NB Private Equity Partners 21 January 2022

NBPE’s mission is to invest in private companies to generate long term growth. It does so through co-investing in opportunities alongside a wide array of leading third-party private equity managers. With NB seeing regular deal flow from the highest quality managers, this allows them to be highly selective on investments they choose for the portfolio.

NBPE’s Portfolio is attractive in our view in terms of its concentration (being neither too diversified nor too narrowly focussed), its exposure to the technology, industrial technology, consumer & e-commerce and healthcare sectors, and its maturity with holdings having been held for an average of 3.5 years.

The latter is particularly relevant given NBPE’s exceptional NAV Performance during 2021. The typical expected private equity holding period is three to five years according to NB, which, if correct, would mean that further realisation activity cannot be ruled out. Given the average uplift to valuations three quarters prior to an exit or IPO for the portfolio has been 83% in 2021 and 44% on average over the last five years, this would suggest further NAV growth could be the consequence if achieved.

NBPE’s Dividend policy is to target an annual dividend yield of at least 3% of the NAV. In line with this, on 13 January 2022, the company announced a semi-annual dividend of $0.47 per share, an increase of 14.6% since the last dividend payment in August 2021. Whilst NBPE’s Charges are not low in absolute terms, co-investing enables NBPE to invest in deals largely free of management and performance fees to the underlying private equity sponsors. This gives it a distinct advantage over many peers.

As we highlight in Portfolio and Gearing, NBPE’s co-investment model offers several advantages including diversification, access to deal-flow and close control over the balance sheet/cash deployment, enabling the team to respond to changes in market conditions in real-time. Shareholders pay only one layer of fees on the majority of NBPE’s co-investments. As such NBPE can be viewed as having a significant advantage over peers.

Realisations have been the engine of NBPE’s growth, reflecting the evolution of the portfolio towards primarily direct equity investments over the last four years. The team have been investing in companies that NB expects to benefit from secular growth trends and which are arguably relatively defensive. NBPE’s balance sheet means that investors have a somewhat geared exposure to these companies.

The very strong performance in 2021 has shown the benefits of all of these factors, contributing to NAV total returns of 40.7%. When the final Q4 private company figures are in (most of the 31 Dec valuations should be incorporated by the end of Q1 2022), this should put NBPE firmly on the listed private equity podium in terms of calendar year performance. In our view, the portfolio’s maturity should give grounds for confidence for the years ahead, not to mention the types of companies and sectors that NBPE is currently exposed to. It would appear that the market also shares our enthusiasm, with the Discount having narrowed over the year. Based on JPMorgan Cazenove estimates, NBPE currently trades on a discount of c. 14%.