NB Private Equity Partners 27 November 2024

NB Private Equity Partners (NBPE) has a number of unique and distinguishing features, which mark it apart from the wider listed private equity peer group. In this note, we discuss how the trust is positioned for the current environment, drawing on details provided by the annual capital markets event.

Realisation activity in the private equity world remains subdued. As a result, NBPE’s managers have been very selective when considering investments, and the investment level is at the bottom of the target range (see Gearing). NBPE is purely focused on co-investing, which gives the managers a lot of control on when to deploy capital. In the context of the current environment this puts NBPE in a strong position. Many other trusts are seeing trust level gearing increase, with investments being made at a faster rate than realisations. This has prompted some managers to conduct secondary sales of chunks of their portfolios at a small discount to NAV. This isn’t necessarily an issue, but NBPE is protected from the need to raise cash by (effectively) having no future investment commitments, and can sit tight and wait for the realisation environment to improve.

As we discuss in the Portfolio section, in a bearish scenario NBPE can hunker down, and future NAV growth will be driven by underlying portfolio company growth. In a bullish scenario, realisation activity starts to build up, driving valuation uplifts, and NBPE will see cash coming back onto the balance sheet. The managers and board then have a number of options, including new investments or pursuing buy-backs. In this scenario it is possible we could see a return to NAV growth and the discount narrowing.

In either a bearish or bullish scenario for the private equity sector, we believe NBPE is in a resilient position in absolute and relative terms when compared to the peer group. Unarguably, NAV performance relative to quoted markets has been disappointing over the last two years (see Performance section). However, with an increasingly mature portfolio and resilient revenue and earnings growth from the underlying companies in the portfolio, the prospects of the performance gap between NBPE’s share price and world equities narrowing in the short to medium term must be improving.

Longer term, we believe that NBPE’s differentiated proposition means that if it delivers better long-term performance than peers, then it should trade at a consistent premium to peers. Currently the discount to NAV is c. 25%. As we highlight in the Portfolio section, the most obvious catalyst for this discount to narrow will be a return of investor appetites, which we believe will be driven by improved NAV growth, which itself is largely dependent on an improvement in realisations. Until then, NBPE has the balance sheet strength to wait. For those who take a long-term view, the current discount continues to be a potentially attractive entry point for investors wishing to access the private equity asset class, and NBPE’s unique exposure to it.