE will publish monthly NAV estimates, the impact from COVID-19 may take until June’s quarterly report to be better reflected in the NAV.
Whilst NBPE’s ordinary shares are the most highly geared in its peer group, the fact NB is more in control of its investing activities than peers means that the higher gearing doesn’t necessarily mean the trust is the most risky. NBPE’s performance has been good historically, and it is a clearly differentiated trust within its sector. As we discuss in the Charges section, it has some fee-related advantages. However, the shares have significantly underperformed the market and trade on a discount of 42% (source: Numis). Likely catalysts for a re-rating will be updated valuations and the consequent potential for a resumption of buybacks.
|Unique investment strategy, historically having delivered sector-leading returns||Geared exposure to companies which are themselves often geared|
|Low-cost access to direct private-equity deals||Illiquid underlying investments mean liquidity needs to be managed|
|Wide discount to historical NAV||Valuations on portfolio companies are performed relatively infrequently|