PIN Pantheon International Plc

For immediate release

The information contained in this announcement is restricted and is not for publication, release or distribution in the United States of America, Canada, Australia (other than to persons who are both wholesale clients and professional or sophisticated investors in Australia), Japan, the Republic of South Africa or any other jurisdiction where its release, publication or distribution is or may be unlawful.

 

PANTHEON INTERNATIONAL PLC

 

ANNUAL REPORT FOR THE TWELVE MONTHS ENDED 31 MAY 2024

 

The full Annual Report and Accounts can be accessed via the Company's website at www.piplc.com or by contacting the Company Secretary by telephone on +44 (0)333 300 1950.

Pantheon International Plc

(the "Company" or "PIP")

 

Pantheon International Plc, a FTSE 250 investment trust that provides access to an actively-managed global and diversified portfolio of private equity-backed companies, today publishes its Annual Report and Accounts for the twelve months ended 31 May 2024.

A cohesive and holistic strategy that puts shareholders first

·      Focused corporate strategy

o  Capturing value for shareholders: Share buyback programme of £200m was completed just after the financial year end. During the year to 31 May 2024, £196.7m was invested in share buybacks which added +4.7% to the NAV.

o  Announcement of a clear capital allocation policy: With effect from 1 June 2024, a proportion of adjusted net cash flow is allocated to share buybacks on a tiered basis depending on the prevailing discount at which the shares trade at the time. PIP will continue to invest in exciting new private equity opportunities, capable of generating market-beating returns over the long term, alongside share buybacks.

o  Stimulating demand for PIP's shares: Commencement of an enhanced marketing programme to optimise the relevance and attraction of PIP to both existing and new retail and institutional investors.

 

·      Effective investment strategy

o  PIP's underlying portfolio company investments have continued to exhibit above-market growth, with EBITDA and revenue growth of 17% and 14% respectively during the year.  Over the past five financial years, PIP's portfolio companies have grown EBITDA and revenue at a rate of 19% and 17% p.a. respectively. This indicates the strength and resilience of these companies and underpins our confidence in PIP's reported NAV.

o  Minimising risk: PIP's loss ratio for all investments, realised and unrealised, made over the last 10 years is low at 2.3%¹.

 

·      Robust financing strategy

o  Optimising PIP's capital structure: A new £500m equivalent credit facility, to replace the previous credit facility and Credit Suisse as a lender, and a private placement of US$150m of loan notes were agreed during the period.

o  More diverse and flexible structure: The number of PIP's credit counterparties was increased from three to ten within two separate highly liquid markets.

 

Performance update

·      PIP's share price increased by 20% during the period.

·      NAV per share grew by 6.1% during the full year. Valuation gains across the entire portfolio and NAV accretion from share buybacks were partially offset by unfavourable currency movements, given that PIP's portfolio is predominantly USD-denominated. Currency movements tend to balance out over the long term.

·      PIP has a strong long-term track record.  Annualised NAV per share growth over the last 10 years has been 13.5%, beating the public market benchmarks over the same period. 

 

^[1] Loss ratio is calculated as the sum of 1) the loss made on realised investments which have exited below cost and 2) the difference between the unrealised value and the cost of unrealised investments which are held below cost, divided by the aggregate costs of all investments.

 

Annualised performance as at 31 MAY 2024                                                   

 

	1 yr	3 yrs	5 yrs	10 yrs	Since inception1
NAV per share (stated net of fees)	6.1%	12.5%	12.1%	13.5%	11.9%
Ordinary share price	19.9%	6.2%	7.9%	11.1%	10.9%
FTSE All-Share, Total Return	15.4%	7.9%	6.5%	5.9%	7.6%
MSCI World, Total Return (Sterling)	22.2%	11.2%	13.1%	12.8%	8.6%

¹ Inception in September 1987.

 

NAV per share vs. market performance

	1 yr	3 yrs	5 yrs	10 yrs	Since inception
Versus FTSE All-Share, Total Return	-9.3%	+4.6%	+5.6%	+7.6%	+4.3%
Versus MSCI World, Total Return (Sterling)	-16.1%	+1.3%	-1.0%	+0.7%	+3.3%

 

Share price vs. market performance

	1 yr	3 yrs	5 yrs	10 yrs	Since inception
Versus FTSE All-Share, Total Return	+4.5%	-1.7%	+1.4%	+5.2%	+3.3%
Versus MSCI World, Total Return (Sterling)	-2.3%	-5.0%	-5.2%	-1.7%	+2.3%

Portfolio update

·      Direct investments account for majority of the portfolio with 54% of PIP's portfolio invested in co-investments and single-asset secondaries, which are complemented by hard-to-access funds.

·      PIP had over 400 full exit events during the year. The weighted average uplift from these fully realised exits was 20% and the weighted average uplift since 2012 has been 30%.

·      The average cost multiple on exit realisations was 3.2 times during the full year, and that figure since 2012 has been 3.0 times. The cost multiple on the existing portfolio, as implied by the current NAV, is 1.6 times. These figures point to the significant embedded value in PIP's portfolio.

·      PIP's portfolio has remained cash-generative during the period with net cash inflow from the portfolio of £37m. PIP has generated £1.6bn of net cash over the last 10 years.

 

Financial position update

·      As at 31 May 2024, PIP had net available cash of £16m while £83m was drawn down under the £500m credit facility and £118m of sterling equivalent loan notes were outstanding. 

·      Therefore as at 31 May 2024, PIP's net debt to NAV, excluding the Asset Linked Note, was conservative at 8.1%. The Board currently does not expect net leverage to exceed 10% of NAV under normal market conditions.

·      As at 31 May 2024, PIP's financing cover was 3.9x and its undrawn coverage ratio was comfortable at 89%.

Commenting on the full year, John Singer CBE, Chair of PIP, said: "This has been a highly successful year in progressing our medium-term strategy, integrating corporate and investment activities that put shareholders first. Our objective remains to deliver attractive risk-return over the long term to a wide base of investors, and we believe that our flexible, strategic investment approach and financing structure support this well. Our corporate measures to date clear the path for the next stage of our journey to stimulate demand for PIP's shares - the surest route to dealing with the discount issues. And so we have embarked on a programme to dispel the myths that have surrounded the private equity sector for so long and to increase our marketing efforts to widen PIP's appeal. And we will continue to do this in the spirit of transparency and communication to build on your trust regarding our putting you first."

 

Commenting on PIP, Charlotte Morris, Partner at Pantheon and Co-Lead Manager of PIP, said: "PIP benefits from being an integral part of Pantheon's platform, having access to a broad set of global relationships, deal opportunities and expertise. On behalf of PIP, we are backing top quality managers who are sector specialists, focusing on resilient, non-cyclical sectors that are benefitting from long-term trends such as automation and digitalisation, ageing demographics and sustainability. We believe that these longer-term trends will continue to provide tailwinds to PIP's portfolio companies."

Commenting on the private equity market, Helen Steers, Partner at Pantheon and Co-Lead Manager of PIP, said: "One of the fundamental characteristics of the private equity industry is its ability to adapt, evolve and respond flexibly to prevailing market conditions. Private equity managers are patient as well as active investors. We are unable to predict the timing of a resurgent M&A market, but there are very early signs that the tide may be starting to turn, which means that several of PIP's portfolio companies, which are already being prepared for exit, will be ready for sale as the outlook improves."

 

Videos of John Singer CBE discussing corporate activity during the year and of the Pantheon team discussing PIP's full-year results are available on PIP's website at www.piplc.com.

 

Capital Markets Afternoon

PIP will host a Capital Markets Afternoon on 12 September 2024 during which there will be presentations from Pantheon and some of PIP's underlying private equity managers. Institutional investors and analysts wishing to attend should contact the Pantheon team at pip.ir@pantheon.com for further details.

 

LEI: 2138001B3CE5S5PEE928

 

For more information please contact:

 

Pantheon
Helen Steers / Charlotte Morris / Vicki Bradley	+44 (0)20 3356 1800 pip.ir@pantheon.com
Investec Bank plc	+44 (0)20 7597 4000
Joint Corporate Broker Tom Skinner (Corporate Broking) Lucy Lewis (Corporate Finance)
J.P. Morgan Cazenove	+44 (0)203 493 8000
Joint Corporate Broker William Simmonds (Corporate Finance)
Montfort Communications	+44 (0)7738 912267
Gay Collins / Pippa Bailey / Michael Schutzer-Weissmann	PIP@montfort.london

Follow PIP on LinkedIn: https://www.linkedin.com/company/pantheon-international-plc

 

ANNUAL GENERAL MEETING

 

The Company's Annual General Meeting ("AGM") will be held at 10-11 Carlton House Terrace, London, SW1Y 5AH at 10.30 a.m. on Wednesday, 16 October 2024. A separate circular containing the AGM notice will be published and made available on the Company's website and the National Storage Mechanism.

 

NATIONAL STORAGE MECHANISM

 

A copy of the Annual Report and Financial Statements and the separate circular containing the AGM notice will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

 

This announcement contains inside information.

 

John Singer CBE

Chair, Pantheon International Plc

Broadwalk House, Southernhay West, Exeter, Devon EX1 1TS

 

Important Information

A copy of this announcement will be available on the Company's website at www.piplc.com Neither the content of the Company's website, nor the content on any website accessible from hyperlinks on its website for any other website, is incorporated into, or forms part of, this announcement nor, unless previously published by means of a recognised information service, should any such content be relied upon in reaching a decision as to whether or not to acquire, continue to hold, or dispose of, securities in the Company.

 

STRATEGIC REPORT

 

AT A GLANCE

 

Making the private, public

 

A share in Pantheon International Plc ("PIP" or the "Company") provides access to a high-quality diversified portfolio of private-equity backed private companies around the world that would otherwise be inaccessible to most investors. Shares in PIP can be bought and sold as they would in any other publicly listed company.

 

PIP is a FTSE 250 private equity investment trust, actively managed by Pantheon, one of the leading private markets investment managers globally.

 

PIP is overseen by an independent Board of Directors who come from a range of backgrounds.

 

As at 31 May 2024
Net asset value ("NAV")	£2.3bn
NAV per share growth in the year	+6.1%
Annualised NAV per share growth since 1987 (net of fees)	+11.9%
Market capitalisation	£1.5bn
Share price change in the year	+19.9%
Annualised share price return since 1987	+10.9%
Weighted average uplift at exit1	+20%
Ten-year loss Ratio2	2.3%
Association of Investment Companies ("AIC") ongoing charges3	1.31%

 

¹ The uplift on full exit compares the value received upon realisation against the investment's carrying value 12 months prior to exit or if known, the latest valuation unaffected by pricing effects arising from market participants becoming aware of the imminent sale of an asset.

² Loss ratio is defined as the sum of (1) the loss made in the realised investments which have exited below cost and (2) the difference between the unrealised value and the cost on the

unrealised investments which are held at below cost, divided by the aggregate investment costs of all investments.

³Ongoing charges are calculated based on the AIC definition. Including financing costs, PIP's total ongoing charges would be 1.87%. See the Alternative Performance Measures section in the full Annual Report for calculations and disclosures.

 

CHAIR'S STATEMENT

 

Progress built on trust

This has again been a year of great corporate and investment activity for PIP. It has resulted, I am delighted to report, not only in a continuing increase in the value of the underlying portfolio, but an even greater one in our share price, increasing 20% during the period.

 

I would like to thank my fellow Board members and the PIP Management Team, but even more so, the shareholders and fellow colleagues in the sector for their encouragement and input into our progress.

 

This year, progress for PIP has been based on three factors. Firstly, Boards in our sector have to go beyond stewardship and administration to greater strategic proactivity to deliver on Net Asset Value (NAV) and share price growth, based on a deep understanding of private equity. We should also proactively aim to increase new demand for quoted private equity from both retail and institutional investors. Secondly, our Board's corporate, investment and leverage strategies have been closely integrated to support each other to deliver investor objectives. And thirdly, now more than ever, our continuing growth and progress must be built on trust - putting shareholder interests' ahead of all others through all cycles. In setting out the year's results below I will focus more on the "why and for whom" rather than just the "what and how" of everything we are doing.

 

Comprehensive strategy to deliver attractive risk-return to shareholders

When we started our original review of PIP's authenticity, relevance for shareholders and differentiation, it was clear that our governance required an integration of corporate, investment and leverage strategies from the start - even if the timing and implementation of each would be different. This required holistic thinking both at the Board and Management Team levels. Knowing that we are driven by this mindset should provide investors with reassurance of the Board's focus on improving performance over the long term. In this financial year, we have made significant progress in all three areas.

 

Corporate Strategy

After announcing the three-step corporate programme in my Chair's Statement in August 2023, we have dedicated ourselves to making progress on each of the three steps that I outline here. These steps form the backbone of our corporate strategy.

 

1 Step One

Following the launch of the share buyback programme last summer, PIP embarked on a £150m¹ reverse tender offer in October 2023, repurchasing 49.2m shares at a strike price of 305.0p per share, which represented a weighted average discount of 35% to the then-prevailing NAV per share. Having completed this part of the share buyback programme successfully, we turned to address the remaining component of the £200m that had been announced and allocated. Over the course of the year to 31 May 2024, PIP bought back 64.3m shares (12.1% of share capital) for a total amount of £196.7m¹, at an average price of 306.0p per share, equivalent to an average 35% discount to NAV, and representing around 8% of opening NAV. In the weeks after the year-end, we kept to our word and completed further buybacks, ensuring that the full £200m allocated to the programme was indeed invested in share repurchases. Overall, the share buybacks during the year resulted in an uplift to year-end NAV per share of 4.7%.

 

+4.7% NAV uplift from share buybacks during the year

 

I must reiterate that the purpose of the share buybacks was not primarily to narrow the discount but rather to prepare the groundwork to enhance our chances of success in stimulating demand for our shares by reducing perceived obstacles in the minds of investors. Concerns, for example, such as the overhang of legacy shareholders, or whose interests the Board puts first. We are pleased to report that the completion of the share buyback programme and tender offer have resulted in a refreshed share register for PIP, achieved through new buyers coming onto the register as well as a few large legacy shareholders reducing their holdings through an equitable and democratic process available to all. This also represented an excellent opportunity to invest in our own portfolio, where we know the underlying investments well and have conviction in the NAV, through buying back £200m worth of shares at a large discount.

 

We hope the success of this process and the reasoning behind it will dispel perceptions that Boards and managers do not put shareholders' interests first.

 

2 Step Two

With the initial share buyback programme largely completed by 31 May 2024, and two important elements of our leverage strategy in place, we were pleased to announce our new Capital Allocation Policy. When I originally announced the three-step programme, I emphasised the importance of a continuing commitment to share buybacks during periods when the discount of share price to NAV remains high. This allows us to take advantage of embedded value in the portfolio as well as new investment opportunities at all points in the cycle. Buybacks, when discounts widen, offer an opportunity to invest in an existing, high-quality portfolio that we know extremely well, and where we benefit both from embedded value implicit in the discount, and from the eventual uplifts on NAV that we typically experience at exit.

 

"We refined our Capital Allocation Policy to provide clear guidance on how we will seek to allocate available cash between new investments and share buybacks."

 

With this objective in mind, we refined our Capital Allocation Policy to provide clear guidance on how we will seek to allocate available cash between new investments and share buybacks. We have deliberately laid out a set of parameters linked to net cash flow, which are to be applied based on the prevailing discount at the end of each financial quarter. This is designed to give shareholders clarity on our approach, with assessments made and the quantum available for buybacks announced at quarterly intervals, effective from 1 June 2024. The policy is clear, easy to understand and measurable using underlying metrics that are already reported to the market. We look forward to implementing this continuing commitment to investing in the most attractive opportunities, including the repurchase of our own shares. The mechanics of this are set out below.

 

3 Step Three

The overall objective is to build on the momentum created by steps one and two to create more demand for PIP's - and the listed private equity sector's - shares, which should over time narrow the discount between share price and NAV sustainably, in a way in which steps one and two alone could not be expected to achieve. Our mission is to optimise the relevance and attraction of our offering to both existing and new retail and institutional investors, through two-way exchanges of conversation and ideas with investors, brokers, investment bodies, and fellow chairs of other investment trusts, complemented by a more assertive marketing strategy. As a sector, we must come together to address the concerns of shareholders, so that a rerating of our sector can be earned.

 

Misunderstandings in the sector persist, such as perceptions of inflated valuations, fees and the lack of consistent disclosure. Investors complain of inadequate disclosure in areas of policy like leverage and buybacks, and they are sometimes suspicious of the relationship between Boards, managers and shareholders. Bringing colleagues across the industry together to provide education and tackle these misconceptions would be for the good of the sector overall and should help to remove many of the obstacles that currently dampen demand for listed private equity.

 

"As a sector, we must come together to address the concerns of shareholders, so that a well-deserved rerating of our sector can take place."

 

Together with sector-wide initiatives to dispel myths, we plan to increase our PIP marketing effort. I am delighted to report that, since the interim statement, the Marketing Committee embarked on a process to identify and appoint a marketing agency, which was recently completed. Our work over the coming months will focus on clarity of branding, communication and reasons to purchase and hold PIP shares for the long term through increased marketing spend. With our marketing agency, we are increasing the resources and attention dedicated to segmentation analysis. We believe these efforts will result in maintaining existing and attracting new retail and institutional investment.

 

My deeply held belief is that building on the trust and goodwill that we have created in the market will bring in new investors who, even when educated about the benefits of Private Equity, feel uneasy about entrusting money to what can appear as a complex and opaque industry. It is incumbent on us to explain the "why" at the heart of what we do at PIP and "for whom" we are doing it. Our deep culture and values have been embedded over decades into investing shareholder capital and help us maintain our clear focus on investor interests and ensure they are put first.

 

The corporate strategy and the associated share buyback programme and Capital Allocation Policy required detailed scenario analysis and thoughtful consideration which is woven into our investment and leverage strategies as set out below.

 

Investment Strategy

Alongside the share buyback programme and the allocation of capital to invest in our own portfolio, £153m of capital has been deployed this year into attractive new investments globally with a continuing focus on direct investments. These now represent 54% of the portfolio and are growing as we maintain our investment target of around one third of new capital earmarked for co-investments and the same for single asset GP-led secondaries. Over five years ago, we started moving towards more direct exposures, based on the conviction that such a focus enables PIP to shape its portfolio more precisely, as well as bringing PIP closer to the assets and the GPs managing them.

 

"The tilt towards direct investments in single assets is already bearing fruit, both in terms of returns and our proximity to the GPs."

 

The tilt towards direct investments in single assets is already bearing fruit, both in terms of returns and our proximity to the GPs. Through the process of selection, monitoring, valuation and advisory board support, we can better align our objectives on topics such as sustainability, value creation methods and timing of exit, with those of the GP and management teams of the assets. Direct investments have the added advantage of carrying lower or no fees.

 

I continue to highlight the importance of our having a number of Board members with long experience in Private Equity, as well as a highly experienced Private Equity Manager in Pantheon, which gives us what I call "double-filter" Private Equity skills - an additional lens added to that of the GP.

 

"We believe that investing with GPs who are focused on revenue growth and operating performance is superior to investing in those relying on one-off cost cutting and layering on aggressive debt loads."

 

Importantly, we can use this double filter to reduce risky reliance on the components of value creation that cannot be controlled, such as multiple arbitrage and reliance on rising markets to boost returns; and aggressive use of leverage that was a low-cost way to augment returns between the Global Financial Crisis and the start of interest rates rising two years ago. During that period of cheap debt and rising valuations, many GPs were able to generate returns by virtue of market conditions but in a risky and unsustainable way. To invest consistently over market cycles and generate returns whatever the macro environment, we believe that investing with GPs who are focused on revenue growth and operating performance is superior to investing in those relying on one-off cost cutting and layering on aggressive debt loads. The result of this can be seen in the +17% of EBITDA growth within the underlying portfolio companies over the period. Even in this difficult year for trading it was in line with +19% of such earnings growth over the last five years.

 

Thinking in line with Pantheon's quality GPs and working closely with them helps us spot trends and capitalise on them swiftly.

 

+17% Weighted average EBITDA growth for the buyout portfolio²

 

This is especially the case in our expansion in the dynamic GP-led secondaries space, where we continue to be able to identify opportunities alongside our GPs to invest in top-performing businesses.

 

Another important differentiator PIP offers retail and institutional portfolios is a truly global exposure that is underpinned by our ability to use global and local teams to offer risk-monitored diversification across sectors, geographies and currencies. PIP's portfolio is invested in the deepest and most experienced private equity markets in the world, with 54% in the USA, 31% in Europe, 8% in global assets and 7% in Asia.

 

Sustainability, focusing in particular on ESG considerations, is a component of Pantheon's investment process and provides a further lens for risk management, value creation and due diligence.

 

As a reminder, PIP invests directly into the investment opportunities presented by Pantheon, and is therefore able to control its portfolio construction and investment deployment flexibly and proactively. The process of origination, due diligence, execution and monitoring of investments which is managed by Pantheon - and overseen by our Board - reflects a strong culture and set of values that is encompassed in our Manager's philosophy and processes and mirrored in PIP's Board.

 

Fundamental to the culture is transparency and a genuine commitment to listening to and understanding shareholder interests and needs. Pantheon was founded on principles of trust and putting the long-term interests of investors first and, over its more than 40 years of operations, throughout cycles, has demonstrated its ability to make the relevant changes to maintain this behaviour. The sharing of objectives is exemplified by the alignment created by the PIP holdings of the Directors and Pantheon Partners that represent a total shareholding of 5.3m (3.8m collectively owned by the Board Directors and a further 1.5m shares held by 14 Partners of Pantheon, representing a combined value of £17.2m as at 31 July 2024).

 

Leverage Strategy

The last component of PIP's holistic and integrated strategy is our approach to leverage. In order to achieve our aims of delivering attractive risk-return to shareholders, we take a prudent approach to leverage and seek a sensible risk balance.

 

As I reported in my interim statement, we achieved two important milestones during the year, culminating in a process that had begun in the first half of 2023: the refinancing of PIP's revolving credit facility and a private placement of long-dated loan notes - a type of financing that had not previously been used in the sector. The incorporation of prudent use of debt marked a shift away from a net cash position, with a key benefit to shareholders being the reduction in idle cash on the balance sheet and associated cash drag on NAV performance.

 

In October 2023, PIP refinanced its £500m equivalent revolving credit facility, securing a more favourable covenant package and a margin increase of 46 basis points, despite the significant change in the lending environment. Following that, on 12 January 2024, PIP completed a private placement of $150m (£118m equivalent) of loan notes, which were three times oversubscribed and purchased by five sophisticated North American institutional investors with considerable in-house knowledge of the private equity asset class. Overall, there was no change in PIP's overall leverage immediately after the private placement, as those proceeds were used to part-repay the RCF.

 

Through these two actions, we have secured a diversity of lending mix, which not only strengthened PIP's balance sheet but also provides wider geographic and financial sector sourcing with carefully selected players for today's markets. A further benefit was increasing the number of credit counterparties from three to 10 within two separate highly liquid markets. Consequently, PIP is now much better placed to replace any particular credit counterparty that faces a similar situation to Credit Suisse in the future.

 

After taking these two significant actions, we have been transparent in disclosing in great detail PIP's gearing policy, the first in the sector to do so. Openness and transparency are major elements of PIP's and Pantheon's values and culture. We believe in setting targets for leverage which we respect, and honouring investor expectations.

 

These changes to PIP's capital structure better support the integrated investment and corporate strategies during a time of robust, high-quality deal flow while share price discounts, though reduced, remain wide. Our more flexible capital structure is managed with thorough and well-defined processes with a view to ensuring prudence. In that context, we aim to improve performance, beat the MSCI World index over the medium to long term and provide alternative safe options for new growth through the cycles.

 

Performance

Against a challenging macroeconomic backdrop and a period of scepticism about private market valuations, I am pleased to report the strong performance that PIP delivered over the year thanks to its robust, balanced and high quality underlying portfolio. In a market experiencing continuing lower exit and distribution levels than historically, and an increase sector-wide in portfolio company holding periods to six years, maintaining earnings growth in those companies becomes an even more critical differentiator. I am happy to report that our portfolio companies have performed well again this year, with revenue and EBITDA growth CAGRs of 14% (in line with the MSCI) and 17% (higher than the MSCI at 13%) respectively.

 

These data points are based on all available information at the company level and not on a selected group of investments. In contrast to public companies and investment trusts that invest in listed equities, Private Equity GPs can do much more operationally with their portfolio companies. Through investment into additional resources such as portfolio support groups, Operating Partners providing functional expertise and deal teams that work hand in hand with the company management, GPs are able to drive superior EBITDA growth.

 

2.3% Loss ratio over the last ten years

 

Moreover, PIP's strategy of working in partnership with these GPs and getting closer to the assets allows us to target investment opportunities with the most attractive financial profiles and to influence the growth we see in the portfolio. Contrary to some perceptions that private equity investments are necessarily risky, our strategies result in a strong performance at a lower level of risk demonstrated by a loss ratio of only 2.3% over ten years.

 

The annualised performance of NAV per share over three-, five- and 10-year periods was 12.5%, 12.1% and 13.5% respectively, and 11.9% since inception, which reflect the consistent long-term value appreciation that shareholders trust us to deliver. Over the year to 31 May 2024, NAV per share grew +6.1%.

 

+6.1% NAV per share growth, over the year to 31 May 2024

 

The drivers of that performance were: the valuation gains from the underlying portfolio (+5.0%); and the impact of the share buybacks (+4.7%), which were then offset by the effects of currency and expenses. Over recent years, some commentators have claimed that the NAVs quoted by GPs for their portfolio companies are inflated and haven't reflected the movements in public markets.

 

In fact, PIP experienced a small contraction in multiples used for EV/EBITDA valuation of over a turn to 17.3x, while the equivalent metric for the MSCI increased more than half a turn to 20.1x. This trend was also observed in net debt / EBITDA multiples, which fell since the interim report to 4.8x for small/mid-market buyout and 5.2x for large/mega buyout. Small/mid-market buyouts are a part of the buyout landscape that is core to PIP's strategy (representing 46% of the portfolio) for good reason.

 

This segment of the market generally  employs lower leverage, which has served to limit the impact of high interest rates, which ultimately protects margins.  these factors, combined with our robust valuation processes (summarised in the full Annual Report) should reassure shareholders of the enhanced value being created for them.

 

Ultimately, the true endorsement of the value of a company is the exit price achieved on sale. Over the year to 31 May 2024, PIP experienced a 20% average uplift at exit. The distribution case studies in the full Annual Report provide some examples of the value creation that our GPs have been able to generate and  the uplift at exit that reflected the transformation of those companies, even in a challenging year. Overall, when considering the long term performance of PIP, I believe that we are delivering on our goal to generate consistent returns over the long term. Over various periods (and indeed since inception), PIP continues to generate outperformance relative to public market benchmarks as well as on an absolute basis. While the share price discount to NAV remains at 34%, I am pleased with the 20% growth in share price over the year to 31 May 2024 and am excited to continue our work on step three,  bringing colleagues in the sector together to increase demand for quoted private equity with a view to narrowing the discount over time.

 

+20% Average uplift on exit realisations³

 

Governance

Underpinning all we do as a Board is the basic tenet of putting shareholders first and building on the trust that has been invested in us. While some Boards may rely on their managers, PIP's Board works with them as a team, always respecting the red line and seeking to ensure the highest standards of governance for the benefit of all stakeholders.

 

I am proud of this relationship and the working practices that we follow with the Pantheon team. The solid Private Equity experience within the Board leads to greater credibility and ease of working with the Executive Team in governance terms, as does the marketing and PR experience of Directors. Moreover, PIP benefits not only from the collaborative working with the Management Team directly, but also from access to the banking, marketing, risk and support services teams at Pantheon.

 

In summary, the depth of the Board's experience, and its style of working with the Management Team, allow for a much more informed debate and challenge on investment, corporate and leverage strategies. We are fully involved in all three and not just a rubber stamp on Manager recommendations. One example of the increasing oversight and governance is the presence of the Audit Chair designate, Zoe Clements, at the Pantheon Valuation Committees, as well as the semi-annual provision of a formal report from the Valuation Committee to the Board.

 

As I reported in my Interim Statement, we have welcomed two new Directors to the Board, both of whom were elected at the AGM last October. Zoe Clements and Rahul Welde bring extensive experience and skills to the Board and Committees with Rahul joining the Marketing Committee and Zoe the Finance Committee. As we prepare with sadness and much gratitude to bid farewell to David Melvin at the next AGM, with Zoe succeeding David in his role as Audit Chair, we are appointing a search agency to identify additional Non-Executive Directors and I look forward to updating you on our search.

 

After a year that was extremely busy for PIP with a multitude of corporate actions completed, while still attending to the day-to-day operations, I would like to thank my fellow Board members and the Pantheon Management Team for their work, including Jie Gong for her input while she was working with PIP. I would also like to take this opportunity to welcome Charlotte Morris to the PIP team, who joins Helen Steers as Co-Lead Manager.

 

Our work on steps one and two was widely applauded by shareholders and analysts. Indeed, the feedback I received directly from shareholders in my series of investor meetings was a pleasing endorsement of our emphasis on the "why" and "for whom" elements of what we do. We were delighted that the Board's strong governance and leadership, listening to shareholders and prioritising their needs, was recognised by the award of "Board of the Year" at the Citywire awards.

 

For whom are we making this journey?

For all our stakeholders, most certainly! But also with an eye to attracting more new shareholders - both retail and institutional - to join those who became PIP shareholders for the first time during the buy back process.

 

For existing and new we will be relying on our integrated strategies set out above, and our prudent investment pacing to ensure liquidity in a market environment experiencing lower exit and distribution levels than historically. And our nimbleness to modify investment strategy for PIP, will allow us to continue to grow as a favoured route to long-term capital gains, despite events such as the GFC in 2008 or the more recent post-Covid challenging macroeconomic backdrop.

 

"A decades-long and solid track record of generating returns, overseen by an independent and highly experienced Board, and managed by Pantheon."

 

It is the high returns/low risk results, decade by decade, that convinced me and my colleagues at PIP to pursue the democratisation of PE. Individuals, as well as institutions, should own this high performing asset class as an element of their portfolios, enhanced by the liquidity offered by the quoted investment trust vehicle, created and developed in the UK. It is very encouraging to see that Defined Contribution pension providers are increasingly keen now to include private markets asset classes in their offerings, recognising the fact that PE provides outperformance, access to a broader investment set, and diversification. Outperformance achieved at low levels of risk - contrary to misunderstandings about the industry. Our portfolio demonstrates this with a loss ratio of only 2.3% over 10 years - a figure which includes not only realised losses but also often temporarily impaired valuations which can be reversed at exit.

 

We will, therefore, continue to apply the three factors of strategic proactivity, integrated strategies and further building on trust to provide PE exposure for any investor (institutional or retail, small or large), including those who do not have the size, access, management resources or desire to build a direct portfolio of PE investments. Each share of PIP provides an investment in a globally diversified, low-risk PE portfolio that would take them many years and significant financial resources to develop, with a decades-long and solid track record of generating returns, overseen by an independent and highly experienced Board, and managed by Pantheon.

 

We will continue the journey described here in line with the principles that have provided us with a very successful year in terms of making progress in 2024 on our overall strategic objectives, and very much hope to have you with us on this exciting journey.

 

PIP's Strategic Report has been approved by the Board and should be read in its entirety by shareholders.

 

JOHN SINGER CBE

Chair

31 July 2024

 

¹ Excluding costs and stamp duty.

² The sample buyout figures for the 12 months to 31 December 2023 were calculated using all the information available to the Company. The figures are based on unaudited data. MSCI data was sourced from Bloomberg. See the Alternative Performance Measures section in the full Annual Report for sample calculations and disclosures.

³ Uplift on full exit compares the value received upon realisation against the investment's carrying value 12 months prior to exit or if known, the latest valuation unaffected by pricing effects arising from markets participants becoming aware of the imminent sale of an asset.

 

KEY PERFORMANCE INDICATORS

 

	What this is	How PIP has performed		Link to our strategic objectives	Examples of related factors that we monitor
Performance
Five-Year cumulative total shareholder return 46.5%	Total shareholder return constitutes the return to investors, after taking into account share price movements (capital growth) and any share buybacks paid during the period.   The Board's strategy is to deliver returns for shareholders through the growth in NAV and not through the payment of dividends.	31 May 2022 64.8% 31 May 2023 31.0%   31 May 2024 46.5%	• PIP's ordinary shares had a closing price of 326.0p at the year end (31 May 2023: 272.0p). This was a 20% increase compared to the prior year. • Narrowing of share price discount following the implementation of PIP's £200m share buyback programme during the financial year. • Share price discounts to NAV have remained wide in the listed private equity sector. Despite the improvement in PIP's share price during the period, the discount on PIP's shares was 34% at the year end (31 May 2023: 41%). The median discount for listed private equity peers1 at the same date was 34% (31 May 2023: 39%).	• Maximise shareholder returns through long-term capital growth. • Promote better market liquidity and narrow the discount by building demand for the Company's shares.	• Rate of NAV growth relative to listed markets. • Trading volumes for the Company's shares. • Share price discount to NAV.
NAV per share growth2 6.1%	NAV per share reflects the attributable value of a shareholder's holding in PIP. The provision of consistent long-term NAV per share growth is central to our strategy.   NAV per share growth in any period is shown net of foreign exchange movements and all costs associated with running the Company.   The NAV is robustly calculated and the balance sheet is audited by PIP's auditors.	31 May 2022 31.0%   31 May 2023 2.4%   31 May 2024 6.1%	• NAV per share increased by 28.1p during the period to 490.5p (31 May 2023: 462.4p). This was an increase of 6.1% compared with the prior financial year end. • NAV per share growth was primarily driven by valuation gains of +5.0% and share buybacks of +4.7% and offset by foreign exchange movements and expenses and taxes.	• Investing in high performing private companies alongside and through top-tier private equity managers globally, to maximise long-term capital growth. • Containing costs and risks by constructing a well-diversified portfolio in a cost-efficient manner.	• Valuations provided by the underlying private equity managers. • Fluctuations in currency exchange rates. • Tax efficiency of investments. • Effect of financing (cash drag) on performance. • Ongoing charges relative to NAV growth and listed private equity peer group.
Portfolio investment return 4.9%	Portfolio investment return measures the total movement in the valuation of the underlying companies and funds comprising PIP's portfolio, expressed as a percentage of the opening portfolio value, before taking foreign exchange effects and other expenses into account.	31 May 2022 26.2%   31 May 2023 3.5%   31 May 2024 4.9%	• Modest increase in underlying portfolio valuation against a backdrop of market volatility. • PIP's portfolio is actively managed and focuses on resilient, high-growth sectors. • PIP's portfolio return for the year was mainly driven by the buyout segment, which accounts for 72% of the portfolio.	• Maximise shareholder returns through long term capital growth.	• Performance relative to listed markets and listed private equity peer group. • Valuations provided by the underlying private equity managers.
Liquidity
Net portfolio cash flow2 £36.9m	Net portfolio cash flow is equal to fund distributions less capital calls to finance investments, and reflects the Company's capacity to finance calls from existing investment commitments.   PIP manages its maturity profile through a mix of primaries, secondaries and co-investments to ensure that its portfolio remains cash-generative at the same time as maximising the potential for growth.	31 May 2022 £232m   31 May 2023 £68m   31 May 2024 £37M	• PIP's portfolio generated £193m (31 May 2023: £223m) of distributions versus £156m of calls (31 May 2023: £155m). • In addition, the Company made new commitments of £153m (31 May 2023: £441m) during the year, £50m of which was drawn at the time of purchase (31 May 2023: £190m). • As at 31 May 2024, PIP's portfolio had a weighted average age of 5.2 years3 (31 May 2023: 4.8 years).	• Maximise long-term capital growth through ongoing portfolio renewal while controlling financing risk.	• Relationship between outstanding commitments and NAV. • Portfolio maturity and distribution rates by vintage. • Commitment rate to new investment opportunities.
Underdrawn coverage ratio4 89%	The undrawn coverage ratio is the ratio of available financing and 10% of private equity assets to undrawn commitments. The undrawn coverage ratio is an indicator of the Company's ability to meet outstanding commitments, even in the event of a market downturn.	31 May 2022 108%   31 May 2023 98%   31 May 2024 89%	• The current undrawn coverage ratio reflects lower cash balances and modest usage of PIP's credit facility. • The optimisation of PIP's balance sheet will enable the Company to further enhance its performance, by allowing PIP to lean into attractive opportunities across market cycles and by reducing cash drag. • PIP's undrawn coverage ratio remains healthy relative to what is required under existing loan covenants.	• Flexibility in portfolio construction, allowing the Company to select a mix of manager-led secondaries, co-investments and primaries, and vary investment pace, to achieve long-term capital growth. • The vintage diversification of unfunded commitments helps PIP manage future capital calls.	• Relative weighting of primary, secondary and co-investments in the portfolio. • Level of undrawn commitments relative to gross assets. • Trend in distribution rates. • Ability to access debt markets on favourable terms.
Gearing5 (8.1%)	Gearing relates to how much debt is utilised in PIP's capital structure and is expressed as net debt (borrowings excluding the ALN less cash) as a percentage of NAV.   The Board appreciates that the measured use of debt can eliminate cash drag and enhance investment returns. PIP's approach to gearing remains conservative. The Board does not currently expect net leverage to exceed 10% of NAV under normal market conditions.	31 May 2022 9.4% 31 May 2023 2.6% 31 May 2024 (8.1%)	• PIP's net debt as a percentage of the Company's NAV as at 31 May 2024 was 8.1% (31 May 2023: net cash to NAV ratio was 2.6%). • As at 31 May 2024, PIP has utilised £83m of its £500m revolving credit facility, and has £118m of private placement loan notes outstanding. • PIP's net debt to NAV ratio is lower than the relevant peer group of 11%1.	• Measured use of leverage to reduce cash drag and enhance NAV growth. • Adopt a more efficient use of balance sheet capital to reduce cash drag.	• Utilisation level of the revolving credit facility. • Anticipated distribution levels and impact on liquidity position. • Leverage relative to listed private equity peer group.

 

¹ Relevant peer group comprised: CT Private Equity Trust PLC, HarbourVest Global Private Equity Ltd, ICG Enterprise Trust PLC and Patria Private Equity Trust. Data as at 31 May 2024.

² Excludes valuation gains and/or cash flows associated with the ALN.

³ Excludes the portion of the reference portfolio attributable to the ALN.

⁴ Outstanding commitments relating to funds outside their investment period (>13 years old) amounting to £41.7m as at 31 May 2024 (31 May 2023: £48.2m) were excluded from the calculation as there is a low likelihood of these being drawn.

⁵ Net cash (debt) to net asset value.

 

OUR STRATEGY

 

A cohesive and holistic strategy to address shareholders' needs

The Board regularly reviews PIP's overall corporate strategy and this has formed a key part of Board discussions throughout the year.

 

The Board and PIP's Manager, Pantheon, are in constant dialogue regarding PIP's overall strategy and the Company's progress towards achieving its strategic goals. This dialogue is informed by the Manager's assessment of any changes in market conditions, for example in the M&A environment, and through stakeholder engagement, including with shareholders and peers in the market.

 

PIP's strategy encompasses its corporate, investment and financing strategy. The Company's three-step corporate programme has already been outlined in the Chair's Statement above, and the Capital Allocation Policy (step 2) is highlighted in more detail below.

 

The Company's investment strategy is recommended to the Board by the Manager, discussed at length and then amended as necessary. A similar process is followed regarding PIP's financing strategy, which supports the Company's corporate actions and investment programme.

 

While the Company's agreed investment strategy, which is described in detail below, sets the overall parameters of the investment programme, for example the tilt towards direct investments, small/mid buyouts and certain sectors, the Board will review individual investments that exceed exposure limits, which are set at appropriate level to reflect a diversified approach. At times, the Manager may make recommendations to the Board and seek approval for certain investments that fall outside of any limits expressed in the agreed strategic approach, but which Pantheon believes to be a good investment opportunity for PIP. The Board maintains its independence at all times and robustly challenges such recommendations to ensure that they are in the best interests of shareholders.

 

The Manager also reports regularly to the Board on PIP's marketing and investor relations activities, considering new initiatives that could help to increase PIP's profile, and to reach new potential shareholders of the Company. Subsequent to the end of the financial year, a marketing agency was appointed to assist PIP with this objective.

 

Culture and Purpose

It is a requirement for all companies to set out their culture and purpose. The Company's defined purpose is relatively simple: it is to deliver our investment strategy led by a Board that promotes strong governance and a long-term investment approach that actively considers the interests of all stakeholders.

 

The Directors agree that establishing and maintaining a healthy corporate culture within the Board and in its interactions with the Manager, shareholders and other stakeholders will support the delivery of its purpose, values and strategy. The Board seeks to promote a culture of openness and integrity through ongoing dialogue and engagement with its service providers, principally the Manager.

 

Capital allocation policy

Capturing value for shareholders.

PIP's Capital Allocation Policy ("CAP") has been designed to capture on behalf of shareholders the exceptional value available by investing in the Company's own portfolio when its shares are trading at a significant discount to NAV.

 

From 1 June 2024, depending on the prevailing level of discount, the Board intends to allocate a portion of Adjusted Net Portfolio Cash Flow ("aNPC") to share repurchases.

 

The PIP Board remains committed to putting shareholders' interests first and therefore intends to preserve flexibility in its ability to carry out share repurchases. The CAP will be reviewed on a regular basis by the Board to ensure that it remains appropriate for the Company and with consideration of the prevailing market conditions.

 

The Capital Allocation Policy complements PIP's investment objective which is to maximise returns for shareholders over the long term by investing in high-growth private companies backed by many of the best private equity managers in the world.

 

Since PIP primarily invests directly into the deals sourced for it by Pantheon, and with a majority of its underlying portfolio invested directly into companies rather than funds, the Company is able to substantially control deployment to its advantage, manage liquidity, and actively shape its portfolio through what it deems to be the best use of capital at any given time.

 

PIP will continue to invest in exciting new private equity opportunities, capable of generating market-beating returns over the long term, alongside share buybacks.

 

Investment type

Focus on direct investments to boost performance.

The Board believes that its oversight of the Manager's activities, while at the same time allowing Pantheon the flexibility that it needs to make the appropriate investment decisions on the Company's behalf, ensures that PIP is able to deliver on its strategic objectives for shareholders over the long term.

 

Primaries, manager-led secondaries and co-investments all have attractive characteristics, as highlighted in the Investment Model section below. PIP's transparent and direct investment approach gives it the flexibility to take advantage of prevailing market conditions and to maximise control over the Company's financing risk, including its ability to generate positive cash flows.

 

As the weighting towards co-investments has been increased over time, the three different investment types have intentionally taken on more equal weightings. These weightings do not represent hard caps; however, the Board and the Manager believe that this is the optimal mix to benefit from the cash generated by the more mature assets in PIP's portfolio while rejuvenating the portfolio with the younger vintages offered by primaries and co-investments. In addition, we have been steering PIP's secondary investment strategy towards manager-led secondaries which form a fast-growing part of the secondary market and are attractive for several reasons as highlighted below. These investments also provide younger vintages to the portfolio.

 

With an increased weighting towards co-investments and manager-led secondaries, we expect the number of underlying managers and portfolio companies to which the Company is exposed to continue to reduce over time. As a result, the potential for the Company's overall NAV to be driven by the performance of individual assets should be increased while maintaining the benefits of a portfolio that is well diversified by type, stage, geography and sector.

 

The Board believes that there are several benefits to this investment approach: risk is effectively managed through diversification while the improved transparency of PIP's underlying portfolio and increased investment flexibility, should create a clearer link between the strongest performing companies in the portfolio and the potential to boost NAV growth in the future. Also, Pantheon can remain highly selective and disciplined when assessing deal flow, while at the same time reducing the risk of PIP being excluded from exciting opportunities due to investment constraints.

 

Investment type1
Primaries	35%
Co-investments	34%	54% invested directly in companies
Manager-led secondaries	20%
Fund Secondaries	11%

 

¹ Fund investment type is based upon underlying fund valuations and accounts for 100% of PIP's overall portfolio value. The data excludes the portion of the reference portfolio attributable to the ALN.

 

Investment stage

Focus on mid-market and growth.

 

PIP's portfolio is diversified by stage. While the Company's strategy is to maintain a healthy mix of all stages, Pantheon and PIP favour the buyout segments, with a particular focus on the small and mid-market. The small/mid-market buyout segment offers distinct characteristics, when compared with large deals, such as:

 

-        More attractively priced assets which tend to have lower levels of leverage than the broader market average;

-        Greater visibility of the value drivers and the levers to pull to improve operational efficiency to better drive growth, both organically and through buy-and-build strategies; and

-        More routes to exit including strategic acquisitions, sales to other private equity managers or IPOs. In PIP's case, it should be noted that the majority of exits have consistently been to strategic buyers and other private equity managers, with IPOs accounting for a smaller proportion of exits during the year ended 31 May 2024.

 

Venture accounts for a very small proportion of PIP's portfolio and any investment activity by PIP in early stage venture funds is focused on investing with top-tier venture managers, mainly through primary fund investments, who are able to identify innovative opportunities with the potential to generate significant outperformance.

 

While special situations include assets with unique characteristics which can offer potential for outperformance, it is the Board's intention that special situations investments will only be a small minority of the overall portfolio.

 

Investment Stage¹

Small/mid buyout	46%
Large/mega buyout	26%
Growth	19%
Special situations2	5%
Venture	4%

 

¹ Stage data is based upon underlying fund valuations and accounts for 100% of PIP's overall portfolio value. The data excludes the portion of the reference portfolio attributable to the ALN.

² Special situations investments can include distressed debt, mezzanine, energy/utilities and turnarounds.

 

Sector and geographic exposure

Global with a focus on high-growth and niche areas.

 

The Board is committed to offering investors a global portfolio with investments in North America, Europe and Asia. The weightings of those geographies may change in response to market conditions but the Board supports the majority of the Company's capital being invested in the USA and Europe where the private equity markets are well established.

 

The Board relies on Pantheon's investment teams located around the world that can take advantage of proprietary information flows and access to opportunities through their extensive networks of relationships.

 

It is Pantheon's objective to identify managers globally that are able to take a thematic approach and focus on high-growth sectors, many of which may not be fully represented by the public markets. In addition, Pantheon has a deliberate strategy of targeting sectors experiencing dislocation, as well as niches where underlying growth is less correlated to GDP growth and they are benefiting from long-term trends. As a result, the largest two sectors in PIP's portfolio are information technology and healthcare. For more information on the sectors in which PIP has invested, see the Portfolio section below.

 

Region¹

USA	54%
Europe	31%
Global	8%
Asia	7%

 

Company sectors²

Information Technology	33%
Healthcare	20%
Consumer	14%
Industrials	11%
Financials	10%
Communication services	7%
Energy	3%
Materials	2%
Others	1%

 

¹ Region is based upon underlying fund valuations and accounts for 100% of PIP's overall portfolio value. The data excludes the portion of the reference portfolio attributable to the ALN.

² The company sector table is based upon underlying company valuations as at 31 March 2024, adjusted for calls and distributions to 31 May 2024. These account for 100% of PIP's overall portfolio value.

 

Financing Strategy

Flexible and diverse financing structure

 

Diversified sources of financing

PIP has built a long-term, sustainable, more flexible, and diverse capital structure, further strengthening the Company's balance sheet.

 

In October 2023, PIP agreed a new £500m equivalent multi-tranche, multi-currency revolving credit facility agreement (the "Credit Facility"), which replaced the previous £500m equivalent credit facility and Credit Suisse AG London Branch as a lender.

 

In addition, PIP completed a private placement of $150m of loan notes ("Loan Notes") in January 2024. Proceeds from the issuance of the Loan Notes were used to partially repay and convert Credit Facility drawings into longer term funding at a blended coupon that is lower than the all-in interest cost payable on the Credit Facility.

 

When considered alongside the existing Credit Facility, the issuance of the Loan Notes means that PIP now has access to an even more diverse supply of liquidity from high quality counterparties.

 

The Credit Facility and the Loan Notes are subject to market standard loan to value and liquidity covenants. PIP's covenant package was structured to better support the Company's long-term investment and capital allocation strategies.

 

Modest use of gearing

As per its Investment Policy, PIP may borrow to make investments and typically uses its borrowing facilities to manage its cash flows flexibly, enabling the Company to make investments as and when suitable opportunities arise, and to meet calls in relation to existing investments without having to retain significant cash balances for such purposes.

 

The Board currently does not expect net leverage to exceed 10% of NAV under normal market conditions.

 

OUR BUSINESS MODEL

 

What sets us apart

 

Proven track record and focus on risk management

For over 37 years, PIP has been able to adapt quickly and effectively to changing market conditions. This flexible and proactive approach means that PIP is well placed to continue to deliver on its long-term strategic objectives. PIP's NAV has outperformed its public market benchmark indices over multiple periods and since the Company's inception in 1987.

 

We pay close attention to the management of risk. PIP provides a carefully constructed and appropriately diversified portfolio for investors with a particular emphasis on well-established companies in the buyout stage. This is supported by a prudently managed balance sheet which has the strength to continue to meet its outstanding commitments, even in more difficult economic times. See below for more information on the balance sheet.

 

A global portfolio

Just over half of PIP's portfolio is invested in the USA, which is the deepest, most developed private equity market in the world and is often inaccessible to many investors in other regions. The next largest proportion of the portfolio is invested in Europe, with an emphasis on Northern Europe, while the remaining exposure is to faster-growing economies such as Asia.

 

The presence of Pantheon's teams in its 13 locations around the world means that they are on the ground locally, working with their extensive networks of relationships with private equity managers and taking advantage of proprietary information flows and access to opportunities. These relationships enable Pantheon to source and respond quickly to the best deal flow in those regions. In addition, through its participation on over 642¹ advisory boards globally, Pantheon actively engages with its private equity managers on portfolio monitoring issues on a continuous basis.

 

Culture & Diversity

Pantheon has a strong culture of openness and inclusive teamwork and encourages the exchange of ideas. PIP is supported by 457 people around the world including a large team of 126 investment professionals². PIP also benefits from a dedicated and experienced team that looks after it on a day-to-day basis. In keeping with its collaborative culture, Pantheon avoids investments in private equity managers with "star" individuals which would give rise to a higher degree of key person risk.

 

From day one, Pantheon has understood that a diverse workforce creates a more productive environment. Each year, Pantheon publishes statistics documenting its global staff breakdowns according to gender identity, ethnic diversity, LGBTQ+ and disability profiles. The firm has consistently exceeded industry averages for gender diversity. Pantheon also supports a number of inclusion and diversity initiatives and organisations around the world.

 

¹ As at 31 March 2024.

² As at 30 June 2024

 

PIP aims to deliver consistent returns over the long term.

 

Our investment process

1.   Investment opportunities in companies and complementary funds are originated via Pantheon's extensive and well-established platform.

2.   We invest in many of the best private equity managers who are able to identify and create value in their portfolio companies.

3.   Cash generated from the sale of those companies is returned to PIP and redeployed into new investment opportunities, including share buybacks in accordance with the capital allocation policy.

 

What we do

PIP invests directly in private companies worldwide through co-investments alongside selected private equity managers and through manager-led opportunities, as well as in complementary private equity funds.

 

-     An investment in PIP offers shareholders exposure to a growing private market that is expected to exceed US$8.5tn by 2028¹, where the best private equity opportunities might otherwise be inaccessible to most investors.

 

We aim to deliver attractive and consistent returns to shareholders over the long term, and at relatively low risk. The Board remains committed to its policy of maximising capital growth and therefore, as in previous years, is not proposing the payment of a dividend.

 

Why we do it

Through Pantheon, we have an opportunity to invest with and alongside many of the best private equity managers globally based on the trust and experience built up over the 40 years that Pantheon has been making investments.

 

-     It is our aim to bring the attractive credentials of private equity and its track record of outperforming public markets to a wider set of investors.

 

It is our mission to generate sustainably high investment returns through an actively managed, institutional grade portfolio of private companies and funds built by investing with the best managers globally.

 

How we do it

PIP's Manager, Pantheon, has a well-established platform built on three strategic pillars of investment: primary, secondary and co-investments, with each offering their own merits.

 

We believe that by combining the three ways of accessing private equity investments, we are able to:

-     Build and maintain a well-balanced portfolio in a combination that we monitor and manage with the aim of maximising capital growth;

-     Manage the maturity profile of our assets so that PIP's portfolio remains naturally cash-generative on a sustainable basis; and

-     Ensure that the vehicle remains as cost-effective as possible for our shareholders by reducing any potential drag on returns.

 

¹ Source: Preqin Global Report Private Equity 2024.

 

We have full control over portfolio construction

PIP has the opportunity to participate in all of the private equity investments sourced for it by Pantheon.

 

This means that:

-     We have control of investment strategy, overseen by the fully independent Board

-     We have the flexibility to tilt the portfolio towards where we see the best fit for our long-term objectives.

-     We can accept or decline deals without being "tied in" to other  Pantheon fund strategies.

-     We can control PIP's investment pacing according to its financial resources at the time.

-     We have the flexibility to vary the size of its commitments as appropriate and in line with any adjustments to its investment strategy.

-     We avoid the additional costs that can occur when investing via intermediate vehicles.

 

Our investment strategies:

 

Direct company investments: 54% of PIP's portfolio*

 

Co-investments

We invest in a company directly, alongside a private equity manager.

-     Direct investment in individual companies, which have attractive growth characteristics and have effectively passed through a "double quality filter", alongside PIP's leading private equity managers.

-     This boosts the performance potential because of asset selection, and there are typically very low or no fees, making it a cost-effective way of capitalising on the high value added by PIP's selected managers.

-     Co-investments are through invitation only and are therefore not accessible to most investors.

 

Manager - led Secondaries

We invest in a company directly, alongside a private equity manager, that the manager has already owned for a period of time and therefore knows well.

-     We partner with high-quality private equity managers to acquire, as single transactions, their most attractive portfolio companies via a continuation fund.

-     Allows the private equity manager to hold onto a prized asset, which they believe has potential for further growth, when the fund in which it is held comes to the end of its life.

 

Funds: 46% of PIP's portfolio*

 

Primaries

We invest in a new private equity fund when it is established.

-     Captures exposure to top-tier, well-recognised managers as well as to smaller niche funds that are generally hard to access.

-     Targets leading managers predominantly in the USA and Europe, with a focus on funds which are unlikely to become available in the secondary market.

 

Fund Secondaries

We purchase the interests of an investor in a fund or funds typically late into, or after, the investment period.

 

-     Targets favoured companies and funds at a stage when the underlying assets' performance is visible and the funds are realising investments, returning cash to PIP more quickly.

-     One of the advantages of investing in secondaries is that earlier fees will have been borne by the seller so total expenses are lower.

 

* As at 31 May 2024

 

INVESTMENT POLICY

 

Our investment policy is to maximise capital growth with a carefully managed risk profile.

 

The Company's policy is to make unquoted investments. It does so by subscribing to investments in new private equity funds ("Primary Investment"), buying secondary interests in existing private equity funds ("Secondary Investment"), including manager-led secondaries, and acquiring direct holdings in unquoted companies ("Co-investments"), usually either where a vendor is seeking to sell a combined portfolio of fund interests and direct holdings or where there is a private equity manager, well known to the Company's Manager, investing on substantially the same terms.

 

The Company may, from time to time, hold quoted investments as a consequence of such investments being distributed to the Company from its fund investments as the result of an investment in an unquoted company becoming quoted. In addition, the Company may invest in private equity funds which are quoted. The Company will not otherwise normally invest in quoted securities, although it reserves the right to do so should this be deemed to be in the interests of the Company.

 

The Company may invest in any type of financial instrument, including equity and non-equity shares, debt securities, subscription and conversion rights and options in relation to such shares and securities, and interests in partnerships and limited partnerships and other forms of collective investment schemes. Investments in funds and companies may be made either directly or indirectly, through one or more holding, special purpose or investment vehicles in which one or more co-investors may also have an interest.

 

The Company employs a policy of over-commitment. This means that the Company may commit more than its available uninvested assets to investments in private equity funds on the basis that such commitments can be met from anticipated future cash flows to the Company and through the use of borrowings and capital raisings where necessary.

 

The Company's policy is to adopt a global investment approach. The Company's strategy is to mitigate investment risk through diversification of its underlying portfolio by geography, sector and investment stage. Since the Company's assets are invested globally on the basis, primarily, of the merits of individual investment opportunities, the Company does not adopt maximum or minimum exposures to specific geographic regions, industry sectors or the investment stage of underlying investments.

 

In addition, the Company adopts the following limitations for the purpose of diversifying investment risk:

 

-     No holding in a company will represent more than 15% by value of the Company's investments at the time of investment (in accordance with the requirement for approval as an investment trust which applied to the Company in relation to its accounting periods ended on and before 30 June 2012).

-     The aggregate of all the amounts invested by the Company (including commitments to or in respect of) in funds managed by a single management group may not, in consequence of any such investment being made, form more than 20% of the aggregate of the most recently determined gross asset value of the Company and the Company's aggregate outstanding commitments in respect of investments at the time such investment is made.

-     The Company will invest no more than 15% of its total assets in other UK-listed closed-ended investment funds (including UK-listed investment trusts).

 

The Company may invest in funds and other vehicles established and managed or advised by Pantheon or any Pantheon affiliate. In determining the diversification of its portfolio and applying the Manager's diversification requirement referred to above, the Company looks through vehicles established and managed or advised by Pantheon or any Pantheon affiliate.

 

The Company may enter into derivatives transactions for the purposes of efficient portfolio management and hedging (for example, hedging interest rate, currency or market exposures).

 

Surplus cash of the Company may be invested in fixed interest securities, bank deposits or other similar securities.

 

The Company may borrow to make investments and typically uses its borrowing facilities to manage its cash flows flexibly, enabling the Company to make investments as and when suitable opportunities arise, and to meet calls in relation to existing investments without having to retain significant cash balances for such purposes. Under the Company's Articles of Association, the Company's borrowings may not at any time exceed 100% of the Company's NAV. Typically, the Company does not expect its gearing to exceed 30% of gross assets. However, gearing may exceed this in the event that, for example, the Company's future cash flows alter.

 

The Company may invest in private equity funds, unquoted companies or special purpose or investment holding vehicles which are geared by loan facilities that rank ahead of the Company's investment. The Company does not adopt restrictions on the extent to which it is exposed to gearing in funds or companies in which it invests.

 

Optimising PIP's Capital Structure

We aim to build a sustainable, diverse and flexible capital structure that can support PIP's corporate and investment strategies.

 

During the period PIP agreed a new £500m equivalent multi-currency revolving credit facility ("Credit Facility") provided by five relationship lenders, replacing the previous credit facility and Credit Suisse as a lender. In addition, PIP secured a private placement of US$150m of loan notes ("Loan Notes"), structured over different maturities of five, seven and 10 years. The transaction provides PIP with access to long-term funding at a blended US dollar coupon of 6.49%, which is cheaper than the all-in interest cost currently payable on the revolving credit facility.

 

As a result of these actions, PIP has successfully diversified its financing counterparties, expanded its sources of liquidity and reduced refinancing risk. New investments, calls on undrawn commitments and share buybacks will be funded primarily by distributions and, where appropriate, short-term drawdowns from the Credit Facility.

 

Minimal gearing level

As at 31 May 2024, PIP had £83m drawn down under the Credit Facility and £118m of sterling-equivalent Loan Notes outstanding. Taken in conjunction with PIP's net available cash of £16m, this results in a conservative net debt¹ to NAV ratio of 8.1%. The Board currently does not expect net leverage to exceed 10% of NAV under normal market conditions.

 

Undrawn commitments by vintage²

PIP's undrawn commitments were £789m as at 31 May 2024 (31 May 2023: £857m). Of the £789m undrawn commitments as at the period end, £42m relate to funds that are more than 13 years old, and therefore outside their investment periods. Generally, when a fund is past its investment period, it cannot make any new investments and only draws capital to fund follow-on investments or to pay expenses. As a result, the rate of capital calls by these funds tends to slow dramatically.

 

2023 and later	33%
2022	26%
2021	14%
2020	3%
2019	4%
2018	4%
2017	3%
2016	2%
2015	3%
2014 and earlier	8%

 

¹ Net debt calculated as borrowings (excluding the outstanding balance of the ALN) less net available cash. The ALN is not considered in the calculation of gross borrowings or the loan-to-value ratio, as defined in PIP's Credit Facility and Loan Notes agreements. If the ALN is included, net debt to NAV was 9.4% as at 31 May 2024.

² Includes undrawn commitments attributable to the reference portfolio related to the ALN.

 

Managing our financing cover

We regularly stress test PIP's balance sheet against a range of scenarios and market conditions to ensure that it is well positioned for the long term. We manage PIP to ensure that it has sufficient liquidity to finance its undrawn commitments, which represent capital committed to funds but yet to be drawn by the private equity managers, as well as to take advantage of new investment opportunities. A critical part of this exercise is ensuring that the undrawn commitments do not become excessive relative to PIP's private equity portfolio and available financing. We achieve this by managing PIP's investment pacing as well as constructing its portfolio to ensure the right balance of exposure to primaries, manager-led secondaries and co-investments.

 

As at 31 May 2024, PIP had net available cash³ balances of £16m (31 May 2023: £63m).

 

In addition to these cash balances, PIP also has access to a £500m equivalent credit facility, split as follows:

 

-     Facility A: £400m, expiring in October 2026 with an ongoing option to extend, by agreement, the maturity date by 364 days at a time; and

-     Facility B: £100m, expiring in October 2024.

 

Using exchange rates as at 31 May 2024, the credit facility amounted to a sterling equivalent of £482m, of which £398m remained undrawn as at the year end.

 

With £16m of net available cash and an undrawn credit facility of £398m, PIP had £414m of available financing as at 31 May 2024 (31 May 2023: £554m) which, along with the value of the private equity portfolio, provides comfortable cover of 3.9 times (31 May 2023: 3.7 times) relative to undrawn commitments for funds within their investment periods.

 

Another important measure is the undrawn coverage ratio, which is the ratio of available financing and 10% of private equity assets to undrawn commitments. The undrawn coverage ratio is a key indicator of the Company's ability to meet outstanding commitments, even in the event of a market downturn, and was 89% as at 31 May 2024 (31 May 2023: 98%)⁴.

 

³ The available cash and loan figure excludes the current portion payable under the ALN, which amounted to £0.4m as at 31 May 2024.

⁴ Excludes outstanding commitments relating to funds outside their investment period (>13 years old), amounting to £41.7m as at 31 May 2024 (31 May 2023: £48.2m).

 

RISK MANAGEMENT AND PRINCIPAL RISKS

 

The Company is exposed to a variety of risks and uncertainties. The Board, through delegation to the Audit Committee, has undertaken a robust assessment and review of the principal risks facing PIP, together with a review of any new and emerging risks that may have arisen during the year to 31 May 2024, including those that would threaten its business model, future performance, solvency or liquidity. A summary of the risk management and internal control processes can be found in the Statement on Corporate Governance in the full Annual Report.

 

Investment and strategy risk

 

Type and Description of Risk	Potential Impact	Risk Mitigation	Outcome for the Year
Investment performance The Manager selects the investments for the Company's Portfolio. The origination, investment selection and management capabilities of both the Manager and the third-party managers are key to the performance of the Company.	•  Performance not comparable to benchmark/ industry average. Consistently poor performance may lead to a fall in the quoted share price and impact share price discount to NAV.	• Pantheon has a long track record of investing alongside private equity managers who have experience of navigating economic cycles. Diversification by geography, stage, vintage and sector, helps to mitigate the effect of public market movements on the Company's performance.	Stable during the year • PIP continues to adopt a diversified approach to portfolio construction. • In historical periods of significant public market volatility, private equity market valuations have typically been less affected than public equity market valuations. •  Portfolio investment return of +4.9% in the year to 31 May 2024.
Market and macroeconomic factors Inflation, interest rates and equity market performance can affect portfolio investment returns.	• Impact of general economic conditions on underlying fund and company valuations, exit opportunities and the availability of credit. • Higher risk of market volatility, price shocks or a significant market correction.	• As part of its investment due diligence process, Pantheon assesses the approach of its underlying managers to company illiquidity and macroeconomic factors as well as projected exit outcomes. • Portfolio diversified across multiple countries and sectors to reduce the impact of market and macroeconomic factors.	Stable during the year •  Inflation pressures have decreased during the year in the Global Economy. Interest rates remain at 10-year highs, but early indications are that central banks could start to reduce interest rates. • Resilient performance of the portfolio despite a challenging macro environment. Underlying portfolio Revenue growth was 14% and EBITDA growth was 17% in the reporting period.
Valuations In valuing its investments in private equity funds and unquoted companies and publishing its NAV, the Company relies to a significant extent on the accuracy of financial and other information provided by third-party managers.	• Potential for inconsistency in the valuation methods adopted third-party managers and for valuations to be misstated.	• The valuation of investments is based on periodically audited valuations that are provided by the underlying private equity managers. • Pantheon carries out a formal valuation process involving monthly reviews of valuations, the verification of audit reports and a review of any potential adjustments required to ensure reasonable valuations in accordance to fair market value principles under Generally Accepted Accounting Principles ("GAAP"). • Pantheon's Valuation Committee, which is independent of the investment and investor relations teams, and comprised of senior team members, has ultimate responsibility for approving valuations, ensuring that there are robust governance, oversight and process frameworks in place, guaranteeing compliance with standards and consistent application of policy. The Committee reports to the Board on a Semi-Annual Basis or when there are any material matters arising. • A member of the Audit and Risk Committee and EY observe the Valuation Committee on a semi-annual basis.	Stable during the year • No material misstatement concerning the valuations provided by underlying private equity managers and the existence of investments during the year. • No changes in valuation policy in the year or changes to US or International Valuation Standards.
Level of Discount A decline in the popularity of the listed private equity sector has contributed to a reduction in demand for the Company's shares.	• Market sentiment on the listed private equity sector can affect the Company's share price and widen discounts relative to NAV, causing shareholder dissatisfaction.	• Regular review of the level of discount or premium relative to the sector. • Consideration of ways in which share price performance may be enhanced including the effectiveness of marketing and policies such as share buybacks. •The Board regularly discusses the shareholder register with the Manager to monitor buying/selling activity and to identify potential new investors. • Pantheon and the Company's brokers are in regular contact with existing shareholders and prospective new investors.	Stable during the year • Private equity continues to outperform public markets over the long term and has proved to be an attractive asset class through various cycles. • The Company invested £196.7m* in share buy backs during the financial year to 31 May 2024. From 1 June 2024, under the new Capital Allocation Policy, the Board intends to dedicate a proportion of the Company's adjusted net portfolio cashflow future share buybacks. • The Company's share price discount to NAV decreased during the year but, in line with the industry, still trades at a material discount.
Vehicle financing Availability, level and cost of credit for the Company.	• Potential impact on performance and liquidity, especially in the event of a market downturn.	• PIP's Articles of Association and investment policy impose limits on the amount of gearing that the Company can take on. • The periodic review of principal covenants for the loan facility ensures that the Company complies with loan-to-value and liquidity ratios. • The Board conducts regular reviews of the balance sheet and long-term cash flow projections, including downside scenarios that reflect the potential effects of significant declines in NAV performance, adverse changes in call/distribution rates and restrained liquidity in a distressed environment.	Falling during the year • The Company issued US$150m in a private placement of loan notes and refinanced its £500m credit facility. • Cash flow forecasts under normal and stress conditions were reviewed with the Board. Downside scenario modelling indicates that the Company has the available financing in place to meet investment commitments, even in an environment characterised by large NAV declines and a material reduction in distribution activity. • The Board currently does not expect net leverage to exceed 10% of NAV under normal market conditions. • The Company-level leverage was 8.1% as at the end of the financial year.
Look-through gearing Availability, level and cost of debt for underlying funds and portfolio companies.	• Rising interest rates can impact the profitability and valuation of underlying portfolio companies. • A deterioration in credit availability can potentially reduce investment activity.	• As part of its investment process, the Manager undertakes a detailed assessment of the impact of debt at the underlying fund level and underlying company level on the risk-return profile of a specific investment.	Stable during the year • Debt multiples in PlP's buyout portfolio remain at reasonable levels as at year end as interest rates have stabilised. • Rates of default or covenant breaches remain very low in the underlying portfolio.
Liquidity management Insufficient liquid resources to meet outstanding commitments to private equity funds.	• The Company has outstanding commitments that may be drawn down at any time in excess of total liquidity to private equity funds. The ability to fund this difference is dependent on receiving cash proceeds from investments (the timing of which are unpredictable) and the availability of financing facilities.	• PIP has a mature portfolio that is naturally cash generative. • If cash balances and cash distributions are insufficient to cover capital calls, PIP has the ability to draw funds from a credit facility. • Pantheon manages the Company so that undrawn commitments remain at an acceptable level relative to its portfolio assets and available financing. • The Board conducts a comprehensive review of the Company's cash flow forecasts under different scenarios on a regular basis.	Stable during the year • PIP has access to a £500m-equivalent loan facility split as follows: - Facility A: £400m, expiring in October 2026 with an ongoing option to extend, by agreement, the maturity date by 364 days at a time; and - Facility B: £100m, expiring in October 2024. • Overall finance has strengthened in the period including diversification of the facility lenders and diversifying the maturity dates. However, distribution levels remain significantly below long-term averages at 8% per annum. • Together with PlP's net available cash balances of £16m, total available financing as at 31 May 2024 stood at £414m. Total available financing, along with the private equity portfolio, was greater than outstanding commitments by a factor of 3.9 times.
Investment rate Lack of suitable investment opportunities to meet strategic objectives.	• Change in risk profile because of manager, fund or company exposures that are materially different from the Company's intended strategy.	• Pantheon has put in place a dedicated investment management process designed to achieve the intended investment strategy agreed with the Board. • The Board regularly reviews investment and financial reports to monitor the effectiveness of the Manager's investment processes.	Stable during the year • During the year, PIP has invested within strategic limits for vintage year, geography and stage allocations, as well as within concentration limits for individual managers, funds and companies. • PIP invested £197m in share buybacks during the last year.
Foreign exchange risk PIP has continued to expand its geographic diversity by making investments in different countries. Accordingly, a significant majority of PIP's investments are denominated in US dollars, euros and currencies other than sterling.	• Unhedged foreign exchange rate movements could impact NAV total returns.	• Pantheon monitors underlying foreign currency exposure and, together with the Board, reviews hedging strategies available to the Company. • As part of its investment process, the Manager takes currency denominations into account when assessing the risk/return profile of a specific investment. • The multi-currency credit facility is a natural hedge for currency fluctuations.	Stable during the year • There was no material change in the Company's exposure to foreign exchange currency risk in the year. • Foreign exchange had a negative impact on NAV performance during the year. Despite this, it remains appropriate for the Company not to hedge its foreign exchange.

* Excluding costs and stamp duty.

 

Operational risk

Type and Description of Risk	Potential Impact	Risk mitigation	Outcome for the Year
Sustainability and climate change The risk that the Company or the Manager fails to respond appropriately to the increasing global focus on sustainability issues.	• The Company is exposed to the impact of a mismanagement or failure to recognise potential sustainability issues at portfolio company level, industry level, service provider, and Board level, which could damage the reputation and standing of the Company and ultimately affect its investment performance.	• Pantheon has a responsible approach when making investments on behalf of PIP. Adherence to sound sustainability principles has been an integral part of Pantheon's pre-and post-investment processes for several years. Pantheon continues to play an influential role in promoting sustainability standards and Inclusion and Diversity in private equity.	Stable during the year • Pantheon has an established in-house sustainability committee comprising senior individuals from its investment, risk, legal and investor relations teams. • Pantheon has recently published the Company's Sustainability report. • Pantheon analyses the annual Sustainability Survey responses and individual GP ratings to produce the Private Markets Sustainability Index ("PMSI") which is publicly available on Pantheon's website. • The Board has nominated Dame Susan Owen DCB, to lead engagement with Pantheon on behalf of the Board. • The Board of PIP has oversight of sustainability matters in PlP's portfolio.
Tax Status Changes in the Company's tax status or in tax legislation and practice.	• Failure to understand tax risks when investing or divesting could lead to tax exposure or financial loss.	• Pantheon's investment process incorporates an assessment of tax. • The Manager reviews the appropriateness of an investment's legal structure to minimise the potential tax impact on the Company.	Stable during the year • Taxes had a minimal effect on overall NAV performance in the year.
Service Providers The Company is dependent on third parties for the provision of services and systems, especially those of the Manager, the Administrator and the Depositary.	• Business disruption should the services of Pantheon and other third-party suppliers cease to be available to the Company. • A failure of the Manager to retain or recruit appropriately qualified personnel may have a material adverse effect on the Company's overall performance.	• The Board keeps the services of the Manager and third-party suppliers under continuous review. • The Management Agreement is subject to a notice period of two years, giving the Board adequate time to make alternative arrangements in the event that the services of Pantheon cease to be available. • The Manager regularly updates the Board on team developments and succession planning. • The Board performs an ongoing review of the Manager's performance in addition to a formal annual review.	Stable during the year • The Board has approved the continuing appointment of the Manager and other service providers following an assessment of their respective performance during the year. • Pantheon operates a hybrid working model and is confident of being able to continue to meet PIP's needs through this model.
Cyber Security High dependency on effective information technology systems to support key business functions and the safeguarding of sensitive information.	• Significant disruption to information technology systems, including from a potential cyber-attack, may result in financial losses, the inability to perform business-critical functions, loss or theft of confidential data, regulatory censure, legal liability and reputational damage.	• Pantheon has a comprehensive set of policies, standards and procedures related to information technology and cybersecurity. • Ongoing investment and training to improve the reliability and resilience of Pantheon's information technology processes and systems. • Pantheon reviews all the service providers to ensure they have appropriate procedures in place. Service providers provide copies of cybersecurity policies, systems, procedures, certificates and relevant insurance documentation.	Stable during the year • Pantheon's systems, processes and technologies have been thoroughly tested and are fully operational. • An imposter website which used PlP's branding and marketing material in relation to a fictitious cryptocurrency investment continued to appear under new names. • Pantheon has implemented an expert vendor who can provide the service of identifying new fraudulent sites and facilitate the subsequent take-down once discovered.
Global geopolitical risks Geopolitical factors, including the Russia-Ukraine war and the conflict in the Middle East, and the resulting economic uncertainty may affect the Company.	• Market and currency volatility may affect returns. • New or increasing geopolitical risks including further conflict, supply chain disruption, sanctions, new legislation, and investment restrictions could have medium and long-term impact on global economies, including energy prices and interest rates, and individual companies to which the Company has exposure. • Geopolitical undercurrents may disrupt long-term investment and capital allocation decision-making.	• The Board and Pantheon continuously monitor geopolitical developments and societal issues relevant to its business. • An assessment of geopolitical risk is embedded in Pantheon's investment process.	Rising during the year • Pantheon's established Risk, Legal and Tax functions have ensured compliance with local laws and regulations. • PIP's exposure to high-risk countries is minimal. Israel exposure accounts for approximately 1% of portfolio NAV.
Artificial Intelligence ("AI") Disruption to business model of the Manager and underlying portfolio companies may impact the long-term performance of the Company.	• Failure to successfully implement market leading AI tools within Pantheon's investment process could impact investment rates and long-term performance. • Sectors and Individual Portfolio companies market position could be challenged by competition from companies using AI. Failure to respond to the challenges could impacted long-term performance and attractiveness to potential buyers.	• Pantheon continues to evaluate further opportunities to use AI within its Investment Management Processes and wider business model. • Pantheon assesses the potential risks and opportunities of AI as part of its due diligence process and in ongoing monitoring.	Rising during the year • The use of AI throughout different sectors and companies continues to grow year on year. • No material impact from AI on the overall portfolio during the year.

* Excluding costs and stamp duty.

 

VIABILITY STATEMENT

 

Pursuant to provision 31 of the UK Corporate Governance Code 2018, and the AIC Code of Corporate Governance, the Board has assessed the viability of the Company over a three-year period from 31 May 2024. It has chosen this period as it falls within the Board's strategic planning horizon.

 

The Company invests in a portfolio of private equity assets that is diversified by geography, sector, stage, manager and vintage; it does so via both fund investments and by co-investing directly into companies alongside selected private equity managers. The Company invests significantly in the private equity secondaries market as this allows the Company to maintain a more mature portfolio profile that is naturally cash-generative in any particular year.

 

The Company seeks to maximise long-term capital growth by investing with top-tier private equity managers that are focused on generating outperformance against the broader private equity market. As an investment trust, the Company's permanent capital structure is well suited to investing in private equity, a long-term asset class. The Company's Manager has a long-standing culture that emphasises collaboration and accountability, facilitating open dialogue with underlying private equity managers that help the Company to anticipate market conditions and maintain a conservative approach to balance sheet management. The resilience of the Company, positioning of the portfolio and durability of the private equity market are detailed in the full Annual Report and Accounts 2024.

 

In making this statement, the Directors have reviewed the reports of the Manager in relation to the resilience of the Company, taking account of its current position, the principal risks facing it in a low case scenario which considers the potential further impact of the ongoing international conflicts and election cycles which have brought about increased geopolitical uncertainties including the disruption to the global supply chain and increases in the cost of living as a result, persistent inflation, interest rate rises and the impact of climate change on PIP's portfolio, the effectiveness of any mitigating actions and the Company's risk appetite. The assessment also considers the impact of the Company's Capital Allocation Policy in regard to share buybacks.

 

As part of the assessment, this also included a combined reverse stress test that analyses the factors that would have to simultaneously occur for the Company to be forced into a wind-down scenario where the Company's business model would no longer remain viable. These circumstances include a significant peak in the outstanding commitments called within a 12-month period, combined with a significant decline in the portfolio valuations and distributions.  Overall, the reverse stress tests are sufficiently improbable as to provide a low likely risk of impact to the Company's viability and medium-term resilience.

 

Commitments to new funds are controlled relative to the Company's assets, and the Company's available liquid financial resources are managed to maintain a reasonable expectation of being able to finance the calls, which arise from such commitments, out of internally generated cash flow. In addition, the Company has put in place a revolving credit facility to ensure that it is able to finance such calls in the event that distributions received from investments in the period are insufficient to finance calls. The Company agreed a private placement of $150m of long-dated loan notes giving it access to an even more diverse supply of liquidity. The Board reviews the Company's financing arrangements at least quarterly to ensure that the Company is in a strong position to finance all outstanding commitments on existing investments as well as being able to finance new investments.

 

In reviewing the Company's viability, the Board has considered the Company's position with reference to its investment trust structure, its business model, its business objectives, the principal risks and uncertainties as detailed in the full Annual Report and Accounts 2024 and its present and expected financial position. In addition, the Board has also considered the Company's conservative approach to Balance Sheet management, which allows it to take advantage of significant investment opportunities, and the appropriateness of the Company's current investment objectives in the prevailing investment market and environment.

 

The Board regularly reviews the prospects for the Company's portfolio and the opportunities for new investment under a range of potential scenarios to ensure it can expect to be able to continue to finance its activities for the medium-term future. Based on its review, the Board has a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over a three year period ending on 31 May 2027.

 

On behalf of the Board

 

John Singer CBE

31 July 2024

 

MANAGER'S REVIEW

 

Our Market

 

Strength and resilience

 

Helen Steers and Charlotte Morris, Partners at Pantheon and Co-lead Managers of PIP, discuss how the private equity market continues to successfully navigate the challenging macroeconomic environment.

 

As we consider the significant challenges that have arisen during the last few years, as a result of major macroeconomic and geopolitical events as well as the aftermath of the COVID-19 pandemic, investors are increasingly looking for stability, predictability and consistent returns. While not immune to what is happening in the world, private equity offers an interesting proposition as part of a diversified investment portfolio. With public markets becoming ever more concentrated, and arguably covering only a small subset of the broader range of investment opportunities, private markets are able to provide access to exciting, fast growing and niche orientated businesses that are focused on compelling sub-sectors such as enterprise software and healthtech. Furthermore, numerous studies and sources have demonstrated that private equity can outperform public markets over the medium and long term. In our view, the best quality, most experienced private equity managers are particularly well-suited to successfully navigate uncertainty and, with their nimbleness and long-term investment horizon, take advantage of periodic market dislocations by sourcing compelling deals, often at attractive valuations. Also, they are able to develop innovative solutions for their investors: the rise of manager-led deals in the secondary market is an example of this.

 

One of the fundamental characteristics of the private equity industry is its ability to adapt, evolve and respond flexibly to prevailing market conditions. For example, nowadays the best private equity managers are no longer the "financial engineers" that were more common several decades ago at the dawn of the industry, but now are sophisticated operators of businesses. They have experts on staff who take a "hands-on" approach by getting to know their portfolio companies inside out, working with well-aligned management teams and hand-picked industry experts to implement operational improvements. In addition to delivering organic revenue and profit growth, successful private equity managers identify add-on acquisitions to fuel company growth geographically or in complementary products and services.

 

Private equity managers are patient as well as active investors; they typically hold their companies for an average of six years, away from the glare and perhaps more short-term mindset of the public markets, making strategic decisions that they believe will deliver in the medium and long term even though they may not have an immediate impact on earnings in the short term.

 

Investing in resilient, growing sectors

Although recent performance of the private equity industry has been impacted by the unwinding of quantitative easing, interest rate hikes, high inflation and lower valuation multiples, it has nevertheless demonstrated its resilience, continuing to outperform public markets over the medium and long term. We have seen this within PIP's own portfolio which, over the past couple of years, has not experienced the valuation impairments that were perhaps expected by public market commentators. One of the reasons for this is because, on behalf of PIP, we are backing top quality managers who are sector specialists, focusing on resilient, non-cyclical sectors that are benefitting from long-term trends such as automation and digitalisation, ageing demographics and sustainability. In addition, we are investing directly in the most exciting sub-sectors of the market through co-investments and single-asset, manager-led secondaries, deploying our "double filter" to identify and access the most attractive company opportunities.

 

Many private equity managers, and Pantheon itself, use artificial intelligence (AI) tools, which bring a number of benefits and efficiencies to the due diligence process,  monitoring and the management of the portfolio. From an investment standpoint, private equity is actively targeting companies that provide products and services enabling the adoption and implementation of large-scale AI strategies. While the promise of AI has been around for years, there has been a resurgence of interest due to the advent of more accessible machine learning models, reusable large language models (LLMs), and the sheer amount of data that enterprises have to manage dynamically. An example of one of PIP's portfolio companies which is enabling its customers to solve AI data strategy problems is Confluent, which is featured as a case study in the full Annual Report.

 

We believe that these longer-term trends, including AI, are here to stay regardless of what is happening in the broader macroeconomic environment, and will continue to provide tailwinds to PIP's portfolio companies. As shown below, PIP's portfolio gives investors exposure to exciting businesses in niche sectors that are not typically available via the public markets and which benefit from these secular trends.

 

Overall, profitable, growing technology and healthcare companies make up a considerable proportion of PIP's exposure. Our preference is to "lean in" to the dynamic parts of the global economy and this underpins our focus on generating appropriate risk-adjusted returns over the long term. Many of the companies in PIP's portfolio are able to pass their costs on to their customers efficiently because of the differentiated must-have products and services that they offer. For example, software-as-a-service (SaaS) providers such as Visma, one of PIP's largest companies, have the advantage that their clients often cannot do without these essential business tools, and price increases can be implemented immediately. PIP's private equity managers are also seeking to contain costs in their underlying companies, obtain better terms from suppliers and drive through change. Notably, they are using technology (including AI) for a variety of purposes, such as improving productivity and making efficiency gains, and for better risk management.

 

The effects of these actions can be evidenced by the fact that the average annual EBITDA growth of PIP's buyout portfolio in the last five years is a robust +19%. In addition, when our portfolio companies are sold, they are typically realised at an uplift to the carrying value of the company. In PIP's portfolio, the weighted average uplift of the companies that were sold was +20% during the financial year to 31 May 2024. This indicates that our portfolio companies are valued conservatively, and continues the trend that we have observed for many years; since 2012 the average uplift upon exit of PIP's portfolio companies has been +30%. There is a broader explanation of this phenomenon, which applies more generally to the private equity market; managers "smooth" valuations and prefer to surprise their closed-end fund investors on the upside. In addition, it is important to note that private equity managers generally do not receive their performance fee until the majority of the fund has been fully exited and the overall returns have exceeded a challenging "high water" mark. Therefore, private equity managers have little incentive to excessively write up the valuations of their portfolio companies. These factors add further weight to our view that the scepticism of public market commentators as to the validity of the valuations in private equity, is unwarranted. Some of the case studies in this report demonstrate how our managers have created value in their portfolio companies.

 

Deal activity and exit environment in private equity

As well as understanding the valuation methodologies of our underlying managers, part of our detailed investment due diligence process also includes  analysing the investment rationale, the value creation levers available and the expected exit routes for the target business. A majority of PIP's portfolio is invested in buyouts, where the private equity manager (sometimes alongside co-investors) is the majority owner and can therefore choose when and how to exit a portfolio company. In other words, private equity managers control their realisations and importantly, they are not forced sellers. As a result of the current macroeconomic environment, many of our managers are holding on to their companies for longer than usual while they wait for the right time to commence a sales process. Indications are that the average holding period has increased from around five years in 2019 to around six years in 2023¹. More generally, the slowdown in M&A transactions over the past two years means that private equity deal flow was lower in 2023, compared to 2022 and 2021, although add-on acquisitions continued apace as private equity managers executed on their "buy-and-build" strategies, snapping up smaller, synergistic companies at attractive valuations to bolt on to their platform companies.

 

We are hopeful that we will start to see increased deal activity as more certainty returns to the inflation and interest rate environment, and the opening of the initial public offering (IPO) market accelerates. Although PIP is not dependent on its portfolio companies going public for exits, healthy IPO markets boost overall market confidence and support both private equity and strategic/ trade buyer activity. Both we and our managers are unable to predict the timing of a resurgent M&A market, but there are very early signs that the tide may be starting to turn, which means that several of PIP's portfolio companies, which are already being prepared for exit, will be ready for sale as the outlook improves. Indeed, deal activity does seem to be picking up - for example recently released data shows that new transactions in Europe increased markedly in Q2 2024, with newly recorded deals increasing by 5% by number, and by 73% by aggregate deal value².

 

In addition to more confidence returning to the overall M&A market, there are record levels of dry powder (c.US$1.5tn³) in our industry, which is capital that has been raised and is available to invest but has not yet been deployed, however a majority of this is concentrated among the largest buyout funds. This capital sitting above us at the mega end of the market is positive for PIP as these managers can, and often do, buy our smaller portfolio companies to take them onto their next stage of development. The most recent European deal data appears to point to greater activity by the large and mega buyout focused managers, who are under pressure to deploy capital.

 

Perhaps unsurprisingly in the current macroeconomic environment, private equity fundraising remained challenging during 2023. However, we observed that the highest quality private equity managers were not held back and were still able to fundraise while those of lesser quality struggled. Fundraising is taking longer on average and there are fewer first time funds than has been the case in the past. Nevertheless, the buyout segment of the global private equity market had its best year on record for fundraising and private equity assets under management are expected to exceed US$8.5tn⁴ by 2028. On behalf of PIP, we focus on small-mid market buyouts as we believe that this part of the market offers compelling characteristics and multiple opportunities for value creation. See the "Unlocking value in the mid-market" commentary in the full Annual report for more information.

 

Despite the difficult conditions, indications are that institutional investors remain committed to private equity with the majority responding in surveys that they plan to maintain or increase their allocations to the asset class over the longer term⁵.However, many of these investors are under pressure because of diminished distributions over the past two years, and are keen to see capital returned from their existing private equity funds, in order to be able to commit to new funds. The so-called "denominator" effect, which occurs when investors find that their investment portfolios are overallocated to private equity versus their public equity exposure, has persisted, even though public markets have rebounded since the end of 2023. This phenomenon, coupled with the softer exit and distribution environment has led to an increase in the number of manager-led secondary deals through 2023 as pressure for liquidity generation from fund investors continued to mount. This proliferation of secondary deals that are led by the private equity managers themselves has provided attractive opportunities for a seasoned secondary market investor such as Pantheon. See the interview with Charlotte Morris, Pantheon Partner and Co-Lead Manager of PIP in the full Annual Report to find out more about this fast-growing part of the private equity market.

 

Manager and deal selection is important

It should be noted that despite the many attractions of investing in the asset class, there is a wide dispersion of returns in private equity, and the best managers, who generate the most exciting investment opportunities, are routinely access-constrained. Furthermore, co-investment and secondary deal sourcing from the best managers requires a deep network and strong relationships that can only be generated over decades of private markets investment. Sourcing a large funnel of deals from a global platform of relationships is only the beginning; successful co-investors and secondaries investors require specialised deal analysis and execution skills, which are built up over a long period of time.

 

Both manager and deal selection (the "double filter") are critical to generating outperformance, and a detailed knowledge of the market is essential to finding and executing the best investment opportunities. Pantheon has more than 40 years of experience investing in private equity funds and companies, and we believe that our positions on 642 advisory boards⁶ give us an information and relationship edge, allowing us to position ourselves well for future deal flow. PIP benefits from being an integral part of Pantheon's platform, having access to a broad set of global relationships, deal opportunities and expertise.

 

We have managed and advised PIP since it was launched in 1987 and it has been designed to provide an "all weather", high-quality, low risk portfolio that can withstand macroeconomic volatility and market cycles. As we look back at the last financial year and more broadly at PIP's history through several economic cycles, we can see the evidence of this approach coming to fruition and remain highly confident in the Company's prospects in the future.

 

¹ Source: Bain & Company, Global Private Equity Report 2024.

² Source: Preqin data, as at 11 July 2024.

³ Source: Preqin data, as at 8 July 2024.

⁴ Source: Preqin Global Report Private Equity 2024.

⁵ Source: Preqin Institutional Allocation Survey 2024.

⁶ As at 31 March 2024.

 

PORTFOLIO AS AT 31 MAY 2024

 

Since its inception, PIP has been able to generate positive returns while at the same time structuring its portfolio to minimise the risks typically associated with private equity investments. Our established portfolio of assets has been carefully selected, based on the strengths of our appointed private equity managers, actively monitored and diversified to reduce specific timing, regional and sector risks; and managed to maximise growth and liquidity over time.

 

Investment type¹

Flexible approach to portfolio construction increases potential for outperformance.

Primaries	35%
Co-investments	34%
Manager-led secondaries	20%
Fund secondaries	11%

 

54% invested directly in companies.

 

Region¹

Weighted towards the more developed private equity markets in the USA and Europe.

USA	54%
Europe	31%
Global2	8%
Asia	7%

 

Stage¹

Well-diversified with an emphasis on the buyout stages.

Small/mid-buyout	46%
Large/mega-buyout	26%
Growth	19%
Special situations	5%
Venture	4%

 

Sector³

Focus on high-growth and resilient sectors.

Information technology	33%
Healthcare	20%
Consumer	14%
Industrials	11%
Financials	10%
Communication services	7%
Energy	2%
Materials	2%
Others	1%

 

Vintage profile⁴

PIP's portfolio has a weighted average age of 5.2 years.

2023 and later	6%
2022	18%
2021	14%
2020	8%
2019	13%
2018	11%
2017	9%
2016	8%
2015	6%
2014 and earlier	7%

 

¹Investment type, region and stage data is based upon underlying fund and company valuations. These exclude the portion of the reference portfolio attributable to the Asset Linked Note (ALN).

² Global category contains funds with no target allocation to any particular region equal to or exceeding 60%.

³ The company sector data is based upon underlying company valuations as at 31 March 2024, adjusted for calls and distributions to 31 May 2024. These account for 100% of PIP's overall portfolio value.

⁴The vintage profile data is based upon underlying fund and company valuations and excludes the portion of the reference portfolio attributable to the ALN.

 

PERFORMANCE

 

PIP's portfolio value has increased modestly over the period. Access to top-performing managers and a tilt towards resilient and high-growth sectors have helped PIP withstand the current macroeconomic environment.

 

Private equity portfolio movements

PIP's portfolio generated returns of +4.9% during the year¹.

Portfolio value 31 May 2023	£2,387m
Valuation gains	£118m
Foreign exchange impact	(£50m)
Distributions	(£193m)
Calls	£156m
New investments2	(£50m)
Portfolio value 31 May 2024	£2,468m

 

Valuation movement by type³

Resilient portfolio performance despite the current challenging macroeconomic environment. The return on manager-led secondaries reflects the relative immaturity of this segment of the portfolio.

 

	Return	Closing portfolio NAV
Co-investments	7.4%	34%
Fund secondaries	4.6%	11%
Primaries	3.5%	35%
Manager-led secondaries	1.9%	20%

 

Valuation movement by stage³

Positive performance across the whole of PIP's portfolio.

	Return	Closing portfolio NAV
Large/mega buyout	6.2%	26%
Small/mid buyout	4.3%	46%
Growth	3.9%	19%
Special situations	3.6%	5%
Venture	2.0%	4%

 

Valuation movement by region³

PIP's portfolio is weighted towards investments in the USA and Europe, which generated positive returns during the period.

 

The performance of Global and Asia were affected by a handful of company-specific writedowns.

	Return	Closing portfolio NAV
Europe	6.2%	31%
USA	5.4%	54%
Global	(0.5%)	8%
Asia	(0.7%)	7%

 

¹ Excluding returns attributable to the ALN share of the portfolio.

²Amount drawn down at the time of commitment.

³ Portfolio returns include income, exclude gains and losses from foreign exchange movements, and look-through underlying vehicle structures to the underlying funds. Portfolio returns exclude returns generated by the portion of the reference portfolio attributable to the ALN, and are calculated by dividing valuation gains by opening portfolio values.

 

Realisations

PIP's mature portfolio continued to generate distributions despite a subdued exit environment. Distributions have been incremental to returns, with many reflecting realisations at significant uplifts to carrying value. There have been c.400 distributions from PIP's portfolio during the period.

 

Uplifts on exit realisations¹

The value-weighted average uplift on exit realisations in the year was 20%, consistent with our view that realisations can be incremental to returns.

 

The method used to calculate the average uplift is to compare the value at exit with the value of the investment 12 months prior to exit, or if known, the latest valuation unaffected by pricing effects arising from market participants becoming aware of the imminent sale of an asset. Since 2012, the weighted average uplift on exit is 30%.

 

Value-weighted average uplift= +20%

 

Cost multiples on exit realisations¹

The average cost multiple on exit realisations of the sample was 3.2 times for the year ended 31 May 2024. The cost multiple for this financial year was above the 3.0 times average annual cost multiple achieved on exit since 2021. This demonstrates value creation over the course of PIP's investments.

 

Average cost multiple on exit = 3.2x

 

¹See the Alternative Performance Measures section in the full Annual Report for sample calculations and disclosures

 

Exit realisations by sector and type

Realisation activity was strongest in the communication services and financials sectors. Strategic sales and secondary buyouts represented the most significant sources of exit activity during the year.

 

Exit realisations by sector2 For the year to 31 May 2024			Exit realisations by type2 For the year to 31 May 2024
Communication services	35%		Strategic sale	41%
Financials	31%		Secondary buyout	41%
Information technology	10%		IPO1 and secondary share sale	15%
Industrials	9%		Refinancing and recapitalisation	3%
Healthcare	8%
Consumer	4%
Energy	3%

 

¹Initial Public Offering

²The data in the sample provides coverage for 100% (for exit realisations by sector) and 96% (for exit realisations by type) of proceeds from exit realisations received during the period.

 

Net Portfolio Cash Flow

Net portfolio cash flow equals distributions less capital calls.

 

A continued focus on the portfolio's maturity profile means that PIP is well-positioned to generate positive cash flows.

 

With an average distribution rate of 22% since 2012, PIP's portfolio has been cash flow positive since 2010.

 

During the year, PIP's net portfolio cash flow was £37m. PIP has generated £1.6bn of net cash over the last 10 years.

 

Net positive cash flow generation has continued despite lower levels of exit and new deal activity. Refer to the Market review section above for more details on how the private markets have performed.

 

Distributions

With a weighted average fund maturity of 5.2 years at 31 May 2024 (31 May 2023: 4.8 years), PIP's portfolio continued to generate positive net cash.

 

PIP received £193m in proceeds from PIP's portfolio in the year to 31 May 2024 (year to 31 May 2023: £223m), equivalent to an annualised distribution¹ rate of 8% of opening portfolio value (31 May 2023:10%).

 

Quarterly Distribution Rates¹

Despite a slowdown in distributions during the period, in line with the wider private equity market, PIP's portfolio has continued to generate cash.

 

¹ Distribution rate equals distributions in the period (annualised) divided by opening portfolio value.

 

Calls

PIP paid £156m to finance calls on undrawn commitments during the year (year to 31 May 2023: £155m).

 

Quarterly Call Rate¹

The annualised call rate¹ for the year to 31 May 2024 was equivalent to 18% of opening undrawn commitments (31 May 2023: 21%).

 

The observed call rate is below historical average levels and is a reflection of the subdued Mergers & Acquisitions ("M&A") market.

 

¹ Call rate equals calls in the period (annualised) divided by opening undrawn commitments. All call figures exclude the acquisition cost of new secondary and co-investment transactions.

 

New Commitments

The Company intentionally managed investment pacing to ensure liquidity was preserved in a market environment experiencing lower exit levels than historically.

 

PIP made 16 new investments during the year to 31 May 2024, amounting to £153m in new commitments. These commitments were to nine primary funds (£99m), six co-investments (£42m) and one manager-led secondary (£12m).

 

In addition, PIP was able to deploy a significant amount of capital despite low levels of deal flow, and capture value for its shareholders, by acquiring its own shares at a significant discount to NAV. During the financial year, the Company invested £197m* in share buybacks at an average discount of 35%.

 

Our investment process:

 

1.   Investment opportunities in companies and funds are originated via Pantheon's extensive and well-established platform.

2.   We invest with many of the best private equity managers who are able to identify and create value in their portfolio companies.

3.   Cash generated from the sale of those companies is returned to PIP and redeployed into new investment opportunities, including buybacks in accordance with the new CAP.

 

New commitments by region

Europe	53%
USA	35%
Global	12%

 

New commitments by stage

Growth	46%
Small/mid buyout	21%
Venture	20%
Large/mega buyout	13%

 

New commitments by type

Primaries	64%
Co-investments	28%
Manager-led secondaries	8%

 

* Excluding costs and stamp duty.

 

Buyout Analysis¹

 

Revenue and EBITDA growth

Over the past 12 months, the weighted-average revenue and EBITDA growth for PIP's buyout portfolio was 14% and 17% respectively. PIP's five year average revenue and for EBITDA growth have exceeded growth rates seen among companies that constitute the MSCI World Index. Strong top-line performance, disciplined cost control, operational expertise and good earnings growth, together with an efficient use of capital, underpin the investment thesis of our private equity managers.

 

Valuation multiple

Accounting standards require private equity managers to value their portfolios at fair value. Public market movements can be reflected in valuations.

 

PIP's sample-weighted average Enterprise Value (EV)/EBITDA was 17.3 times compared to 20.1 times for the MSCI World index.

 

PIP invests proportionately more in high-growth sectors such as mission-critical B2B information technology and healthcare, and these sectors tend to trade at a premium to other sectors.

 

PIP buyout sample			MSCI World3
17.3x			20.1x
Buyout portfolio4			MSCI World5
Information technology	27%		Information technology	23%
Healthcare	21%		Consumer	18%
Consumer	17%		Financials	15%
Industrials	14%		Healthcare	12%
Financials	12%		Industrials	12%
Communication services	5%		Others	9%
Materials	3%		Communication services	7%
Others	1%		Materials	4%

¹The sample buyout figures for the 12 months to 31 December 2023 were calculated using all the information available to the Company. The figures are based on unaudited data. MSCI data was sourced from Bloomberg. See the Alternative Performance Measures section in the full Annual Reportfor sample calculations and disclosures.

² The MSCI World, 2023 and 2022 aggregate market-weighed revenue and EBITDA growth data is derived from constituent companies compared on a year-on-year basis for the financial years ending 31 December 2023 and 2022.

³ The MSCI World valuation multiple is derived from weighted valuation multiples data of the constituent companies as at 31 December 2023.

⁴ 100% coverage of buyout portfolio.

⁵ As at 31 May 2024.

 

Debt multiples

Venture, growth and buyout investments have differing leverage characteristics.

 

Average debt multiples for small/mid buyout investments, which represent the largest segment of PIP's buyout portfolio, are typically lower than debt levels in the large/mega-buyout segment.

 

The venture and growth portfolios have little or no reliance on leverage.

 

	Debt multiples	% of PIP's portfolio
Small/mid buyout	4.8x	46%
Large/mega buyout	5.2x	26%

 

 Largest 50 Companies by Value¹

 

	Company	Country	Sector	Investment type	Description	% of PIP portfolio
1	Action	Netherlands	Consumer	Manager-led Secondary	General merchandise discount stores	1.2%
2	Kaseya	Switzerland	Information Technology	Co-Investment; Secondary	Provider of IT management and monitoring software services	1.2%
3	Visma	Norway	Information Technology	Primary; Co-investment	Provider of software solutions for finance and HR departments	1.1%
4	Smile Doctors	USA	Healthcare	Manager-led Secondary	Orthodontic treatments and services provider	0.9%
5	Shiftkey	USA	Healthcare	Manager-led Secondary	Recruitment platform for nurses	0.8%
6	Valantic	Germany	Information Technology	Manager-led Secondary	Digital consulting and software company	0.8%
7	MRO	USA	Healthcare	Co-investment; Primary	Provider of disclosure management services	0.8%
8	Froneri	United Kingdom	Consumer	Manager-led Secondary	Ice cream and frozen food manufacturer	0.8%
9	OMNI	USA	Healthcare	Manager-led Secondary	Specialist eye treatment provider	0.8%
10	Anaplan	USA	Information Technology	Co-investment; Primary	Developer of a cloud-based modelling and planning platform	0.7%
11	Asurion	USA	Financials	Manager-led Secondary	Mobile phone insurance company	0.7%
12	SunMedia	Spain	Communication Services	Co-investment	Digital advertising company	0.7%
13	Lifepoint Health	USA	Healthcare	Co-investment; Manager-led Secondary	Healthcare provider	0.7%
14	JSI	USA	Industrials	Manager-led Secondary	Consultant to telecommunication service providers	0.7%
15	Millennium Trust Company	USA	Financials	Co-investment; Primary	Provider of technology-enabled retirement and investment services	0.7%
16	Eversana	USA	Healthcare	Manager-led Secondary	Commercial services platform for the life sciences sector	0.7%
17	Doit	USA	Information Technology	Co-investment	Provider of cloud consulting and engineering services	0.7%
18	Recorded Future	USA	Information Technology	Primary; Co-Investment; Fund Secondary	Cybersecurity software company	0.7%
19	Nord Anglia Education	Hong Kong	Consumer	Primary; Co-Investment	Operator of educational institutions	0.7%
20	Ascent Resources	USA	Energy	Fund Secondary	Natural gas and oil producer	0.6%
21	Confie	USA	Financials	Co-Investment	Commercial insurance broker	0.6%
22	Cotiviti	USA	Healthcare	Co-Investment	A provider of healthcare payment integrity and analytical solutions	0.6%
23	Kaspi.kz	Kazakhstan	Financials	Primary	Banking products and services provider	0.6%
24	RLDATIX	USA	Healthcare	Manager-led Secondary	Developer of cloud-based patient safety and risk management software	0.6%
25	SailPoint	USA	Information Technology	Co-Investment; Primary	Provider of enterprise identity governance solutions	0.6%
26	Tag	Israel	Healthcare	Manager-led Secondary	Provider of medical equipment and implants	0.5%
27	Krispy Krunchy Chicken	USA	Consumer	Co-Investment ; Primary	Operator of fast food chain stores	0.5%
28	24 Seven	USA	Industrials	Manager-led Secondary	Digital marketing and recruitment services provider	0.5%
29	Access	United Kingdom	Information Technology	Co-Investment	Provider of business management software solutions to SMEs	0.5%
30	101	USA	Industrials	Co-Investment	Provider of food waste recycling services	0.5%
31	Opt Connect	USA	Information Technology	Manager-led Secondary	Provider of wireless internet connectivity solutions	0.5%
32	IFS	Sweden	Information Technology	Co-investment; Primary	Developer of enterprise resource planning software	0.5%
33	Kilcoy Global Foods	Australia	Consumer	Manager-led Secondary	Producer of beef and other animal protein products	0.5%
34	Satlink	Spain	Information Technology	Co-investment	Satellite communication equipment provider for the maritime industry	0.5%
35	Perspecta	USA	Information Technology	Co-investment	IT services management company	0.5%
36	Tanium	USA	Information Technology	Co-investment	Cybersecurity services provider	0.5%
37	Logic Monitor	USA	Information Technology	Primary; Co-Investment; Fund Secondary	Managed IT service provider	0.5%
38	Flynn	USA	Consumer	Co-investment	Restaurant franchise company	0.5%
39	Inspire Brands	USA	Consumer	Manager-led Secondary	Restaurant franchise company	0.5%
40	Imagine360	USA	Healthcare	Manager-led Secondary	Provider of solutions to mitigate health insurance costs for mid-size employers	0.5%
41	Shawbrook	United Kingdom	Financials	Co-investment	Provides lending and savings financial products	0.4%
42	Trimech	USA	Information Technology	Co-investment	Provider of 3D design, engineering and manufacturing solutions	0.4%
43	Medica	United Kingdom	Healthcare	Co-investment	Provides teleradiology reporting services to public and private health organisations	0.4%
44	SVT	Germany	Industrials	Manager-led Secondary	Manufacturer of fire protection products and systems	0.4%
45	Sonar	Switzerland	Information Technology	Primary; Fund Secondary	Developer of coding software	0.4%
46	KD Pharma	Germany	Healthcare	Manager-led Secondary	Contract Development and Manufacturing Organisation	0.4%
47	Olink	Sweden	Healthcare	Co-investment	Develops products and services for human protein biomarker discovery	0.4%
48	Arnott	USA	Consumer	Co-investment; Fund Secondary	Manufactures air suspension products and accessories for trucks and vehicles	0.4%
49	Vizrt	Norway	Information Technology	Primary; Manager-led Secondary	Developer of content production tools for the digital media industry	0.4%
50	Regina Maria	Romania	Healthcare	Manager-led Secondary	Provides private healthcare services	0.4%
Coverage of PIP's private equity asset value						30.5%

 

¹ The largest 50 companies table is based upon underlying company valuations at 31 March 2024 adjusted for known call and distributions to 31 May 2024, and includes the portion of the reference portfolio attributable to the ALN.

 

The Largest 50 Managers by Value

Rank	Manager	Region1	Stage	% of total private equity asset value2
1	Insight Partners	USA	Growth	7.1%
2	Index Ventures	Global	Venture, Growth	3.6%
3	Hg	Europe	Buyout	3.6%
4	Providence Equity Partners	USA	Buyout	3.1%
5	Parthenon Capital	USA	Buyout	2.5%
6	Water Street	USA	Buyout	2.4%
7	IK Partners	Europe	Buyout	2.4%
8	Advent International	Global	Buyout	2.4%
9	ABRY Partners	USA	Buyout	2.0%
10	Thomabravo	USA	Buyout	1.9%
11	MidEuropa	Europe	Buyout	1.5%
12	Seven2 (previously Apax Partners SAS)	Europe	Buyout	1.5%
13	Charlesbank	USA	Buyout	1.4%
14	Altamont Capital Partners	USA	Buyout	1.4%
15	3i Group	Europe	Buyout	1.3%
16	Searchlight Capital Partners	Global	Special Situations	1.3%
17	LYFE Capital	Asia	Growth	1.3%
18	Veritas Capital	USA	Buyout	1.3%
19	Deutsche Private Equity	Europe	Buyout	1.2%
20	Baring Private Equity Asia	Global	Growth	1.2%
21	Heilman & Friedman Capital	Global	Buyout	1.2%
22	Altor Capital	Europe	Buyout	1.1%
23	HIG Capital	USA	Buyout	1.1%
24	Main Post Partners	USA	Buyout	1.1%
25	Apollo Advisors	Global	Buyout	1.1%
26	Oak HC/FT Associates	USA	Growth	1.1%
27	Linden Capital Partners	USA	Buyout	1.0%
28	Apheon (Previously Ergon Capital)	Europe	Buyout	1.0%
29	Growth fund3	USA	Growth	1.0%
30	ECI Partners	Europe	Buyout	1.0%
31	Five Arrows	Europe	Buyout	1.0%
32	Morgan Stanley Capital Partners	USA	Buyout	0.9%
33	Lorient Capital	USA	Buyout	0.9%
34	PAI Partners	Europe	Buyout	0.9%
35	ONEX	USA	Buyout	0.9%
36	The Energy & Minerals Group	USA	Special Situations	0.9%
37	NMS Management	USA	Buyout	0.8%
38	Balderton Capital	Europe	Growth	0.8%
39	Calera Capital	USA	Buyout	0.8%
40	Shamrock Capital	USA	Growth	0.8%
41	Francisco Partners	USA	Buyout	0.8%
42	Alpine Investors	USA	Buyout	0.8%
43	Chequers Capital.	Europe	Buyout	0.8%
44	BC Partners	Global	Buyout	0.8%
45	Magnum Industrial Partners	Europe	Buyout	0.8%
46	Sentinel Capital Partners	USA	Buyout	0.7%
47	Knox Lane	USA	Buyout	0.7%
48	Stone Goff Partners	USA	Buyout	0.7%
49	Roark Capital Group	USA	Buyout	0.6%
50	Tene Capital	Europe	Growth	0.6%
Coverage of PIP's private equity asset value				71.1%

 

¹ Refers to the regional exposure of funds.

² Percentages look through underlying vehicle structures and exclude the portion of the reference portfolio attributable to the ALN.

³ The private equity manager does not permit the Company to disclose this information.

 

THE DIRECTORS

 

The Directors in office at the date of this report are:

 

John Singer CBE* (Chairman)

Mary Ann Sieghart* (Senior Independent Director)

David Melvin* (Audit Committee Chairman)

John Burgess*

Dame Susan Owen DCB*

Zoe Clements*

Rahul Welde*

 

* Independent of the Manager

 

EXTRACTS FROM THE DIRECTORS' REPORT

 

Share capital

The rights attaching to the Company's shares are set out in the Company's Articles of Association. Further details can be found in Note 17 of the financial statements.

 

Authorities given to the Directors at the AGM on 19 October 2023 to allot shares, disapply statutory pre-emption rights and buy back shares will expire at the forthcoming AGM. In order to take advantage of the investment opportunity offered by the discount to NAV on the shares, during the year to 31 May 2024, 64,279,846 shares, representing 12.1% of the called-up share capital and a nominal value of £4,306,749.68, were bought back for an aggregate amount of £169,702,929 (excluding costs and stamp duty) and subsequently cancelled. As at 31 May 2024, authority to buy back a further 67,002,984 shares remained.

 

As at 31 May 2024, the Company had shares in issue as shown in the table below, all of which were listed on the official list maintained by the Financial Conduct Authority ("FCA") and admitted to trading on the London Stock Exchange. No shares were held in Treasury at the year end or as at the date of this Report. The number of shares in issue and the voting rights as at the date of this report are 464,321,308 .

 

	As at the date of this Report	As at 31 May 2024	As at 31 May 2023
Number of ordinary shares of 6.7p each in issue	464,321,308	465,613,611	529,893,457
Voting rights attached to each share	1	1	1
Number of shares held in Treasury	-	-	-
Total voting rights	464,321,308	465,613,611	529,893,457

 

Going Concern

The Company's business activities, together with the factors likely to affect its future development, performance and financial position, are set out in the Strategic Report and Manager's Review.

 

The Directors have made an assessment of going concern, taking into account the Company's current performance and financial position as at 31 May 2024. In addition, the Directors have assessed the outlook, which considers the potential further impact of ongoing international conflicts and election cycles which have brought about increased geopolitical uncertainties including the disruption to the global supply chain and increases in the cost of living as a result, persistent inflation, high interest rates and the impact of climate change on PIP's portfolio using the information available as at the date of issue of these financial statements.

 

The Directors have also considered the Company's position with reference to its Investment Trust structure, its business model, its business objectives, the principal risks and uncertainties as detailed in the full Annual Report and its present and projected financial position. The Directors have considered the impact of the Company's Capital Allocation Policy in regards to share buybacks. As part of the overall assessment, the Directors have taken into account the Manager's culture, which emphasises collaboration and accountability, the Manager's conservative approach to balance sheet management, and its emphasis on investing with underlying private equity managers that are focused on market outperformance.

 

At each Board meeting, the Directors review the Company's latest management accounts and other financial information. The Company's commitments to private equity investments are reviewed, together with its financial resources, including cash held and its borrowing capability. One-year cash flow scenarios are also presented and discussed at each meeting.

 

PIP's Balance Sheet is managed to ensure that the Company can finance its undrawn commitments, which are carefully controlled relative to its assets and available liquidity. This disciplined approach enables the Company to withstand periods of volatility such as those experienced as a result of the ongoing international conflicts and periods of historically low exit and distribution levels.

 

The Directors have considered downside liquidity modelling scenarios with varying degrees of decline in investment valuations, decreased investment distributions, and increased call rates, with the worst being an extreme downside scenario representing an impact to the portfolio that is worse than that experienced during the 2008-2009 global financial crisis.

 

In the event of a downside scenario, PIP can take steps to limit or mitigate the impact on the Balance Sheet, namely drawing on the credit facility and pausing new commitments. In addition, subject to the prevailing market environment, it could raise additional credit or capital, and sell assets to increase liquidity and reduce outstanding commitments.

 

After due consideration of the Balance Sheet, activities of the Company, its assets, liabilities, commitments and financial resources, the Directors have concluded that the Company has adequate resources to continue in operation for at least 12 months from the approval of the financial statements for the year ended 31 May 2024. For this reason, they consider it appropriate to continue to adopt the going concern basis in preparing the financial statements.

 

DIRECTORS' RESPONSIBILITY STATEMENT

 

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable laws and regulations in accordance with FRS102. Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company as at the end of each financial year and of the profit or loss of the Company for that period.

 

In preparing these financial statements, the Directors are required to:

·      Present a true and fair view of the financial position, financial performance and cash flows of the Company;

·      Select suitable accounting policies in accordance with United Kingdom GAAP and then apply them consistently;

·      Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

·      Make judgements and estimates that are reasonable and prudent;

·      State whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

·      Prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.

 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

The Directors are also responsible for preparing the Strategic Report, the Directors' Report, the Directors' Remuneration Report, the Corporate Governance Statement and the Report of the Audit Committee in accordance with the Companies Act 2006 and applicable regulations, including the requirements of the Listing Rules and the Disclosure Guidance and Transparency Rules. The Directors have delegated responsibility to the Manager for the maintenance and integrity of the Company's corporate and financial information included on the Company's website (www.piplc.com). Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

Each of the Directors, whose names are listed above, confirms that to the best of their knowledge:

·      The financial statements, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

·      The management report, which is incorporated in the Directors' Report and Strategic Report, includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

 

The UK Corporate Governance Code requires Directors to ensure that the Annual Report and financial statements are fair, balanced and understandable. In order to reach a conclusion on this matter, the Board has requested that the Audit Committee advises on whether it considers that the Annual Report and financial statements fulfil these requirements. The process by which the Audit Committee has reached these conclusions is set in the full Annual Report. As a result, the Board has concluded that the Annual Report and financial statements for the year ended 31 May 2024, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

 

Signed on behalf of the Board by

 

John Singer CBE

Chair

31 July 2024

 

NON-STATUTORY ACCOUNTS

 

The financial information set out below does not constitute the Company's statutory accounts for the year ended 31 May 2024 and period ended 31 May 2023 but is derived from those accounts. Statutory accounts for 2023 have been delivered to the Registrar of Companies, and those for 2024 will be delivered in due course. The Auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditors' report can be found in the Company's full Annual Report and financial statements at www.piplc.com.