Pantheon International 29 December 2023

Pantheon International (PIN) invests in a global, diversified portfolio of private equity-backed companies, using a mixture of direct company investments and private equity funds managed by leading firms. Although some may still think of it as a 'fund of funds' PIN first began making direct company investments in 2015 and this part of the portfolio now accounts for over 50% of the whole.

PIN has outperformed relevant stock market index comparisons over five and ten years with NAV total returns of 83% and 272%. As discussed in the Performance section, historical data shows PIN's valuations over the long term have been conservative, with investments typically sold at a c.31% premium to the last full valuation.

The manager, Pantheon, manages over $94bn of assets and is headquartered in London, with over 130 investment professionals working across offices globally. PIN is managed by Helen Steers and Jie Gong, both very experienced investment partners in the firm. They are supported by a dedicated team with a direct role in PIN's management as well as the wider Pantheon platform.

The trust currently trades at a c.37% discount, similar to the Morningstar Private Equity ex 3i peer group which averages c.31%. In August 2023, PIN's board implemented a revised capital allocation policy. Part of this was an initial allocation of up to £200m for share buybacks during this financial year and included a £150m tender offer, which generated an uplift to NAV per share of 3.8 %.

PIN employs modest leverage (currently c.4%) as part of its 'overcommitment' strategy which we detail in the Gearing section. With an objective of long-term capital growth, PIN doesn’t pay a dividend.

The main case for private equity generally and PIN specifically is about generating superior returns over the long term, through an actively managed, growth-orientated portfolio of private companies, and in the Performance section, we look at the very long-term performance of listed PE trusts. But we think that there is another point that investors sometimes miss. Private equity is still ‘equity’ and while many investors' core equity exposure comes from UK equity funds, private equity offers a very different set of exposures, for example with a much greater emphasis on smaller, higher growth technology-led businesses, which can be hard to get meaningful access to via listed UK equities. So, while private equity is often categorised as an ‘alternative’, we think it is more helpful to see it as part of an overall equity portfolio.

Much has been made in the last two years about how private equity valuations haven't moved in sync with stock markets, apparently lagging as public markets fell. In 2022 the stock market placed discounts on PE trusts as investors worried about that lag, but as time has passed those discounts appear, in our view, increasingly backward-looking. Valuations have been through a period of adjustment but came from a conservative starting point. For example, PIN's track record shows that its valuations are generally about 31% below the exit price, when realised. The board's action on buying shares back illustrates their view that the discount is misplaced and that they have listened to shareholders. In our view, the combination of conservative valuations and a very wide discount, combined with an improving outlook for equities, could make for a n attractive entry point for long-term investors.