- Pantheon to invest £200 million in buybacks in current financial year
- New capital allocation policy applauded by Investec
- Broker says move puts pressure on peers
Despite an excellent long-run performance record, 14 out of 17 trusts in the Association of Investment Companies’ Private Equity sector currently trade on disappointing double-digit discounts to net asset value.
This reflects investor concerns over portfolio valuations and worries the industry is entering an era of structurally lower returns due to the impact of higher interest rates on valuations.
BUMPER BUYBACK PLAN
It is against this backdrop that Pantheon International (PIN) has heaped pressure on sector peers languishing on huge discounts by launching a £200 million share buyback.
The FTSE 250 trust also intends to extend its capital allocation policy, with effect from next financial year, to dedicate a proportion of its net portfolio cash flow to further buybacks, in a bid to drive a re-rating of its shares.
Unveiling results for the year to May 2023 Pantheon, known as ‘PIP’ and which invests in a diversified portfolio of private equity funds and occasionally directly in private companies, expressed disappointment that its shares continue to trade at a large discount.
This widened from 35% to 41% in the last financial year, where it remains at the time of writing despite Pantheon’s NAV holding up well in a tough environment for private equity funds.
However, chairman John Singer said the buybacks will ‘capture the exceptional value offered by the company’s high quality portfolio. Investors in PIP will also benefit from our intention to dedicate a proportion of future net cash flow to share buybacks while still making new investments with many of the best private equity managers in the world.’
THE EXPERT VIEW
Investec analysts Alan Brierley and Ben Newell have a ‘buy’ rating on Pantheon, which they see as a ‘core holding for investors looking for a high quality, actively managed and globally diversified exposure to private equity’, and are hugely supportive of the buyback plan.
They point out the £200 million buyback is greater than the total sum of buybacks from the listed private equity sector over the past five years and calculate that if Pantheon were to invest £200 million at a discount of 40%, the NAV uplift per share would be around 6.4% in the current financial year.
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‘We regard the enhancement of PIP’s capital allocation policy as a key development for the company,’ say the analysts.
‘In addition, we believe it throws down the gauntlet to the rest of the listed private equity sector, increasing pressure on companies to take tangible action to prioritise shareholder returns and address both the absolute level of discounts and discount volatility. The somewhat toothless defence of discounts last year was a deeply underwhelming experience, and we believe permanent capital has been taken a little too literally and bred complacency across the sector.’
FINAL PIECE IN THE JIGSAW
In the Investec's opinion, the ‘final piece in the jigsaw would be a positive resolution to ongoing discussions about the current cost disclosure regime, which we believe to be fundamentally flawed and which is having a severe adverse impact on both the listed private equity sector and the wider closed-end industry.’
As for Pantheon’s co-manager Helen Steers, she insists ‘the quality of the underlying companies, and the managers that PIP has selected, the experience in navigating challenging economic periods and the ability to effect change will all stand PIP in good stead to traverse the current macroeconomic environment.’
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