Pantheon International 26 September 2024

Pantheon International (PIN) offers investors a globally diversified portfolio of private equity investments. The main focus of the trust is on direct investments sourced through co-investment and single-asset secondaries with private equity managers, with the balance invested through funds.

The diversification benefit of PIN partly lies in the sector exposure, which favours sectors such as technology and healthcare and steers away from energy and financials, for example, producing a different set of exposures to major stock market indices. Diversification is lent further support by PIN's ability, hard-won over many years, to co-invest alongside a range of top-tier private equity managers, which allows the team managing PIN to choose which investments they make. The portfolio is invested across the various stages of private equity, from large buyouts to venture, with the largest group being small- and mid-sized buyouts, with a range of maturities.

In 2023 PIN introduced a capital allocation policy as a response to the wide discount the trust trades on, with £200m allocated to buying shares back. In 2024 the board refined this policy, with the quantum of future buybacks now to be linked to the level of discount and the amount of cash generated by realisations. While the main focus of the policy is enhancing NAV rather than narrowing the discount, PIN's discount has responded positively, which we look at in the Discount section.

Over the long term, PIN has outperformed both global and UK equities. In the shorter term, PIN has slightly trailed global public markets, which have been driven recently by the performance of a concentrated set of mega-cap technology stocks. We note in the Performance section that PIN's largest sector exposure, at c. one-third of the portfolio, is in high-growth technology businesses, especially enterprise software, and thus PIN's performance, could be poised to catch up with or exceed public markets again.

Popular narratives sometimes involve taking a perfectly reasonable idea and simplifying it down to one or two key points. The narrative around private equity, which we have written about in more detail here, goes something like 'interest rates higher, higher cost of debt for private equity, thus lower profits and valuations'. The maths of this narrative isn't hard, but there's an assumption that everything just stays the same, whereas debt may be amortising, fixed, or repaid. In Pantheon's case, as we will look at in the Portfolio section, quite a bit of its portfolio was structured after rates started to rise, and thus with higher rates already in mind. Further, the portfolio has seen strong revenue and earnings growth over this period. Ultimately though Pantheon provides investors with exposure to equity investments, with a different set of companies and drivers to public markets. Public markets have risen in the last year, even though the same narrative is often applied to them. But in both cases, the assumption that everything else, except interest rates, has stood still doesn't really work after more than two years.

Pantheon's board has shown its own confidence in the trust's portfolio valuation by buying shares personally and implementing a series of value-accretive buybacks together with guidance on what buybacks investors could expect in future. Despite narrowing, the discount remains at a level of c. 35%, which provides long-term investors with a really compelling price to get access to a globally diversified growth portfolio.