TIDMPIN
RNS Number : 1181X
Pantheon International PLC
08 August 2018
PANTHEON INTERNATIONAL PLC (the "Company" or "PIP")
ANNUAL REPORT FOR YEARED 31 MAY 2018
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)1392 477500.
Pantheon International Plc (the "Company" or "PIP")
Pantheon International Plc, an investment trust that invests in
private equity funds globally, today publishes its Annual Financial
Report for the year ended 31 May 2018.
PIP had a very active year during which its underlying portfolio
generated strong investment returns and it continued its strategy
of investing selectively with the best private equity managers
globally.
HIGHLIGHTS - 12 MONTHSED 31 MAY 2018
Performance update
-- NAV per share increased by 10.3%, from 2,189.9p to 2,414.8p.
-- Net assets at 31 May were GBP1,307m (May 2017: GBP1,388m),
the increase in gross assets being partially offset by the effect
of issuing an Asset Linked Note ("ALN").
-- The ordinary share price increased from 1,793.0p to 2,010.0p,
an increase of 12.1% and the discount decreased slightly from 18%
to 17%.
Portfolio update
-- Assets in the portfolio generated underlying (pre-FX) returns of 14.7%.
-- Distributions received in the twelve months to 31 May 2018
were GBP280m. Excluding the distributions attributable to the ALN,
this was equivalent to 26% of opening private equity assets. After
funding GBP86m of calls, net cash flow from the portfolio totalled
GBP194m.
-- GBP256m of new investment commitments were made during the
year of which GBP139m was funded at the time of purchase.
Company update
-- Ordinary and redeemable shares were consolidated into a
single enlarged class of ordinary shares leading to entry into FTSE
250 index.
-- Older assets in portfolio de-emphasised through issue of GBP200m ALN.
-- GBP3.5m invested in acquiring 190,000 ordinary shares.
Commenting on PIP's performance for the year, Sir Laurie Magnus,
Chairman, said:
"PIP has had a milestone year. It celebrated its 30 year
anniversary, simplified its capital structure and entered the FTSE
250 index. PIP also issued an Asset Linked Note, which had the
effect of de-emphasising the older assets in its portfolio and is
expected to boost NAV per share. The Board believes that the
continued active management of PIP's portfolio, through Pantheon's
well-established platform, provides an attractive means of
maximising long-term capital growth for shareholders."
For more information please contact:
Andrew Lebus or Vicki Bradley
Pantheon
+44 (0)20 3356 1800
A video of Andrew Lebus, Partner responsible for PIP, discussing
PIP's financial year is available on our website at
www.piplc.com.
STRATEGIC REPORT
CHAIRMAN'S STATEMENT
A Milestone year
PIP has had a milestone year. It celebrated its 30 year
anniversary, simplified its capital structure by consolidating its
two classes of shares and, as a result of its market capitalisation
standing at just over GBP1bn, entered the FTSE 250 index in March.
In connection with this, PIP also issued a GBP200m Asset Linked
Note ("ALN"), which has had the effect of de--emphasising the tail
of older assets in its portfolio and is expected to boost the NAV
per share.
IN SUMMARY
Strong performance from the underlying portfolio
We made 50 new investments amounting to GBP256m in commitments
The Board, together with Pantheon, reviewed the flexibility
of its investment approach in order to find ways further to
improve PIP's rate of NAV per share growth.
PIP's portfolio provides an attractive means of maximising
long-term capital growth for shareholders.
KEY STATISTICS
10% NAV per share increase
12% Ordinary share price increase
GBP1,307m Net asset value
GBP194m Portfolio net cash flow
Performance for 12 months to 31 May 2018
During the 12 months to 31 May 2018, PIP's NAV per share
increased by 10.3% to 2,414.8p. Net assets decreased from GBP1,388m
to GBP1,307m, reflecting the effect of issuing the ALN. PIP's
portfolio performed well during the period: investment returns from
the underlying portfolio (14.7%) and share buybacks (0.1%) were
offset by foreign exchange movements (-2.2%) and expenses and taxes
(-2.3%). The NAV per share is stated net of movements in the value
of the ALN. The majority of PIP's portfolio is invested in
non-sterling assets, predominantly US dollars and euros, and
therefore the NAV per share is susceptible to movements in sterling
against those currencies. While the Board monitors the Company's
underlying foreign exchange exposure, we believe the impact of
currency fluctuations tends to be a less significant factor over
the long term.
PIP is currently focused on the mid-market buyout and growth
stages of investment, where pricing tends to be lower than at the
large end of the market, and which both delivered strong returns
during the period. The large buyout funds in PIP's portfolio also
performed well. As previously reported, our venture portfolio has
been impacted by the weaker performance of its older assets, but,
through the effect of issuing the ALN, has been reduced and now
represents just 6% of PIP's total portfolio. Special situations,
consisting of energy, distressed and mezzanine funds, which had
posted a negative performance in the first half of the financial
year, recovered in the second half but still underperformed the
rest of the portfolio.
During the period, PIP's ordinary share price increased by 12%
and the discount at which the shares trade narrowed slightly to
17%. At the time of writing, the discount remained at 17%.
Following the share class consolidation and the Company's entry
into the FTSE 250 index, secondary market liquidity of PIP's shares
has grown and the Board has been encouraged by the appearance of
new names on the share register, representing both institutional
and retail investors. The Company has already started to strengthen
its marketing efforts to build on this momentum and stimulate
demand for PIP's shares.
Investment and realisation activity during the period
PIP continued to benefit from the current exit environment,
generating GBP280m of distributions, equivalent to 26% of the
opening portfolio, excluding the distributions attributable to the
ALN. Sales to corporate buyers were the most significant sources of
exit distributions during the financial year. During the period,
calls from existing commitments to private equity funds amounted to
GBP86m, equivalent to 19% of opening undrawn commitments. This
resulted in a net cash inflow from the portfolio of GBP194m during
the period before taking account of new investments.
By issuing the ALN, the weighted average fund age was reduced to
5.7 years during the 12 months to 31 May 2018 (31 May 2017: 6.7
years) and the portfolio emphasis was shifted towards younger funds
which the Board believes will perform better as a whole relative to
the portfolio prior to the ALN issue.
As investors seeking growth and higher returns become more aware
of the attractions of private equity, competition for deals has
increased. Nevertheless, through using its extensive network of
relationships, built up over 35 years, and its privileged access to
information, Pantheon has been able to source opportunities which
the Board believes are compelling. As the supply of capital builds
in this high valuation environment, Pantheon has sought to maintain
its disciplined and selective approach, using its detailed due
diligence processes to evaluate the managers it is backing to
ensure that they have the appropriate standards to generate future
high returns regardless of past performance.
PIP made 50 new investments in the year, amounting to GBP256m in
commitments, of which GBP139m was drawn at the time of purchase.
Those investments comprised GBP107m committed to 13 secondaries,
GBP87m committed to 15 primaries and GBP62m committed to 22
co-investments. Since the period end, PIP has committed a further
GBP54m to seven investments.
At the beginning of 2018, the Board, together with Pantheon,
reviewed its approach to investment selection in order to find ways
further to improve PIP's rate of NAV growth. It was agreed that the
Manager should be able to exercise more flexibility in terms of
allocation to primary, secondary and co-investment transactions to
ensure that PIP can take advantage of the best deal opportunities.
While secondary investments will continue to be a significant
portion of PIP's portfolio, those containing tail-end funds (funds
that are older than 10 years at the time of purchase) will be
de-emphasised in PIP's new commitments so that PIP can benefit from
younger, better-performing assets. One of the many attractions of
PIP for investors is how risk is managed through the
diversification of its portfolio by manager, investment type,
stage, geography, vintage and sector. PIP intends to maintain this
diversified approach in future, but a more focused approach in the
secondary market to filter out less attractive tail-end
opportunities, is expected to contribute to a reduction in the
number of third party managers and companies to which the portfolio
is principally exposed. This should allow a clearer link to form
between the strongest performing companies in the portfolio and
their potential to boost future NAV growth. PIP invests alongside
Pantheon directly into third party funds and co-investments, and
not via Pantheon's other investment vehicles. This ensures that the
Company has control over portfolio construction and meets its
investment objectives.
PIP buys back its shares opportunistically. During the year, the
Company invested GBP3.5m to purchase 190,000 shares, which added
1.3p to the NAV per share.
PIP's strategic objectives and approach are described in more
detail below.
Financial position and strength
The GBP200m unlisted Asset Linked Note, issued by PIP at the end
of October 2017, is due to mature in August 2027. Repayment of the
ALN is only made as cash distributions are received from a
reference portfolio of older assets. PIP made ALN repayments of
GBP77m during the year and, as at 31 May 2018, the ALN was valued
at GBP132m. Since its issue, the lower relative performance of the
reference portfolio underpinning ALN has, as intended, enhanced NAV
per share growth in the period.
As at 31 May 2018, PIP held cash of GBP162m and had access to an
undrawn facility equivalent to GBP163m. After deducting the next
payment of GBP17m due under the ALN, the Company has available
financing of GBP309m to meet undrawn commitments of GBP440m. As at
31 May 2018, PIP's undrawn commitment cover, which measures the sum
of PIP's undrawn commitments against its available financing and
the value of its private equity portfolio, was 3.6 times.
Following the period end, the Company announced in June that it
had agreed a new GBP175m multi-currency revolving credit facility
to replace the GBP150m loan facility agreement that was due to
expire in November 2018. The facility, denominated as to US$163m
and EUR60m, will expire in June 2022 with an option to extend, by
agreement, the maturity date by another year. The loan facility was
agreed on terms the Board believes to be attractive and provides
additional assurance that the Company has the ability to finance
its unfunded commitments in the future.
Outlook
The global economy remained strong during the year, although the
outlook appears vulnerable against a backdrop of geopolitical and
economic tensions. Pantheon is backing managers that have
experience of managing assets through changing market conditions
and is focusing on investments with growth potential that is not
strictly correlated to GDP growth. In addition, the long-term
nature of private equity means that our managers can hold on to
their assets until there is a more favourable exit environment.
Valuations in private equity continue to be high, as is the case
across equity markets generally and other asset classes, and there
are concerns about the growing amount of capital. Private equity
managers are having to work harder than ever before to source
attractively priced opportunities. The Board and Pantheon are very
aware of the importance of navigating the current environment with
caution.
PIP offers a simple way for investors to access a well-managed
global portfolio of high quality assets, with real potential for
outperformance, which are not readily available via the public
markets. The Board is confident that Pantheon has the scale,
knowledge and expertise, as well as the extensive long-term
relationships internationally, that are required to access
compelling deals which are often restricted to a selected group of
investors. In addition, the Board recognises the strong culture of
teamwork and diversity within Pantheon and its long history of
investing its clients' capital responsibly. We believe that these
attributes, coupled with a long-term outlook when making investment
decisions, play an important role in constructing a high quality
portfolio which can maximise long-term capital growth for
shareholders.
The Strategic Report, set out in the full Annual Report, has
been approved and signed on behalf of the Board.
SIR LAURIE MAGNUS
Chairman
7 August 2018
PIP is a listed FTSE 250 private equity investment trust,
overseen by an independent Board of Directors and managed by
Pantheon, one of the leading private equity investment managers
globally.
PIP's track record
PIP is the longest established private equity fund-of-funds on
the London Stock Exchange.
Performance since inception in 1987
11.8% average annual NAV per share growth
8.1% growth in FTSE All-Share TR index
8.0% growth in MSCI World TR index
Our portfolio is crafted to deliver for shareholders
Since PIP's inception, we have been able to generate excellent
returns while structuring our 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 managers, actively monitored and
diversified to reduce specific timing, regional and sector risks,
and managed to maximise growth and liquidity over time.
Investment type(1)
Flexible approach to portfolio construction increases potential
for outperformance.
Secondary 43%
Co-investments 32%
Primary 25%
Fund region(1)
Weighted towards the more developed private equity markets in
the USA and Europe while Asia and EM provide access to
faster-growing economies.
USA 55%
Europe 26%
Asia and EM(2) 12%
Global(3) 7%
Fund stage(1)
Well diversified across different investment stages with a
particular focus on mid-market buyout and growth funds.
Small/mid buyout 37%
Large/mega buyout 28%
Growth 17%
Special situations 12%
Venture 6%
Fund maturity(1)
Maturity profile is managed to enhance performance while
maintaining a cash-generative portfolio.
2017 and later 12%
2016 14%
2015 18%
2014 9%
2013 4%
2012 6%
2011 4%
2010 2%
2009 3%
2008 11%
2007 12%
2006 and earlier 5%
(1) Fund investment type, region, stage and maturity charts in
the full Annual Report are based upon underlying fund valuations
and account for 100% of PIP's overall portfolio value. The above
exclude the portion of the reference portfolio attributable to the
Asset Linked Note.
(2) EM: Emerging Markets.
(3) Global category contains funds with no target allocation to
any particular region equal to or exceeding 60%.
Key Performance Indicators
We are focused on maximising capital growth over the long
term.
In 2018, the Board reviewed PIP's key performance indicators
("KPIs") to ensure that the Company is using the most appropriate
measures to monitor progress in delivering against its objective of
maximising capital growth over the long term. A detailed
explanation of the chosen KPIs, along with historical performance
for each, can be found below.
What it is How we have Link to our Examples of
performed strategic related
objective factors that we
monitor
------------------ ------------------ ------------------ ------------------ ------------------ ------------------
Performance
5-Year cumulative Total shareholder 1 year -- PIP's ordinary --Maximise --Rate of NAV
total shareholder return 12.1% shares had a shareholder growth relative
return demonstrates closing returns through to listed
90.5% the return to 3 years (cum) price of 2,010.0p long-term capital markets.
investors, after 57.0% at the year end. growth.
taking into --Trading volumes
account 5 years (cum) -- While the --Promote better for the Company's
share price 90.5% Board market liquidity shares.
movements was pleased to by building
(capital growth) note some demand for the --Share price
and, if narrowing Company's shares. discount to NAV.
applicable, of the share
any dividends price
paid during the discount in the
period. year, the
ordinary
shares continued
to trade at a
discount to NAV
(17% as at the
year-end).
NAV per share NAV per share 12M to 30 June -- NAV per share -- Investing -- Valuations
growth during reflects the 2016 increased by flexibly provided by
the year attributable 22.3% 224.9p with top-tier private
10.3%* value of a to 2,414.8p private equity equity managers.
shareholder's 11M to 31 May during managers to
holding in PIP. 2017 the year. maximise -- Fluctuations
The provision 16.9% long-term capital in currency
of consistent -- Strong growth. exchange
long-term NAV 12M to 31 May performance rates.
per share growth 2018 despite the -- Containing
is central to 10.3% impact costs and risks -- Ongoing
our strategy. of foreign by constructing charges
exchange a relative to NAV
NAV per share movements. well-diversified growth and
growth in any portfolio in a private
period is shown cost-efficient equity peer
net of all costs manner. group.
associated with
running the -- Potential tax
Company. leakage from
investments.
-- Effect of
financing
(cash drag) on
performance.
Portfolio Portfolio 12M to 30 June -- Strong -- Maximise -- Performance
investment investment 2016 performance shareholder relative to
return return measures 6.8% in the underlying returns through listed
15.4%* the total portfolio, long-term capital market and
movement 11M to 31 May despite growth. private
in the valuation 2017 the impact of equity peer
of the underlying 16.2% foreign exchange group.
funds and movements.
companies 12M to 31 May -- Valuations
comprising PIP's 2018 -- PIP continues provided by
portfolio 15.4% to benefit from private
expressed good earnings equity managers.
as a percentage growth in its
of the opening underlying
portfolio value, portfolio
before taking and from the
foreign exchange favourable exit
effects and other environment.
expenses into
account.
------------------ ------------------ ------------------ ------------------ ------------------ ------------------
Liquidity
Net portfolio Net portfolio 12M to 30 June -- PIP's -- Maximise -- Relationship
cash flow cash flow is 2016 portfolio long-term between
GBP194m* equal GBP190m generated GBP280m capital growth outstanding
to fund of distributions through ongoing commitments and
distributions 11M to 31 May versus GBP86m portfolio renewal NAV.
less capital 2017 of calls. while controlling
calls GBP211m financing risk. -- Portfolio
to finance -- The Company maturity
investments, 12M to 31 May made new and distribution
and reflects the 2018 commitments rates by vintage.
Company's GBP194m of GBP256m during
capacity the year, GBP139m -- Commitment
to finance calls of which was rate to new
from existing drawn. investment
investment opportunities.
commitments
and to make new
investments.
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. With
a weighted
average
fund age of 5.7
years(1) , PIP
is achieving this
objective.
Liquidity ratio The liquidity 12M to 30 June -- The current -- Flexibility -- Relative
1.0x* ratio is the 2016 level of in portfolio weighting
ratio 1.1x commitments construction, of primary,
of outstanding is consistent allowing the secondary
commitments to 11M to 31 May with PIP's Company and
available 2017 conservative to flex between co-investments
financing, 1.0x approach to primary, in the portfolio.
with the latter balance secondary
being the sum 12M to 31 May sheet management. and -- Level of
of cash, the 2018 co-investments, undrawn
unutilised 1.0x and vary commitments
portion of any investment relative
loan facilities pace, to achieve to gross assets.
and 10% of long-term capital
private growth. -- Trend in
equity assets. distribution
The liquidity rates.
ratio is an
indicator -- Ability to
of the Company's access debt
ability to meet markets
outstanding on favourable
commitments, terms.
even in the event
of a market
downturn.
Under the terms
of its current
loan facilities,
PIP is required
to maintain a
liquidity ratio
of below 3.0
times.
* Excludes valuation gains and / or cash flows associated with
the Asset Linked Note.
(1) Excludes the portfolio of the reference portfolio
attributable to the Asset Linked Note.
OUR BUSINESS MODEL
We aim to deliver attractive and consistent returns over the
long term.
OUR INVESTMENT PROCESS
1. Deals are originated via Pantheon's well-established platform
2. Within our diversified portfolio, we back the best managers
globally that are able to identify and create value in growing
companies
3. Cash generated when those companies are sold is returned to
PIP and redeployed into new investment opportunities
INVESTMENT STRATEGIES
Primary
We invest in a new fund when it is established
-- Captures exposure to top-tier, niche managers as well as to
smaller funds that are generally hard to access.
Secondary
We replace an investor in a fund or funds typically late into,
or after, the investment period
-- Targets favoured 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.
Co-investments
We purchase a portfolio company directly, alongside a private
equity fund, during the investment period
-- Invests in the securities of individual companies with
attractive characteristics at the exclusive invitation of
Pantheon's private equity managers.
-- This boosts performance potential because there are typically
very low or no fees, making it a cost-effective way of capitalising
on the high value added by Pantheon's selected managers.
What we do
PIP invests in private equity funds and co-invests (alongside
selected private equity managers) directly into private companies
worldwide.
An investment in PIP offers shareholders exposure to a growing
market worth c.$3tn* where the best private equity managers might
otherwise be inaccessible to shareholders.
We aim to deliver attractive and consistent returns to
shareholders over the long term, and at relatively low risk.
*Preqin May 2018
Why we do it
Through Pantheon, we have an opportunity to invest with many of
the best private equity managers globally based on the trust and
experience built up over the more than 35 years during which
Pantheon has been making investments.
With the right people in charge, we believe that the strong
credentials of private equity and its track record of outperforming
public markets, speak for themselves.
It is our mission to generate sustainably high investment
returns through a well-managed, institutional grade portfolio 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 our
portfolio remains naturally cash-generative on a sustainable
basis;
-- Ensure that the vehicle remains as cost-effective as possible
for our shareholders by reducing any potential drag on returns.
Private equity managers take controlling or influential
positions in companies where they believe they can create value
with a view to exiting their position at a multiple to their
original investment. As portfolio companies are sold by the
managers, PIP's share of the cash that is generated from those
sales is deployed into new investment opportunities.
For more information on the commitments that PIP has made during
the year, see below.
What sets us apart
Broad and deep relationships
With investments in the USA, Europe, Asia and Emerging Markets,
PIP provides a carefully constructed, broad-based portfolio for
investors. The presence of Pantheon's dedicated investment team of
78(1) people in six offices 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.
(1) As at 1 August 2018.
Independence
PIP is offered the opportunity to participate in the full range
of the private equity investments that Pantheon sources, and it
invests alongside other Pantheon managed funds into third party
funds and underlying companies rather than as a feeder into
Pantheon's other investment vehicles. The Board believes that this
offers several benefits to PIP and its shareholders, including:
-- Control of investment strategy, overseen by the Board;
-- Reduction of financing risk by being able to accept or
decline investments offered to it by Pantheon according to its
financial resources at the time;
-- The flexibility to vary the size of its commitments as
appropriate and in line with any adjustments to its investment
strategy;
-- Lower cost due to the elimination of expenses that can arise in intermediate vehicles.
Track record
For more than 30 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 strategic objectives.
Culture
Pantheon has a strong culture of teamwork and diversity, as well
as a long history of investing its clients' capital
responsibly.
For more information on PIP's strategic objectives, see
below.
OUR STRATEGY
Our independent and experienced Board ensures that our strategy
puts shareholders first.
The role of the PIP Board
Safeguarding shareholders' interests
The independent Board of Directors is responsible for ensuring
that PIP is managed in a way that achieves the best outcome for its
shareholders. As part of this, one of its roles is to monitor the
Manager's investment strategy to ensure that it is relevant,
adheres to the Company's investment policy, and is constructed
around seeking the best performing assets worldwide that can
generate above average returns over the long term.
Monitoring of ongoing investment strategy
At the start of each year, PIP's investment strategy is
considered by the Board together with the Manager. Throughout the
year, there is an ongoing dialogue between the Board and Pantheon,
and the Manager reports regularly to the Board on progress. In
addition, it highlights any obstacles or changes in market
conditions which may impact the Company's ability to achieve its
strategic goals. In cases where this may occur, the Manager will
propose solutions for which it will seek the support of the Board.
Equally, the Board maintains the flexibility to propose amendments
to the strategy as it deems necessary.
The Board and the Manager consider how PIP can most profitably
deploy capital in the prevailing investment environment. In
addition, the Board also reviews individual investments that exceed
exposure limits, which are set at low levels (and below the hard
limits in the Company's investment policy) 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
the Manager 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.
This year, following the simplification of PIP's share structure
and the Company's expected exposure to a wider investor base
following its entry into the FTSE 250, the Board took the
opportunity to conduct a more detailed strategic review and explore
how the Company's historically strong NAV performance could be
built upon and improved. It is the Board's view that further
improving performance is one of the ways in which more demand could
be created for PIP's shares, which in turn could lead to a
narrowing of the discount at which the shares trade. Some of the
conclusions from that review are discussed below.
Maintain a diversified approach while increasing potential for
outperformance
As Manager of PIP, Pantheon focuses on selecting the best
private equity managers and the companies they back worldwide and
carefully constructing and maintaining a mature portfolio that has
exposure to different parts of the investment life cycle. PIP's
portfolio is carefully diversified by manager, investment type,
stage, geography, fund age (vintage) and sector. One of the key
advantages of this approach is that it reduces the risk of any
individual underperforming company or fund having an adverse effect
on the Company's overall performance.
In 2018, the Board has agreed with the Manager that the Company
will maintain its diversified approach but that, by increasing the
focus on portfolio construction as explained below, over time the
number of third party managers and companies to which the portfolio
is principally exposed may reduce to around half the current
amount. The Board also confirmed it would like to see the Manager
exercise slightly more flexibility in the types and size of
investments that it makes; this is discussed in more detail
below.
We believe that this approach will give investors the best of
both worlds: manageable risk in the Company's portfolio by
remaining diversified, while at the same time increasing the
potential for outperformance. 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.
Tighten control of portfolio construction
The Company has traditionally emphasised secondaries as PIP
makes new investments. Secondary investments offer very attractive
characteristics as highlighted in the Business Model above, however
as part of the strategic review, it was recognised that certain
secondary opportunities may not always be the best fit for PIP's
portfolio.
There is a tendency for some recent secondary investments to be
dominated by older assets, defined as those in funds which are 10
years or older at the time of purchase. Although those assets often
generate good levels of cash, extensive analysis has shown that the
rate of value increase tends to be lower than that offered by
younger assets and therefore can be a drag on overall performance.
The issuance of the ALN at the end of 2017 has allowed PIP to
actively de-emphasise the older funds in PIP's portfolio and tilt
it towards younger funds which the Board believe will perform
better as a whole relative to the portfolio prior to the ALN issue.
Therefore, as PIP seeks to maximise capital growth and avoid older
assets becoming over-weighted in the portfolio, it was agreed that
the Company would benefit from Pantheon's greater control over
allocation, making it able to put capital to work in primary and
co-investment opportunities as well as secondaries where they
represented a more compelling investment proposition. While
secondaries should continue to represent a significant portion of
PIP's portfolio, it is recognised that over time these three
different investment types may take on more equal weightings.
The benefits of this approach are clear: 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.
The Board recognises that on occasion, the discounts at which
the Company's shares trade may make them an attractive investment
proposition for PIP when considered alongside other new investment
opportunities. The Manager reports to the Board on a regular basis
on the investment market conditions and on those occasions, the
Board may authorise the Company to buy back a specified amount of
its own shares.
Focus on mid--market and growth opportunities
PIP's portfolio is diversified by stage, which ranges across
venture, late stage growth, small/mid and large/mega buyout
opportunities, as well as those classified as special situations.
While the Company's strategy is to maintain a healthy mix of all
stages, Pantheon favours growth and buyout funds with a particular
focus on the mid-market. The mid-market offers strong credentials,
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;
-- More routes to exit (including strategic acquisitions, sales
to other private equity managers or initial public offerings
(IPOs)).
While late stage growth opportunities remain attractive, it is
our view that the return profile of early stage venture can often
be too drawn-out to be suitable for PIP's portfolio. Therefore 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 spot innovative opportunities
with the potential to generate significant outperformance. While
special situations includes funds with unique characteristics
offering potential for outperformance, it is the Board's intention
that special situations investments will be only a minority of the
overall portfolio.
Identify inefficiencies and growth potential in sectors and
geographies
The Board is committed to offering investors a global portfolio
with investments in the USA, Europe, Asia and Emerging Markets. It
takes an agnostic approach towards the weightings of those
geographies but supports the majority of the Company's capital
being invested in the USA and Europe where the private equity
market are well-established and have been resilient.
The Board relies on Pantheon's investment teams around the world
that are on the ground locally, to take advantage of proprietary
information flows and access to opportunities through their
extensive networks of relationships. The Board is confident that
these relationships enable Pantheon to source and respond quickly
to the best deal flow in those regions to optimise risk-adjusted
performance.
It is our objective to seek 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. Recent examples of this have been
energy and financial services.
For more information on the sectors in which PIP is invested,
see below
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 PIP's
behalf, ensures that PIP is able to deliver on its strategic
objectives for shareholders over the long term.
PIP's approach to ESG and employment issues
The Company has no employees and the Board consists entirely of
Non-Executive Directors. At the end of the period under review, the
Board was comprised of six male Directors and one female
Director.
As an investment trust, PIP has no direct impact on the
community or the environment. However, Pantheon is careful through
its due diligence process to encourage a sustainably positive
impact of our investments, with a view to generating consistently
high returns over the long term. Pantheon's commitment to leading
the practice of responsible investment for many years meant it was
one of the first signatories to the UN's Principles for Responsible
Investment. Pantheon continues to explore ways in which we can
promote accountability for Environmental, Social and Governance
("ESG") ethics through our investment process and the managers that
we back.
For more information on Pantheon's approach to responsible
investment, see the full Annual Report.
OUR INVESTMENT POLICY
Our investment policy is constructed around maximising capital
growth
The Company's policy is to make unquoted investments. It does so
by subscribing for investments in new private equity funds
("Primary investment"), buying secondary interests in existing
private equity funds ("Secondary investment"), 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 and as a consequence of an investment in
an unquoted company becoming quoted. In additon, 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 scheme.
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:
-- That 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 in
(including commitments to or in respect of) 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 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 net asset value. 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.
PRINCIPAL RISKS AND UNCERTAINTIES
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 risks that may have
arisen during the year to 31 May 2018, 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.
Funding of investment commitments and default risk
Risk
In the normal course of its business, the Company typically has
outstanding commitments to private equity funds which are
substantial relative to the Company's assets and may be drawn down
at any time. The Company's ability to meet these commitments is
dependent upon it receiving cash distributions (the timing and
amount of which can be unpredictable) from its private equity
investments and, to the extent these are insufficient, on the
availability of financing facilities.
Mitigation
The Company has a mature portfolio that is naturally cash
generative and does not ordinarily gear its balance sheet for the
purpose of enhancing performance. The Board intends to manage the
Company so that undrawn commitments remain at an acceptable level
relative to its assets and available financing. The total available
financing as at 31 May 2018 stood at GBP309m, comprising GBP146m in
available cash balances(1) and GBP163m in undrawn bank facilities.
As a result, the available financing along with the private equity
portfolio exceeded the outstanding commitments by a factor of 3.6
times. The Company ordinarily expects to finance the majority of
calls from undrawn commitments out of distributions. In the event
that the levels of cash distributions and cash balances are
insufficient to cover capital calls, the Company has the ability to
draw funds from a credit facility (see Gearing section below for
details of the credit facility).
(1) Available cash calculated as cash and net current
assets/(liabilities) less undistributed net cash flows associated
with the Asset Linked Note.
Risks relating to investment opportunities
Risk
There is no guarantee that the Company will find a sufficient
number of suitable investment opportunities, or that the private
equity funds in which it invests will find suitable investment
opportunities, in order to achieve the level of diversification
which the Company seeks to achieve in relation to its investment
portfolio.
Mitigation
In line with the Investment Policy shown above, the Manager has
put in place a dedicated investment management process that is
designed to help maximise the chances of the Board's intended
investment strategy being achieved. The Board periodically reviews
investment and financial reports from the Manager to monitor the
effectiveness of the Manager's investment management process.
Financial risk of private equity
Risk
The Company invests in private equity funds and unquoted
companies, which are less readily marketable than quoted
securities. In addition, such investments may carry a higher degree
of risk than investments in quoted securities.
Mitigation
The Manager's investment management process is designed to
produce the best possible risk-adjusted returns from private equity
investments. Where the Company commits to private equity funds,
such funds are structured as limited life funds where the manager
is incentivised to realise investments and return proceeds to
investors within the funds' limited life span. As part of the
investment process for secondaries and co-investments, an
assessment is made to understand the possible impact of the
underlying assets' illiquidity on projected exit outcomes. As part
of the investment process for primaries, an assessment is made to
understand a manager's approach to underlying company
illiquidity.
Long-term nature of private equity investments
Risk
Private equity investments are long term in nature and it may
take some years before they reach a level of maturity at which they
can be realised. Accordingly, it is possible that the Company may
not receive a return on its investments for a number of years.
Mitigation
The Company pursues a flexible investment strategy, combining
secondary investments, which will typically have shorter exit
horizons on average, with co-investment and primary commitments.
Therefore, this flexible investment strategy results in a range of
likely exit horizons for underlying investments, mitigating this
risk.
Valuation uncertainty
Risk
When 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 these funds and companies to the Manager.
There is the potential for inconsistency in the valuation methods
adopted by the managers of these funds and companies. In addition,
the information provided is typically more than 60 days old at the
time the Company's NAV per share is reported.
Mitigation
In the case of the Company's investment in private equity funds,
and direct investments managed by private equity managers, the
valuation of investments is based on the periodically audited
valuations that are provided by the private equity managers.
Pantheon carries out a formal valuation process involving a monthly
review of these valuations, verification of the latest audited
reports coverage, as well as a review of any potential adjustments
that are required to ensure reasonable valuation of the underlying
investments and in accordance with the fair market value principles
required under Generally Accepted Accounting Principles
("GAAP").
Gearing
Risk
The use of gearing could cause the magnification of both gains
and losses in the asset value of the Company. The Company may also
invest in private equity funds or unquoted companies which are
geared by loan facilities that rank ahead of the Company's
investment both for payment of interest and capital. As a
consequence, the Company may be exposed from time to time to
gearing through the borrowings of such private equity funds and
companies, thereby increasing its investment risk.
Mitigation
While debt is commonly used within the capital structure of
private equity funds' portfolio investments, it is not commonly
used at the fund level other than for working capital purposes.
Thus, leverage risk is typically non-recourse between portfolio
companies operating independently within the same portfolio.
The Company renewed its revolving credit facility after the
year-end. The new GBP175m facility is due to expire in June 2022,
and is comprised of facilities of $163.0m and EUR59.8m which
remained completely undrawn at the time of writing. The principal
covenant that applies to the loan facility ensures that the Company
is limited to a maximum gearing of 34% of adjusted gross asset
value.
Foreign currency risk
Risk
The Company makes investments in US dollars, euros and other
currencies as well as sterling. Accordingly, the Company is exposed
to fluctuations in currency exchange rates.
Mitigation
The Manager monitors the Company's underlying foreign exchange
exposure and seeks to balance the risks associated with holding
different currencies through diversification and cost-averaging
effects. Furthermore, as part of the investment management process,
the Manager will assess the risk/return of a specific investment,
taking into consideration the currency denomination of the
investment and the opportunity to mitigate currency risk. However,
foreign currency risk tends to be a less significant factor over
longer investment horizons.
Unregulated nature of underlying investments
Risk
The private equity funds and underlying unquoted investments
that form the basis of the majority of the Company's portfolio are
not necessarily subject to regulation by the Financial Conduct
Authority ("FCA") or an equivalent regulatory body. Funds and
unquoted companies in which the Company invests (directly or
indirectly) may be domiciled in jurisdictions which do not have a
regulatory regime that provides an equivalent level of investor
protection to that provided under the laws of the United
Kingdom.
Mitigation
The Manager's investment management process for primary and
secondary investments requires verification of the regulatory
jurisdiction of underlying funds. In addition, the managers of the
underlying funds are mostly regulated by the FCA, US Securities and
Exchange Commission ("SEC"), or an equivalent body in the managers'
respective jurisdictions.
Counterparty risk
Risk
PIP's investments in private equity funds typically include a
portion of undrawn commitments. Investors in such funds are
contractually obliged to fund undrawn commitments as they are
called. It is possible that another investor in the target fund is
unable or unwilling to meet future capital calls. In this scenario
the defaulting investor would have the option of selling its
position in the secondary market, or suffering various penalties
prescribed under the fund's constitutional documentation. During a
fund's investment period, a default could have a potential impact
on the shape of the remaining investors' investment including, for
example, an increase in portfolio concentration, which is different
to the concentration that the manager had initially envisaged at
the fund's outset. To the extent that a defaulting investor does
not sell its position, and the default occurs after the fund's
investment period, the manager may have to limit the amount
invested in follow-on investments for existing companies or
potentially leave the fund unable to meet a contractual liability
such that the manager has to sell existing portfolio companies.
Mitigation
This is a rare occurrence given the damaging economic and
reputational consequences for a defaulting investor, and given the
typically high credit ratings for institutional private equity
investors, which comprise a considerable proportion of the capital
being invested in the private equity fund market. In addition, the
secondary market has become increasingly liquid and an investor has
the option to sell its position before it might default on its
future undrawn commitments. The majority of PIP's investments are
funded positions, where an investor's forfeit of existing NAV would
mitigate the potential impact on the shape of the remaining
portfolio.
Taxation
Risk
Any change in the Company's tax status, or in taxation
legislation or practice, could affect the value of the investments
and the Company's performance. In addition, the Company's income
and gains from its investments may suffer withholding tax, which
may not be reclaimable in the countries where such income and gains
arise.
Mitigation
The Manager's investment management process incorporates an
assessment of the tax impact of each primary or secondary fund
investment, or co-investment that is purchased. For every
investment, the Manager also reviews the appropriateness of an
investment's legal structure and any action required, including the
establishment of special purpose, and/or blocker vehicles, to
tailor an investment's structure to minimise the potential tax
impact on the Company.
The Manager and other third party advisers
Risk
Like most investment trust companies, the Company has no
employees and the Directors are all non-executive. The Company is
dependent upon the services of Pantheon as its Manager and may be
adversely affected if the services of Pantheon cease to be
available to the Company.
Mitigation
The Board keeps the performance of the Manager under continual
review. In addition, the Management Agreement is subject to a
notice period of two years that is designed to provide the Board
with adequate time to put in place alternative arrangements in the
event the services of Pantheon cease to be available.
Brexit
Risk
The UK has voted to leave the EU and, depending on what
arrangements might be negotiated, there are likely to be
consequences for the Company, and for the wider Pantheon
organisation as a whole. Uncertainty about the Brexit process may
result in some market and currency volatility, which may adversely
impact returns. In addition, given a significant proportion of UK
financial services legislation, such as the AIFMD, the Prospectus
Directive and Regulation and MiFIDII/MiFIR, is derived from EU law,
assuming the UK does not accede to the EEA Agreement or negotiate
an equivalent arrangement, the Company's continued ability to
market its shares to European investors may be at risk.
Mitigation
Following the UK's decision to leave the EU, the Manager,
through a dedicated working group, has been monitoring policy
developments and reviewing aspects of the Company's business that
rely on pan-EU arrangements. Pantheon will open an office in
Dublin, ensuring that Brexit will have a minimal impact on Pantheon
Group's ability to operate in Europe.
Cybersecurity
Risk
The Company is dependent on effective information technology
systems. These systems support key business functions and are an
important means of safeguarding sensitive information. Any
significant disruption to these IT systems, including breaches of
data confidentiality or cybersecurity, could result in, among other
things, financial losses, the inability to perform business
critical functions, regulatory censure, legal liability and
reputational damage.
Mitigation
Pantheon has a robust information and cybersecurity programme in
place, aligned with SANS20 controls and the NIST cybersecurity
framework. This includes a comprehensive set of policies,
standards, procedures and technology related to information
security. Third-party cybersecurity oversight is administered by
means of a comprehensive cybersecurity questionnaire which must be
completed by vendors and then reviewed and approved by the Chief
Information Security Officer prior to any engagement. Validation of
the Pantheon's own information and cybersecurity solutions is
tested annually by means of a full penetration test, including
phishing expeditions by accredited third party cybersecurity
specialists. The findings of these tests are reported to both the
Pantheon Operational Risk Committee and Pantheon Operating
Committee. In addition, a company-wide cybersecurity awareness
training programme has been put into place for all staff. Over the
past 12 months the Company has not experienced any material
breaches in respect of information or cybersecurity.
Retail Investors Advised by IFAs
The Company currently conducts its affairs so that its shares
can be recommended by independent financial advisers to retail
private investors in accordance with the FCA's rules in relation to
non-mainstream investment products.
The shares are excluded from the FCA's restrictions which apply
to non-mainstream investment products because they are shares in a
UK-listed investment trust.
Viability Statement
Pursuant to provision C.2.2 of the UK Corporate Governance Code
2016, the Board has assessed the viability of the Company over a
three year period from 31 May 2018. It has chosen this period as it
falls within the Board's strategic planning horizon. The Company
invests in an internationally diversified portfolio of private
equity assets, both through funds 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.
Commitments to new funds are restricted relative to the
Company's assets and its available liquid financial resources so as
to maintain a reasonable expectation of being able to finance the
calls, which arise from such commitments, out of cash flow that is
generated internally. In addition, the Company has put in place a
revolving credit facility to ensure that it is in a position to
finance such calls in the event that distributions received from
investments in the period are insufficient to finance calls. 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 business model, its
business objectives, the principal risks and uncertainties as
detailed above and of 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.
On behalf of the Board
SIR LAURIE MAGNUS
7 August 2018
MANAGER'S MARKET REVIEW
The global private equity market is growing and, while still
relatively small compared with many other asset classes, it is
estimated to be worth just under $3 trillion(1) .
(1) Preqin May 2018.
Over the past year, global fundraising has been at record levels
and investment activity has remained robust. The prevailing high
valuation environment has increased the pressure on private equity
managers to find ways of creating value in order to generate
attractive returns from the underlying businesses. Pantheon has
maintained its disciplined and selective approach when assessing
deal opportunities, and backs the best managers globally that are
able to make investments where there is scope for them to use their
operational and strategic expertise to deliver strong
performance.
The global economy has performed well in the past year. However,
the threat posed to future growth by the escalating tariff wars
between the world's economic super powers, rising geopolitical
tensions and the expected volatility in the financial markets,
cannot be ignored. In addition, there is the risk of further
currency volatility as central banks follow divergent paths and
uncertainty remains over the pace of expected interest rate rises
in the world's major economies.
Regional outlook
The USA has continued to experience positive economic growth
over the past year, which is expected to be boosted further in the
near term by the more favourable tax and regulatory environment
introduced by the current administration. At this stage, it is
still not clear how the tax reforms and restrictions on the tax
deductibility for interest expenses will impact private equity in
the USA, however our managers are examining each of the companies
in their portfolios so that they can act quickly to minimise or
avoid any negative effects. In addition, we aim to only back
private equity managers, or General Partners ("GPs"), who adopt a
disciplined approach to managing debt levels when investing in
companies that offer opportunities for growth. Our strategy has
remained consistent in the USA, focusing on smaller companies which
generally offer better opportunities for lower entry prices and
higher growth potential.
In 2017, the Eurozone experienced its fastest GDP growth in a
decade. While this is a positive development, political challenges
remain in Europe and Pantheon continues to favour countries in
Northern Europe for investment. In the UK, the consumer and retail
sectors in particular have been negatively impacted as uncertainty
around the outcome of Brexit negotiations remains. It should be
noted that the UK represents only a minority (less than 10%) of
PIP's portfolio. Also, many of the European managers that we back
are regional or pan-European managers who are able to deploy
capital in different countries as political and economic events
unfold during an investment period. A mix of founder- and
family-owned buyouts, corporate carve-outs and transformational
secondary buyouts feed the pipeline of opportunities for managers
who have the expertise to identify assets where many levers can be
pulled to drive growth and value creation. The performance of many
of the companies in which Pantheon is invested in Europe is not
strictly correlated to GDP growth and they continue to generate
consistent revenue and earnings growth.
Economic growth across Asia exceeded the developed world in 2017
and this is expected to continue over the next few years. At the
same time, the private equity market in Asia is maturing and its
share of global M&A and buyout markets is increasing. During
2017, there were record levels of investment volume in the region
with investments and exits significantly outpacing fundraising. In
China, Pantheon focuses on companies in the consumer, healthcare,
financial services and education sectors, and the majority of these
businesses continue to deliver strong earnings growth. While it is
not possible to predict the likely market volatility resulting from
the trade tensions with the USA, relatively few companies in PIP's
portfolio are dependent on exports to the USA. The high valuation
environment observed across the globe has also impacted Asia, but
to a lesser extent; the combination of more attractive entry
valuations into companies with higher growth potential means the
Asian region should continue to offer strong deal opportunities for
Pantheon.
The private equity market in Latin America is still relatively
nascent and this, coupled with the economic volatility in the
region, offers both challenges and opportunities. We are investing
in managers in the region who are finding ways to mitigate currency
fluctuations, actively manage liquidity and market risk, and are
able to identify companies in sectors that are exceeding GDP
growth.
While Asia and Emerging Markets represent a smaller part of
PIP's portfolio, when compared to the USA and Europe, PIP will
continue to acquire assets in these regions as part of its
long-term strategy.
An adaptable and flexible approach to primary investments
During 2017 and in the first half of 2018, fundraising in the
USA and Europe has continued apace and competition for deals has
increased as investors are allocating more capital to private
equity in search of growth, diversification and higher returns.
Pantheon has benefited from its managers taking advantage of the
resulting strong exit environment. At the same time, however,
valuations have continued to be pushed up and many industry
commentators have expressed concern about the high levels of "dry
powder" (funds that have been raised but are yet to be invested) in
private equity.
It should be noted that a significant portion of the new capital
raised over the past year was committed to the large multibillion
dollar and euro funds. In the mid-market, where we are most active,
the deployment pace is commensurate with investment periods in the
underlying funds of four to five years. By continuing to increase
its share of the M&A market, of which private equity is still a
relatively small part, as well as benefiting from the trend seen in
global public markets where the number of listed companies and IPOs
are in decline as many companies turn to the alternative source of
capital and "hands-on" approach offered by private equity managers,
the outlook for private equity strategies appear positive.
Without doubt, the high valuation environment means that GPs are
having to work much harder and at a much earlier stage of
investment to create value in their portfolios. However, resilience
and adaptability are inherent characteristics of private equity and
Pantheon-backed managers are using a range of tactics to mitigate
the situation and expand the opportunity set:
-- Buy-and-build strategies: By bolting smaller companies
acquired at lesser multiples onto a large enterprise which has a
premium valuation, managers are able to lower the average entry
multiple for the whole asset and increase its critical mass.
-- Focus on small/mid buyout: Smaller assets can typically be
acquired at more attractive prices than larger buyouts. This
segment also offer higher average growth rates and a wider range of
exit opportunities.
-- Expansion of their own origination and operational teams: By
bolstering their own origination team and operational expertise,
GPs are able to access a larger pool of deal flow and work
alongside management teams to drive even greater operational
improvements and boost growth in the underlying companies that they
already own.
-- Sector specialisation: Sector knowledge is just as important,
if not more important, as the geographical location of assets when
selecting companies for investment. As a result, managers are
becoming sector experts and focusing on micro rather than macro
factors as well as taking advantage of mispricing situations and
dislocations in niche sectors, such as energy and financial
services.
-- Corporate carve-outs: The divestment of a non-core division
or company from a larger corporation can be complicated as new
systems and/or teams must be put in place. This offers significant
opportunities for private equity managers that are able to deal
with operational and financial complexity.
-- Public-to-private activity: This has increased significantly
in the last couple of decades and continues to be a good source of
deal flow for private equity managers.
Against this backdrop, manager selection remains key. Pantheon
is highly selective and is focused on managers that we believe can
implement effective operational change and deliver outsized
returns. Our extensive investment team sits on more than 350
advisory board seats, which provides an insight into deal flow but
also facilitates the continuous assessment of a manager. When
assessing a manager's fund for investment, Pantheon does not just
consider past performance and the validity of the fund strategy,
but also makes sure that the composition of the team remains
appropriate and individuals are fully aligned and incentivised.
Uncovering value in the secondary market
The global secondary market is growing and evolving, reaching an
estimated record level of $58bn(2) worth of deals transacted in
2017, and offers more choice to buyers than ever before. Unlike
some other investment types, secondary buyers can factor recent
company performance and liquidity into their pricing, potentially
mitigating cyclical extremes. Pantheon was one of the pioneers of
the secondary market and our platform built up over 35 years
enables us to use our deep knowledge and relationships to source
and deploy capital into the most compelling deals. Our ability to
respond quickly often makes Pantheon a preferred investor in
secondary transactions.
(2) Greenhill Cogent Secondary Market Trends & Outlook, July
2018.
Secondaries are attractive given the opportunity to deploy
capital into funds where a significant portion of the fees paid on
undrawn commitments has already been paid down, otherwise known as
mitigating the J-curve effect. In addition, market estimates
indicate that, despite the increased competition, "dry powder" in
the secondary market is decreasing and proportionally lower than in
the broader private equity market.
During the year, the market has seen a full range of deal flow
and transaction types: large diversified portfolios; large,
concentrated fund positions; and structured transactions involving
combinations of funds and individual company assets. GP-led
transactions have grown in both absolute and relative terms, as
managers become more attuned to the opportunities presented by the
secondary market: these transactions are initiated and overseen by
the private equity managers themselves and can include tender
offers, fund preferred capital investments and fund restructurings.
Consequently, the secondary market continues to grow.
Pantheon's secondary strategy is to target the highest quality
managers and assets, focus on acquiring concentrated fund positions
and to identify embedded value in funds and purchase them at a
favourable point of time in their development, rather than relying
on any discount achieved at purchase to drive returns. We are also
interested in secondaries which involve companies that have
demonstrated financial resilience through previous economic
downturns and where the manager has multiple opportunities to
accelerate growth. Sectors in which PIP has transacted during the
year include energy, financial services and for-profit education
services. As described in PIP's strategy above, tail-end funds, or
those older than 10 years at the time of purchase, will be
de-emphasised in PIP's new commitments.
Despite the increasingly specialised nature of the secondary
market, Pantheon is still able to uncover value by taking advantage
of the inefficiencies of the secondary market when compared to
direct private equity markets. Examples of this include:
-- Inconsistent valuation methodologies amongst private equity
managers means that a manager's conservative valuation policy
provides the potential for attractive uplifts to NAV on exit;
-- Inefficient sales processes resulting from a limited buyer
universe that excludes strategic acquirers, reduced competition due
to seller confidentiality and transfer restrictions imposed by the
private equity manager;
-- Information insights as the private equity manager may not
share all information equally amongst potential bidders;
-- Transaction processes becoming ultra-fast which means that
buyers must respond quickly and have capital available for
investment.
The growing and maturing secondary market is supplying diverse
deal flow and interesting opportunities that can offer an effective
discount. Against this backdrop, we continue to maintain our
discipline and only close on a small number of the deals that we
have sourced where there is strong conviction in both the manager
and the underlying portfolio's prospects.
Pantheon's platform continues to yield attractive co-investment
opportunities
The co-investment market continues to be attractive to
professional fund investors such as Pantheon as well as to a
variety of institutional participants such as sovereign wealth
funds, pension funds and family offices. According to market
estimates, co-investments represented a growing proportion of
global private equity buyout called capital in 2017. It has also
been a significant year for Pantheon's co-investment platform in
terms of distributions and attractive exits.
The ability to deploy capital selectively and diligently is a
meaningful component of the market and Pantheon continues to be a
partner of choice for the high quality private equity managers that
we are also backing on a primary basis. Pantheon invests alongside
these managers predominantly in mid-market companies with proven,
differentiated growth potential. Our dedicated global co-investment
team has underweighted opportunities in cyclical industries and
focused on businesses with defensive characteristics in the event
of an economic downturn. Recent examples have been co-investments
in healthcare and education.
The outlook for Pantheon's co-investment programme is positive
given that there are fewer club deals - in other words, private
equity managers are partnering with one another less frequently -
and investors such as Pantheon are able to add value by providing
GPs with more solutions for capital provision. Co-investments are
still largely free of fees and expenses therefore they offer
cost-effective access to high quality assets.
Summary and outlook
Although Pantheon does not ignore and is not immune to the
macroeconomic situation in the countries where it invests, it
prefers to focus on areas of growth driven by innovation or
demographics rather than GDP. Pantheon also seeks opportunities
where the fundamental business strength is aligned with what can be
viewed as a good entry valuation. In addition, in an environment of
rising interest rates, Pantheon is backing managers that are more
experienced and often more cautious in their use of leverage.
The valuation environment is expected to remain challenging in
Europe and USA and many investors are preparing for increased
market volatility in the future. Private equity managers acquire
active, control positions and are able to react to market
conditions and changing regulations with the aim of creating value
over the long term. They are under no pressure to sell their assets
and can therefore wait for a more favourable exit environment if
necessary.
Private markets provide access to smaller, higher growth
companies and a differentiated sector focus that may not be
represented by the public markets. For example, the businesses
backed by private equity in healthcare and technology tend to
address a different set of needs and end user to the companies that
are available in the same sectors via the public markets. Research
by Pantheon has shown that the number of public companies globally
is in decline and it would appear that private equity is now mature
enough that company management often wishes to stay under private
equity ownership for longer, while the value creation potential is
still building, rather than seeking a public listing for their
businesses. In light of these trends, it is our view that prudent
investors need exposure to both private and public markets in their
portfolios.
We believe that private equity has strong credentials and the
potential for further growth is apparent. With our track record and
expertise built up over 35 years, Pantheon will continue to back
the best private equity managers globally which we believe have the
tools and resources to generate healthy returns over the long term
regardless of prevailing market conditions.
Performance
Overall, PIP's underlying portfolio continues to deliver strong
returns
Private equity portfolio movements
-- PIP's total portfolio generated investment returns, prior to
foreign exchange effects, of 15.0%.
-- Excluding returns attributed to the ALN share of the
portfolio, PIP's portfolio generated returns of 15.4% during the
year.
Valuation gains by stage(1)
-- PIP experienced strong performance from growth and mid-market
buyout funds, particularly those with an investment emphasis on the
IT and healthcare sectors.
-- The performance of our predominantly vintage 2009 and earlier
venture portfolio has lagged although this now represents just 6%
of PIP's total portfolio.
-- The performance of special situations was impacted by company-specific valuation declines.
Valuation gains by region(1)
-- Strong performance across all geographies during the year.
(1) Portfolio returns include income, exclude gains and losses
from foreign exchange movements, and look through feeders and
funds-of-funds to the underlying funds. Portfolio returns exclude
returns generated by the portion of the reference portfolio
attributable to the Asset Linked Note.
Sector Themes
Pantheon assesses deals across all sectors and has seen
interesting opportunities in consumer, information technology and
healthcare as well as attractive deal dynamics in certain energy
and financial sector transactions. Investing in, or alongside,
managers who have the expertise to identify and capitalise on
shifting sector trends gives PIP access to the most promising
segments within these sectors.
Company Sectors(1)
Consumer 23%
Information Technology 24%
Healthcare 13%
Industrials 11%
Financials 13%
Energy 9%
Telecom Services 3%
Materials 3%
Utilities 1%
(1) The above is based on underlying company valuations as at 31
December 2017 and account for over 95% of PIP's overall portfolio
value.
Distributions
PIP received more than 1,500(1) distributions in the year, with
many reflecting realisations at significant uplifts to carrying
value. PIP's mature portfolio should continue to generate
significant distributions.
(1) This figure looks through feeders and funds-of-funds.
Distribution by Region and Stage
PIP received GBP280m in proceeds from PIP's portfolio in the
year to 31 May 2018 equivalent to 26%(2) of opening private equity
assets. The USA accounted for the majority of PIP's distributions,
where market conditions supported a good level of exits,
particularly from buyouts.
(2) Including distributions attributable to the asset linked
note, the distribution rate for the year was 28%.
Distributions by region
USA 54%
Europe 30%
Asia and EM 11%
Global 5%
Distribution by stage
Small/mid buyout 33%
Large/mega buyout 30%
Growth 20%
Special situations 9%
Venture 8%
Quarterly Distribution Rates
Strong quarterly distribution rates reflect the maturity of
PIP's portfolio.
Distribution rate equals distributions in the period
(annualised) divided by opening portfolio value.
Distribution Rates by Vintage
With a weighted average fund maturity of 5.7 years(3) , PIP's
portfolio should continue to generate significant levels of
cash.
(3) Calculation for weighted average age excludes the portion of
the reference portfolio attributable to the Asset Linked Note.
Exit Realisations by Sector and Type
The portfolio benefited from strong realisation activity,
particularly in the consumer, information technology, and
healthcare sectors.
Trade sales represented the most significant source of exit
activity during the year.
The data in the sample provide coverage for 100% (for exit
realisations by sector) and 66% (for exit realisations by type) of
proceeds from exit realisations received during the period.
Exit realisation by sector
Consumer 28%
Information Technology 26%
Healthcare 17%
Industrials 13%
Financials 8%
Energy 4%
Others(1) 4%
(1) The Others category includes exit realisations from
Materials (3%) and Real Estate (1%) received during the period.
Exit realisation by type
Trade Sale 54%
Public Market Sale 19%
Secondary buyout 18%
Refinancing and
Recapitalisation 9%
Calls
Calls during the year were used to finance investments in
businesses such as cloud software developers, care centres,
pharmaceuticals and business support service companies.
Calls by Region and Stage
PIP paid GBP86m to finance calls on undrawn commitments during
this year.
The calls were predominantly made by managers in the buyout and
growth segments, reflecting the focus of PIP's recent primary
commitments.
Calls by region
USA 55%
Europe 29%
Asia & EM 4%
Global 12%
Calls by stage
Large/mega buyout 34%
Small/mid buyout 25%
Growth 24%
Special Situations 16%
Venture 1%
Calls by Sector
A large proportion of calls were for investments made in the
healthcare, industrials, consumer and energy sectors.
Calls by sector
Healthcare 17%
Industrials 16%
Consumer 15%
Energy 15%
Information Technology 15%
Financials 14%
Materials 4%
Telecommunications 2%
Real Estate 2%
Quarterly Call Rate(1)
The average annualised call rate for the year to 31 May 2018 was
21%.
(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
Despite the highly competitive market characterised by
record-high valuations, PIP has been able to secure attractive
deals and committed GBP256m across 50 new investments during the
year. Of the total commitment made, GBP139m was drawn at the time
of purchase.
New Commitments by Region
The majority of commitments made in the year were to US and
European private equity funds.
USA 55%
Europe 40%
Asia and EM 5%
New Commitments by Stage
The majority of new commitments made in the year were to buyout
funds, with particular emphasis on small and medium buyouts.
Small/mid buyout 52%
Large/mega buyout 26%
Special Situations 12%
Growth 10%
New Commitments by Investment Type
New commitment activity reflects attractive opportunities in
primaries and co-investments.
Secondary 42%
Primary 34%
Co-investment 24%
New Commitments by Vintage
Primaries and co-investments, which accounted for over half of
total commitments during the year offer exposure to current
vintages. Secondary investments made during the period were mostly
in 2010 and later funds, consistent with PIP's strategy of reducing
its exposure to older tail-end funds.
2018 31%
2017 41%
2016 3%
2015 5%
2014 0%
2013 4%
2012 0%
2011 6%
2010 7%
2009 and earlier 3%
Secondary Commitments(1)
Secondary investments allow the Company to access funds at a
stage when the assets are generating cash distributions.
The private equity secondary market has grown significantly over
the last ten years, both in scale and complexity. Despite strong
competition, PIP continues to see compelling opportunities derived
from Pantheon's global platform and its expertise in executing
complex secondary transactions over which it may have proprietary
access. Over the last 12 months, in addition to traditional
secondary transactions, PIP has participated in preferred capital
investments and deals that involved hybrid (fund + company)
portfolios with significant upside potential.
GBP107m committed to 13 secondary transactions during the
year.
(1.) Funds acquired in secondary transactions are not named due
to non-disclosure agreements.
Examples of Secondary Commitments made during the year
REGION STAGE DESCRIPTION COMMITMENTS % FUNDED(2)
GBPM
---------- ------------ ----------------------------- -------------- --------------
Mid-market buyout
fund principally focused
Europe Small/mid on France and Germany 14.8 97%
Secondary acquisition
of diversified portfolio
of five European toll
Special road and renewable
Europe sits energy assets 13.7 73%
Secondary acquisition
Special of portfolio of US
USA sits oil and gas assets 12.7 100%
Secondary acquisition
of a minority interest
USA Small/mid in a dermatology company 12.1 100%
Secondary acquisition
of global higher education
Europe Large/mega services provider 11.4 100%
North American mid-market
fund focused on the
business services
USA Small/mid sector 10.4 74%
Portfolio of five
North American large
buyout and growth
USA Multiple funds 9.0 67%
North American large
USA Large/mega buyout fund 6.8 71%
(2) Funding level does not include deferred payments.
Primary Commitments
Investing in primary funds allows PIP to gain exposure to
complementary niche investments as well as to smaller funds that
might not typically be traded on the secondary market. Our focus
remains on investing with high quality managers who have the proven
ability to drive value at the underlying company level, and
generate strong returns across market cycles. In addition, we
target funds with market leading specialisms in high growth sectors
such as healthcare and information technology.
GBP87m committed to 15 primaries during the year.
Examples of Primary Commitments made during the year
INVESTMENT STAGE DESCRIPTION COMMITMENTS
GBPM
---------------------------- ------------ -------------------------------- --------------
Large buyout fund targeting
the European software
HgCapital Saturn I Large/mega sector 10.0
European mid-market fund
focused on France and
Chequers Capital XVII Small/mid Germany 9.8
North American large
buyout fund focused on
the manufacturing, healthcare
Onex Partners V Large/mega and services sectors 9.6
Mid-market fund focused
Equistone Partners on the UK, France and
Europe Fund VI Small/mid Germany 9.6
North American fund targeting
growth-stage technology
Venture Fund(3) Growth companies 9.5
Charlesbank Equity North American mid-market
Partners IX Small/mid buyout fund 8.7
Water Street Healthcare North American healthcare
Partners IV Small/mid specialist fund 8.6
Providence Equity Partners North American large
VIII Large/mega buyout fund 5.2
(3) Confidential.
Co-investments in the year to 31 May 2018
PIP's co-investment programme continues to benefit from
Pantheon's considerable primary investment platform which has
enabled PIP to participate in proprietary midmarket deals that
would otherwise be difficult to access. PIP invests alongside
managers who have the sector expertise to source and acquire
attractively priced assets and build value through operational
enhancements, organic growth and buy-and-build strategies.
The healthcare, industrials and consumer sectors in the USA and
Europe in particular, offered compelling investment
opportunities.
GBP62m committed to 22 co-investments during the year.
Co-investment by Geography
USA 50%
Europe 38%
Asia & EM 12%
Co-investment by Sector
Healthcare 28%
Industrials 20%
Consumer 19%
Information Technology 17%
Financials 11%
Energy 5%
Undrawn Commitments
PIP's undrawn commitments(1) will enable the Company to
participate in future private equity investments as they arise.
(1) Capital committed to funds that to date remains undrawn.
Movement in Undrawn Commitments for the Year to 31 May
2018(2)
PIP's undrawn commitments to investments decreased slightly to
GBP440m as at 31 May 2017 from GBP445m as at 31 May 2017. The
Company paid calls of GBP86m and added GBP127m of undrawn
commitments associated with new investments made in the year.
Foreign exchange effects and fund terminations accounted for the
remainder of the movement.
(2) Includes undrawn commitments attributable to the reference
portfolio underlying the Asset Linked Note.
Undrawn Commitments by Region
The US and Europe have the largest undrawn commitments,
reflecting the Company's investment emphasis. Commitments to Asia
and other regions provide access to faster growing economies.
USA 56%
Europe 30%
Asia and EM 9%
Global 5%
Undrawn Commitments by Stage
PIP's undrawn commitments are diversified across the major
stages, with an emphasis on small and mid-market buyout
managers.
Small/mid buyout 40%
Large/mega buyout 32%
Special situations 12%
Growth 14%
Venture 2%
Undrawn Commitments by Vintage
Approximately a quarter of PIP's undrawn commitments are in
vintage 2011 or older funds, where drawdowns may naturally occur at
a slower pace. It is likely that a portion of these commitments
will not be drawn. The rise in more recent vintages reflects PIP's
recent primary commitment activity.
2018 15%
2017 18%
2016 22%
2015 14%
2014 4%
2013 2%
2012 2%
2009 - 2011 2%
2008 5%
2007 7%
2006 and earlier 9%
Finance and Share Buyback
Efficient balance sheet management supports PIP's investment
strategy
Cash and Available Bank Facility
At 31 May 2018, PIP had available cash(1) balances of GBP145.8m.
In addition to these cash balances, PIP can also finance
investments out of its multi-currency revolving credit facility
agreement ("Loan Facility"). The Loan Facility was due to expire in
November 2018 and comprised facilities of $138.8m and EUR66.6m
which, using exchange rates at 31 May 2018, amounted to a sterling
equivalent of GBP162.8m.
At 31 May 2018, the Loan Facility remained fully undrawn.
PIP renewed its credit facility shortly after its financial year
end. The new GBP175m four-year Loan Facility has been redenominated
using current exchange rates to $163.0m and EUR59.8m. The terms of
the new facility are materially the same as those of the existing
facility but will expire in June 2022 with an option after one year
to extend, by agreement, the maturity date by another year. The new
Loan Facility provides a margin of additional assurance that the
Company has the ability to finance its unfunded
commitments in the future.
(1) The available cash and loan figure excludes the current
portion payable under the Asset Linked Note, which amounted to
GBP16.5m as at 31 May 2018.
Asset Linked Note
As part of the share consolidation effected on 31 October 2017,
PIP issued an Asset Linked Note with an initial principal amount of
GBP200m to a single holder ("Investor"). Repayments under the ALN
are made quarterly in arrears and are linked to the ALN share
(approximately 75%) of the net cash flow from a reference portfolio
which is comprised of interests held by PIP in over 300 of its
oldest private equity funds, substantially 2006 and earlier
vintages. PIP retains the net cash flow relating to the remaining
c.25% of the reference portfolio. The ALN is unlisted and
subordinated to PIP's existing Loan Facility (and any refinancing),
and is not transferable, other than to an affiliate of the
Investor. The ALN is expected to mature on 31 August 2027, at which
point the Company will make a final repayment under the ALN. As at
31 May 2018, the ALN was valued at GBP131.6m. For more information
on the ALN refer to Note 1 (E) below.
Undrawn Commitment Cover
At 31 May 2018, the Company had GBP308.6m of available
financing, comprised of its cash balances and Loan Facility less
the current portion payable under the ALN. The sum of PIP's
available financing and private equity portfolio provide 3.6 times
cover relative to undrawn commitments. Generally, when a fund is
past its investment period, which is typically between five and six
years, it cannot make any new investments and only draws capital to
fund follow-on investments into existing portfolio companies, or to
pay expenses. As a result, the rate of capital calls by these funds
tends to slow dramatically. Approximately a quarter of the
Company's undrawn commitments are in fund vintages that are older
than six years.
Share Buybacks
In the year to 31 May 2018, PIP bought back 190,000 ordinary
shares at an average discount of 15% to the NAV per share as at 31
May 2017 NAV, resulting in a total uplift to NAV per share of 1.3p.
The discounts at which the Company's shares trade from time to time
may make buybacks an attractive investment opportunity relative to
other potential new investment commitments.
Other Information
The Largest 50 Managers by Value
% OF PIP'S TOTAL
PRIVATE EQUITY
RANK MANAGER REGION(2) STAGE ASSET VALUE(1)
------- ------------------------------- ------------ ------------------- -----------------
1 Providence Equity Partners USA Buyout 6.0%
2 Texas Pacific Group USA Buyout 3.2%
3 Ares Management USA Buyout 3.1%
4 Essex Woodlands USA Growth 2.8%
5 Energy Minerals Group USA Special Situations 2.5%
6 Warburg Pincus Global Growth 2.3%
Asia &
7 Baring Private Equity Asia EM Growth 2.2%
Asia &
8 EQT(3) EM Buyout 2.1%
9 Growth Fund(4) USA Growth 1.9%
10 Quantum Energy Partners USA Special Situations 1.9%
11 J.C. Flowers USA Buyout 1.7%
12 Apax Partners SA Europe Buyout 1.7%
13 IK Investment Partners Europe Buyout 1.5%
14 Yorktown Partners USA Special Situations 1.4%
15 Mid-Europa Partners Europe Buyout 1.3%
16 Shamrock Capital Advisors USA Buyout 1.2%
17 Venture Fund(4) Europe Venture 1.2%
Asia &
18 IVF Advisors EM Buyout 1.2%
19 Lee Equity Partners USA Buyout 1.1%
20 Veritas Capital USA Buyout 1.1%
21 Calera Capital USA Buyout 1.1%
22 Sheridan Production Partners USA Special Situations 1.1%
23 NMS Management USA Buyout 1.0%
24 Buyout Fund(4) USA Buyout 1.0%
25 Marguerite Europe Special Situations 1.0%
26 Altor Capital Europe Buyout 1.0%
27 Abris Capital Europe Buyout 1.0%
28 Chequers Partenaires Europe Buyout 1.0%
29 Gemni Capital Europe Venture 0.9%
30 The Banc Funds Company USA Growth 0.9%
31 Bridgepoint Partners Europe Buyout 0.9%
32 Hellman & Friedman USA Buyout 0.9%
33 KKR Europe Buyout 0.9%
34 Summit Partners USA Growth 0.8%
35 Apax Partners & Co Europe Buyout 0.8%
36 Equitstone Partners Europe Europe Buyout 0.8%
37 ABRY Partners USA Buyout 0.8%
38 Apollo Advisors USA Buyout 0.7%
39 Clessidra Capital Partners Europe Buyout 0.7%
40 Baring Vostok Europe Buyout 0.7%
Asia &
41 TPG Asia EM Buyout 0.7%
42 ABS Capital USA Growth 0.7%
MatlinPatterson Global
43 Advisers USA Special Situations 0.7%
44 Searchlight Capital Partners Global Special Situations 0.6%
45 The Vistria Group USA Buyout 0.6%
46 Bain Capital Global Buyout 0.6%
47 Francisso Partners Management USA Buyout 0.6%
48 Brentwood Associates USA Buyout 0.6%
49 Lovell Minnick Equity Advisors USA Buyout 0.6%
50 Advent International Global Buyout 0.5%
------- ------------------------------- ------------ ------------------- -----------------
COVERAGE OF PIP'S PRIVATE EQUITY ASSET VALUE(1) 65.6%
--------------------------------------------------------------------------- -----------------
(1) Percentages look through feeders and funds-of-funds and
excludes the portion of the reference portfolio attributable to the
Asset Linked Note.
(2) Refers to the regional exposure of funds.
(3) The majority of PIP's investments in EQT is held in EQT
Greater China II and a co-investment in Sivantos, a company
headquartered in Singapore.
(4) Confidential.
The Largest 50 Companies by Value(1)
% of PIP'S
COMPANY COUNTRY SECTOR NAV
--- ------------------------------ --------------- ----------------------- ---------------
1 EUSA Pharma(2) United Kingdom Healthcare 1.8%
2 Abacus Data Systems(2) USA Information Technology 1.3%
3 LBX Pharmacy(3) China Consumer 1.1%
4 StandardAero(2) USA Industrials 0.9%
5 NIBC Bank(2) Netherlands Financials 0.8%
6 Spotify(3) United Kingdom Information Technology 0.8%
7 Kyobo Life Insurance(2) South Korea Financials 0.8%
8 Confidential(2) USA Information Technology 0.8%
Atria Convergence Telecommunications
9 Technologies(2) India Services 0.8%
10 Sivantos(2) Singapore Healthcare 0.8%
11 Confidential Luxembourg Consumer 0.7%
12 Permian Resources(2) USA Energy 0.7%
Project Phoenix Telecommunications
13 Confidential (2) France Services 0.7%
Instituto Centrale
14 delle Banche Popolari(2) Italy Financials 0.7%
15 Confidential(2) USA Consumer 0.6%
16 ALM Media USA Consumer 0.6%
17 Vistra Orangefield(3) Netherlands Industrials 0.6%
18 American Tire Distributors(2) USA Consumer 0.6%
19 Confidental(2) USA Information Technology 0.6%
GE Capital Services
20 India(2) India Financials 0.6%
Telecommunications
21 Vertical Bridge(2) USA Services 0.6%
22 Apollo Education(2) USA Consumer 0.6%
23 ZeniMax Media USA Information Technology 0.5%
24 Salad Signature(2) Belgium Consumer 0.5%
National Veterinary
25 Associates USA Consumer 0.5%
26 Arnott(2) USA Consumer 0.5%
27 Profi Rom(2) Romania Consumer 0.4%
28 Blackboard USA Information Technology 0.4%
29 OWP Butendiek Germany Utilities 0.4%
30 Shawbook(2) United Kingdom Financials 0.4%
Alliant Insurance
31 Services(2) USA Financials 0.4%
32 Confidential(2) USA Information Technology 0.4%
33 FlagStar Bancorp(3) USA Financials 0.4%
34 Ciprès(2) France Financials 0.4%
35 Centric Group(2) USA Consumer 0.4%
36 Affinity Education(2) Australia Consumer 0.4%
37 Engencap(2) Mexico Financials 0.4%
Extraction Oil
38 & Gas(2,3) USA Energy 0.4%
39 Coliseè(2) France Healthcare 0.4%
40 Global Tranz(2) USA Industrials 0.4%
41 Capital Vision USA Healthcare 0.4%
42 Verimatrix USA Information Technology 0.4%
43 Adyen Netherlands Information Technology 0.3%
44 Ministry Brands(2) USA Information Technology 0.3%
45 Groupe INSEEC(2) France Consumer 0.3%
46 GTS Brazil Information Technology 0.3%
47 RightPoint Consulting(2) USA Industrials 0.3%
48 Nord Anglia Education(2) Hong Kong Consumer 0.3%
49 Mobilite(2) USA Industrials 0.3%
50 Home Shopping Europe Germany Consumer 0.3%
--- ------------------------------ --------------- ----------------------- ---------------
COVERAGE OF PIP'S PRIVATE EQUITY ASSET VALUE 28.3%
----------------------------------------------------------------------------- ---------------
(1) The largest 50 companies table is based upon underlying
company valuations at 31 December 2017 adjusted for known call and
distributions to 31 May 2018, and includes the portion of the
reference portfolio attributable to the Asset Linked Note.
(2) Co-investments/directs.
(3) Listed companies.
THE DIRECTORS
The Directors in office at the date of this report are:
Sir Laurie Magnus* (Chairman)
Susannah Nicklin* (Senior Independent Director)
Ian Barby* (Audit Committee Chairman)
Rhoddy Swire
David Melvin*
John Burgess*
John Singer*
* Independent of the Manager
EXTRACTS FROM THE DIRECTORS' REPORT
Share Capital
As at 31 May 2018 and as at the date of this Report, the Company
had shares in issue as shown in the table below, all of which were
admitted to the official list maintained by the FCA and admitted to
trading on the London Stock Exchange. No shares were held in
treasury at the year end.
During the year, the Company purchased 190,000 ordinary shares
for cancellation (with a nominal value of GBP127,300) at a total
cost of GBP3,546,000. This represented 0.4% of the issued share
capital at 31 May 2018. Since 31 May 2018, the Company has not
purchased any further shares.
Number Voting rights Number of
Share Capital and Voting Rights of Shares attached shares held
at 31 May 2018 in issue to each share in treasury
Ordinary shares at GBP0.67 each 54,114,447 1 -
Total voting rights 54,114,447 - -
Going Concern
The Company's business activities, together with the factors
likely to affect its future development, performance and position,
including its financial position, are set out in the Strategic
Report and Manager's Review.
At each Board meeting, the Directors review the Company's latest
management accounts and other financial information. Its
commitments to private equity investments are reviewed, together
with its financial resources, including cash held and the Company's
borrowing capability. One-year cash flow scenarios are also
presented to each meeting and discussed.
After due consideration of the Balance Sheet and activities of
the Company and the Company's 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 this
reason, they consider it appropriate to continue to adopt the going
concern basis in preparing the financial statements.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the annual report
and the financial statements in accordance with applicable laws and
regulations. 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 United Kingdom Accounting Standards (United
Kingdom 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 Investment 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 United Kingdom 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:
-- 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 Strategic Report contained in the annual report and
financial statements 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 out 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 2018, 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
Sir Laurie Magnus
Chairman
7 August 2018
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the
Company's statutory accounts for the year ended 31 May 2018 and
period ended 31 May 2017 but is derived from those accounts.
Statutory accounts for 2017 have been delivered to the Registrar of
Companies, and those for 2018 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.
Income Statement
Year ended 31 May 2018
Year ended 31 May 2018 11 months ended 31 May 2017
----------------------- ----- ---------------------------------- --------------------------------------------------
Revenue Capital Total* Revenue Capital Total*
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- ----- ---------- --------- ----------- --------------- --------------- ----------------
Gains on investments
at fair value
through profit or
loss** 9b - 149,778 149,778 - 201,198 201,198
Losses on financial
liabilities
at fair value through
profit or
loss - ALN 13 (1,083) (10,083) (11,166) - - -
Currency
(losses)/gains on
cash
and borrowings 17 - (1,929) (1,929) - 2,389 2,389
Investment income 2 15,504 - 15,504 17,436 - 17,436
Investment management
fees 3 (15,020) - (15,020) (12,659) - (12,659)
Other expenses 4 (296) (2,974) (3,270) (1,433) (350) (1,783)
----------------------- ----- ---------- --------- ----------- --------------- --------------- ----------------
Return before
financing costs and
taxation (895) 134,792 133,897 3,344 203,237 206,581
Interest payable and
similar expenses 6 (1,950) - (1,950) (1,791) - (1,791)
----------------------- ----- ---------- --------- ----------- --------------- --------------- ----------------
Return before
taxation (2,845) 134,792 131,947 1,553 203,237 204,790
Taxation 7 (9,170) - (9,170) (4,345) - (4,345)
----------------------- ----- ---------- --------- ----------- --------------- --------------- ----------------
Return for the
year/period, being
total comprehensive
income for the
year/period (12,015) 134,792 122,777 (2,792) 203,237 200,445
----------------------- ----- ---------- --------- ----------- --------------- --------------- ----------------
Return per ordinary
share
(31 May 2017:
ordinary and
redeemable
share) 8 (20.72)p 232.48p 211.76p (4.41)p 320.77p 316.36p
----------------------- ----- ---------- --------- ----------- --------------- --------------- ----------------
* The Company does not have any income or expense that is not
included in the return for the year and therefore the return for
the year is also the total comprehensive income for the year. The
supplementary revenue and capital columns are prepared under
guidance published in the Statement of Recommended Practice
("SORP") issued by the Association of Investment Companies
("AIC").
** Includes currency movements on investments.
All revenue and capital items in the above statement relate to
continuing operations.
The total column of the statement represents the Company's
Statement of Total Comprehensive Income prepared in accordance with
Financial Reporting Standards ("FRS").
No operations were acquired or discontinued during the
period.
There were no recognised gains or losses other than those
passing through the Income Statement.
The Notes form part of these financial statements.
Statement of Changes in Equity
Year ended 31 May 2018
Capital
Capital Other reserve on
Share Share redemption capital investments Revenue
capital premium reserve reserve held reserve* Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Movement for the
year ended
31 May 2018
Opening equity
shareholder'
funds 22,456 283,555 3,089 645,011 496,100 (62,678) 1,387,533
Return for the
year - - - 130,813 3,979 (12,015) 122,777
Ordinary shares
bought back for
cancellation 14 (128) - 128 (3,546) - - (3,546)
Redemption of
redeemable
shares to ALN 14 (91) - 91 (200,000) - - (200,000)
Bonus issue of
deferred shares
to redeemable
shareholders 14 14,020 (14,020) - - - - -
Conversion of
deferred and
redeemable
shares to
ordinary shares 14 (14,232) - - - - - (14,232)
Ordinary shares
issued following
conversion of
deferred and
redeemable
shares as part
of the
share class
consolidation 14 14,232 - - - - - 14,232
------------------ ------- ---------- ---------- ------------- ---------- ------------- ----------- ----------
Closing equity
shareholders'
funds 36,257 269,535 3,308 572,278 500,079 (74,693) 1,306,764
Movement for the
period ended
31 May 2017
Opening equity
shareholders'
funds 22,456 283,555 3,089 515,720 422,180 (59,886) 1,187,114
Return for the
period - - - 129,317 73,920 (2,792) 200,445
Redeemable Shares
bought back for
cancellation 14 - - - (26) - - (26)
------------------ ------- ---------- ---------- ------------- ---------- ------------- ----------- ----------
Closing equity
shareholders'
funds 22,456 283,555 3,089 645,011 496,100 (62,678) 1,387,533
------------------ ------- ---------- ---------- ------------- ---------- ------------- ----------- ----------
* Reserves that are distributable by way of dividends. In
addition, the Other Capital Reserve can be used for share
buybacks.
The Notes form part of these financial statements.
Balance Sheet
As at 31 May 2018
31 May 2018 30 May 2017
Note GBP'000 GBP'000
---------------------------------------------------------------------------- ------- ----------- -----------
Fixed assets
Investments at fair value 9a/b 1,274,737 1,224,142
---------------------------------------------------------------------------- ------- ----------- -----------
Current assets
Debtors 11 3,891 1,661
Cash at bank 162,292 167,252
---------------------------------------------------------------------------- ------- ----------- -----------
166,183 168,913
---------------------------------------------------------------------------- ------- ----------- -----------
Creditors: Amounts falling due within one year
Other creditors 12 19,046 5,522
---------------------------------------------------------------------------- ------- ----------- -----------
19,046 5,522
Net current assets 147,137 163,391
---------------------------------------------------------------------------- ------- ----------- -----------
Total assets less current liabilities 1,421,874 1,387,533
---------------------------------------------------------------------------- ------- ----------- -----------
Creditors: Amounts falling due after one year
Asset Linked Loan 13 115,110 -
---------------------------------------------------------------------------- ------- ----------- -----------
115,110
---------------------------------------------------------------------------- ------- ----------- -----------
Net assets 1,306,764 1,387,533
Capital and reserves
Called-up share capital 14 36,257 22,456
Share premium 15 269,535 283,555
Capital redemption reserve 15 3,308 3,089
Other capital reserve 15 572,278 645,011
Capital reserve on investments held 15 500,079 496,100
Revenue reserve 15 (74,693) (62,678)
---------------------------------------------------------------------------- ------- ----------- -----------
Total equity shareholders' funds 1,306,764 1,387,533
---------------------------------------------------------------------------- ------- ----------- -----------
Net asset value per share - ordinary (31 May 2017: ordinary and redeemable) 16 2,414.82p 2,189.94p
---------------------------------------------------------------------------- ------- ----------- -----------
The Notes form part of these financial statements.
The financial statements were approved by the Board of Pantheon
International Plc on 7 August 2018 and were signed on its behalf
by
SIR LAURIE MAGNUS
Chairman
Company No. 2147984
Cash Flow Statement
Year ended 31 May 2018
11 months
Year ended ended
Note 31 May 2018 31 May 2017
GBP'000 GBP'000
Cash flow from operating activities
Investment income received 13,619 17,105
Deposit and other interest received 830 343
Investment management fees paid (14,969) (12,506)
Secretarial fees paid (223) (200)
Depositary fees paid (229) (210)
Other cash payments (5,857) (1,457)
Withholding tax deducted (10,483) (4,257)
Net cash outflow from operating activities 17 (17,312) (1,182)
----------------------------------------------------- ---- ----------- -----------
Cash flows from investing activities
Purchases of investments (254,426) (251,181)
Disposals of investments 351,335 303,131
----------------------------------------------------- ---- ----------- -----------
Net cash inflow from investing activities 96,909 51,950
----------------------------------------------------- ---- ----------- -----------
Cash flows from financing activities
ALN repayments (77,152) -
Ordinary shares purchased for cancellation (3,546) -
Redeemable Shares purchased for cancellation - (26)
Loan commitment and arrangement fees paid (1,577) (1,378)
Finance cost paid for deferred payment transaction - (182)
Net cash outflow from financing activities (82,275) (1,586)
(Decrease)/increase in cash in the year/period (2,678) 49,182
Cash and cash equivalents at beginning of the period 167,252 115,522
Foreign exchange (losses)/gains (2,282) 2,548
----------------------------------------------------- ---- ----------- -----------
Cash and cash equivalents at end of the period 162,292 167,252
----------------------------------------------------- ---- ----------- -----------
The Notes form part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
1. Accounting Policies
(A) Basis of Preparation
The Company's financial statements have been prepared in
compliance with FRS 102 as it applies to the financial statements
of the Company for the year ended 31 May 2018. They have also been
prepared on the assumption that approval as an investment trust
will continue to be granted. The Company's financial statements are
presented in sterling and all values are rounded to the nearest
thousand pounds (GBP'000) except when indicated otherwise.
The financial statements have been prepared on a going concern
basis and under the historical cost basis of accounting, modified
to include the revaluation of certain assets at fair value.
On 18 April 2017, the Board approved, with immediate effect, a
change in the Company's accounting reference date from 30 June to
31 May of each year. As a result, the financial statements for the
period ended 31 May 2017 reflect an 11 month accounting period. The
change in accounting reference date and quicker publication of
results enables the Company to provide more up-to-date information
on its underlying portfolio.
(B) AIC SORP
The financial statements have been prepared in accordance with
the SORP (as amended in November 2014 and updated in January 2017
and February 2018 with consequential amendments) for the financial
statements of investment trust companies and venture capital trusts
issued by the AIC.
(C) Segmental Reporting
The Directors are of the opinion that the Company is engaged in
a single segment of business, being an investment business.
(D) Valuation of Investments
Given the nature of the Company's assets which comprise
predominantly unlisted fund investments, while the Company operates
a robust and consistent valuation process, there is significant
estimation uncertainty in the underlying fund valuations estimated
at a point in time. Accordingly, while the Company considers
circumstances where it might be appropriate to apply an override,
for instance in response to a market crash, this will be exercised
only where it is judged necessary to show a true and fair view.
Similarly, while relevant information received after the
measurement date is considered, the Directors will only consider an
adjustment to the financial statements if it were to have a
significant impact. In the view of the Directors, a significant
impact would be a movement of greater than 5% of the overall
estimate of the value of the investment portfolio made at the
measurement date.
The Company has fully adopted sections 11 and 12 of FRS 102. All
investments held by the Company are classified as "fair value
through profit or loss". As the Company's business is investing in
financial assets with a view to profiting from their total return
in the form of interest, dividends or increases in fair value,
investments are recognised at fair value on initial recognition.
The Company manages and evaluates the performance of these
investments on a fair value basis in accordance with its investment
strategy. For investments actively traded in organised financial
markets, fair value is generally determined by reference to Stock
Exchange quoted market bid prices at the close of business at the
Balance Sheet date. For investments that are not actively traded in
organised financial markets, fair value is determined using
reliable valuation techniques as described below:
(i) Unquoted fixed asset investments are stated at the estimated
fair value.
In the case of investments in private equity funds, this is
based on the net asset value of those funds ascertained from
periodic valuations provided by the managers of the funds and
recorded up to the measurement date. Such valuations are
necessarily dependent upon the reasonableness of the valuations by
the fund managers of the underlying investments. In the absence of
contrary information the values are assumed to be reliable. These
valuations are reviewed periodically for reasonableness and
recorded up to the measurement date. If a class of assets were sold
post period end, management would consider the effect, if any, on
the investment portfolio.
The Company may acquire secondary interests at either a premium
or a discount to the fund manager's valuation. Within the Company's
portfolio, those fund holdings purchased at a premium are normally
revalued to their stated net asset values at the next reporting
date. Those fund holdings purchased at a discount are normally held
at cost until the receipt of a valuation from the fund manager in
respect of a date after acquisition, when they are revalued to
their stated net asset values, unless an adjustment against a
specific investment is considered appropriate.
In the case of direct investments in unquoted companies, the
initial valuation is based on the transaction price. Where better
indications of fair value become available, such as through
subsequent issues of capital or dealings between third parties, the
valuation is adjusted to reflect the new evidence. This information
may include the valuations provided by private equity managers who
are also invested in the company. Valuations are reduced where the
company's performance is not considered satisfactory.
(ii) Quoted investments are valued at the bid price on the
relevant stock exchange.
Private equity funds may contain a proportion of quoted shares
from time to time, for example, where the underlying company
investments have been taken public but the holdings have not yet
been sold. The quoted market holdings at the date of the latest
fund accounts are reviewed and compared with the value of those
holdings at the period end. If there has been a material movement
in the value of these holdings, the valuation is adjusted to
reflect this.
(iii) Deferred payments transactions
The Company may engage in deferred payments transactions. Where
the Company engages in deferred payment transactions the Company
initially measures the financial liability at the present value of
the future payments discounted at a market rate of interest for a
similar debt instrument. The difference between the present value
and the undiscounted value is amortised over the life of the
transaction and shown as a finance cost in the revenue column in
the Income Statement
(E) Asset Linked Note
As part of the share consolidation effected on 31 October 2017
the Company issued an Asset Linked Note ("ALN") with an initial
principal amount of GBP200m to the Investor. Payments under the ALN
are made quarterly in arrears and are linked to the ALN share
(c.75%) of the net cash flows from a reference portfolio which is
comprised of interests held by the Company in over 300 of its
oldest private equity funds, substantially 2006 and earlier
vintages. The Company retains the net cash flows relating to the
remaining c.25% of the reference portfolio.
The ALN is held at fair value through profit and loss and
therefore movements in fair value are reflected in the Income
Statement. Fair value is calculated as the sum of the ALN share of
fair value of the reference portfolio plus the ALN share of
undistributed net cash flow. The fair value movement is allocated
between revenue and capital pro rata to the fair value gains and
income generated movements in the reference portfolio.
A pro rata share of the Company's total ongoing charges is
allocated to the ALN, reducing each quarterly payment ("the Expense
Charge") and deducted from Other Expenses through the revenue
account in the Income Statement.
The ALN's share of net cash flow is calculated after withholding
taxation suffered. These amounts are deducted from Taxation through
the relevant account in the Income Statement.
See Note 13 for further information.
(F) Income
Dividends receivable on quoted equity shares are brought into
account on the ex-dividend date.
Dividends receivable on equity shares where no ex-dividend date
is quoted are brought into account when the Company's right to
receive payment is established. The fixed return on a debt security
is recognised on a time apportionment basis so as to reflect the
effective interest rate on the security.
Other interest receivable is included on an accruals basis.
(G) Taxation
Corporation tax payable is based on the taxable profit for the
period. The charge for taxation takes into account taxation
deferred or accelerated because of timing differences between the
treatment of certain items for accounting and taxation purposes.
Full provision for deferred taxation is made under the liability
method, without discounting, on all timing differences that have
arisen but not reversed by the Balance Sheet date.
The tax effect of different items of income/gain and
expenditure/loss is allocated between capital and revenue on the
same basis as the particular to which it relates, using the
marginal method.
Dividends receivable are recognised at an amount that may
include withholding tax (but excludes other taxes, such as
attributable tax credits). Any withholding tax suffered is shown as
part of the revenue account tax charge.
(H) Expenses
All expenses are accounted for on an accruals basis. Expenses,
including investment management fees, are charged through the
revenue account except as follows:
-- Expenses which are incidental to the acquisition or disposal
of an investment are treated as capital costs and separately
identified and disclosed in Note 9;
-- Expenses of a capital nature are accounted for through the capital account; and
-- Investment performance fees.
(I) Foreign Currency
The currency of the Primary Economic Environment in which the
Company operates ("the functional currency") is pounds sterling
("sterling"), which is also the presentation currency. Transactions
denominated in foreign currencies are recorded in the local
currency at actual exchange rates as at the date of transaction.
Monetary assets and liabilities denominated in foreign currencies
at the period end are reported at the rates of exchange prevailing
at the period end. Any gain or loss arising from a change in
exchange rates subsequent to the date of the transaction is
included as an exchange gain or loss in the revenue or capital
column of the Income Statement depending on whether the gain or
loss is of a capital or revenue nature. For non-monetary assets
these are covered by fair value adjustments. For details of
transactions included in the capital column of the Income Statement
please see (J) and (K) below.
(J) Other Capital Reserve
The following are accounted for in this reserve:
-- Investment performance fees;
-- Gains and losses on the realisation of investments;
-- Realised exchange differences of a capital nature; and
-- Expenses of a capital nature.
Capital distributions from investments are accounted for on a
reducing cost basis; cash received is first applied to reducing the
historical cost of an investment; any gain will be recognised as
realised only when the cost has been reduced to nil.
(K) Capital Reserve on Investments Held
The following are accounted for in this reserve:
-- Increases and decreases in the value of investments held at the year end and the ALN.
(L) Investment Performance Fee
The Manager is entitled to a performance fee from the Company in
respect of each 12 calendar month period ending on 31 May in each
year and, prior to 31 May 2017, the period of 12 calendar months
ending 30 June in each year. The performance fee payable in respect
of each such calculation period is 5% of the amount by which the
net asset value at the end of such period exceeds 110% of the
applicable "high-water mark", i.e. the net asset value at the end
of the previous calculation period in respect of which a
performance fee was payable, compounded annually at 10% for each
subsequent completed calculation period up to the start of the
calculation period for which the fee is being calculated. For the
calculation period ended 31 May 2018, the notional performance fee
hurdle is a net asset value per share of 3,139.8p. The performance
fee is calculated using the adjusted net asset value.
The performance fee is calculated so as to ignore the effect on
performance of any performance fee payable in respect of the period
for which the fee is being calculated or of any increase or
decrease in the net assets of the Company resulting from any issue,
redemption or purchase of any shares or other securities, the sale
of any treasury shares or the issue or cancellation of any
subscription or conversion rights for any shares or other
securities and any other reduction in the Company's share capital
or any distribution to shareholders.
(M) Significant judgements and estimates
The preparation of financial statements requires the Manager to
make judgements, estimates and assumptions that affect the reported
amounts of assets and liabilities at the financial reporting date
and the reported amounts of revenue and expenses during the
reporting period. Actual results may differ from these estimates.
Details of any estimates are provided in section (D) of this Note,
in the Valuation of Investments policy and also within the Market
Price Risk section in Note 19.
2. Income
31 May 2018 31 May 2017
GBP'000 GBP'000
------------------------------- ------------ ------------
Income from investments
Investment income 14,618 17,086
------------------------------- ------------ ------------
14,618 17,086
------------------------------- ------------ ------------
Other income
Interest 884 359
Exchange difference on income 2 (9)
------------------------------- ------------ ------------
886 350
------------------------------- ------------ ------------
Total income 15,504 17,436
------------------------------- ------------ ------------
Total income comprises
Dividends 14,618 17,086
Bank interest 884 359
Exchange difference on income 2 (9)
------------------------------- ------------ ------------
15,504 17,436
------------------------------- ------------ ------------
Analysis of income from
investments
Unlisted 14,618 17,086
------------------------------- ------------ ------------
14,618 17,086
------------------------------- ------------ ------------
Geographical analysis
UK 803 839
US 9,568 12,903
Other overseas 4,247 3,344
------------------------------- ------------ ------------
14,618 17,086
------------------------------- ------------ ------------
3. Investment Management Fees
31 May 2018 31 May 2017
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment management
fees 15,020 - 15,020 12,659 - 12,659
----------------------- --------- --------- --------- --------- --------- ---------
15,020 - 15,020 12,659 - 12,659
----------------------- --------- --------- --------- --------- --------- ---------
The investment management fee is payable monthly in arrears at
the rate set out in the Directors' Report within the full Annual
Report.
During the year, services with a total value of GBP15,510,000
(period to 31 May 2017: GBP13,172,000), being GBP15,020,000 (period
to 31 May 2017: GBP12,659,000) directly from Pantheon Ventures (UK)
LLP and GBP490,000 (period to 31 May 2017: GBP513,000) via Pantheon
managed fund investments were purchased by the Company.
The value of investments, in and outstanding commitments to,
investment funds managed or advised by the Pantheon Group
("Pantheon Funds") are excluded in calculating the monthly
management fee and the commitment fee. The value of holdings in
investments managed by the Pantheon Group totalled GBP24,014,000 as
at 31 May 2018 (period to 31 May 2017: GBP32,510,000). In addition,
the Manager has agreed that the total fees (including performance
fees) payable by Pantheon Funds to members of the Pantheon Group
and attributable to the Company's investments in Pantheon Funds
shall be less than the total fees (excluding the performance fee)
that the Company would have been charged under the Management
Agreement had it invested directly in all of the underlying
investments of the relevant Pantheon Funds instead of through the
relevant Pantheon Funds.
At 31 May 2018, GBP1,284,000 (31 May 2017: GBP1,233,000) was
owed for investment management fees. No performance fee is payable
in respect of the year to 31 May 2018 (period to 31 May 2017: nil).
The basis upon which the performance fee is calculated is explained
in Note 1(L) and in the Directors' Report within the Company's full
Annual Report.
4. Other Expenses
31 May 2018 31 May 2017
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------------------------------ --------- -------- --------- -------- -------- --------
Secretarial and accountancy services 235 - 235 210 - 210
Depositary fees 221 - 221 218 - 218
Fees payable to the Company's Auditor
for the audit of the annual financial
statements 64 - 64 43 - 43
Fees payable to the Company's Auditor
for
* audit-related assurance services - Half-Yearly report 8 - 8 8 - 8
* other non-audit services not covered above - net
asset value calculations 25 - 25 24 - 24
Directors' remuneration (see Note
5) 264 - 264 229 - 229
Employer's National Insurance 26 - 26 23 - 23
Irrecoverable VAT 142 - 142 60 - 60
Legal and professional fees 144 972 1,116 300 783 1,083
Printing 52 - 52 48 - 48
Other* 319 - 319 270 (433) (163)
ALN issue costs - 2,002 2,002 - - -
ALN Expense Charge ( see Note 1
(E) ) (1,204) - (1,204) - - -
------------------------------------------------------------------ --------- -------- --------- -------- -------- --------
296 2,974 3,270 1,433 350 1,783
------------------------------------------------------------------ --------- -------- --------- -------- -------- --------
The Directors do not consider that the provision of non-audit
work to the Company affects the independence of the Auditor.
* See Note 9b for detailed information.
5. Directors' Remuneration
Directors' emoluments comprise Directors' fees. A breakdown is
provided in the Directors' Remuneration Report in the full Annual
Report.
6. Interest Payable and Similar Expenses
31 May 2018 31 May 2017
GBP'000 GBP'000
--------------------------------- ------------ ------------
Amortised costs associated with
finance transaction - 147
Negative bank interest 18 7
Loan commitment and arrangement
fees 1,932 1,637
--------------------------------- ------------ ------------
1,950 1,791
--------------------------------- ------------ ------------
On 14 November 2014, the Company renewed its 4 year
multi-currency revolving credit facility agreement with improved
terms and a revised maturity date of November 2018. At this date,
the size of the facilty with The Royal Bank of Scotland plc and
Lloyds Bank plc was GBP100m equivalent which, using exchange rates
as at 14 November 2014, was redominated to $100m and EUR46m. On 21
October 2016, the Company, exercised its right via the accordian
facility to increase the option size by GBP50m equivalent which,
using exchange rates as at 21 October 2016, was redominated to $39m
and EUR21m .The total size of the facility is therefore GBP150m
equivalent redominated to $39m and EUR21m. Each individual drawdown
bears interest at a variable rate agreed for the period of the
drawdown and a commitment fee of 0.94% per annum is payable in
respect of the amounts available for drawdown in each denomination.
The Company paid to The Royal Bank of Scotland plc an upfront fee
of GBP900,000 in respect of the GBP100m facility and GBP318,000 in
respect of the GBP50m facility both representing 0.90% of the total
facility. These fees are being amortised over the life of the loan.
At 31 May 2018 and 31 May 2017 the loan facility remained fully
undrawn.
On 1 June 2018 the Company has agreed a new GBP175m
multi-currency revolving credit facility agreement, arranged by
Lloyds Bank plc and NatWest Markets plc. This will replace the
GBP150m loan facility agreement which was due to expire in November
2018. See Note 21 for further information.
7. Taxation
31 May 2018 31 May 2017
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- --------- --------- --------- --------- --------- ---------
Withholding tax
deducted from distributions 9,170 - 9,170 4,345 - 4,345
------------------------------- --------- --------- --------- --------- --------- ---------
Tax Charge
The tax charge for the period differs from the standard rate of
corporation tax in the UK (19%). The differences are explained
below:
Net return before
tax (2,845) 134,792 131,947 1,553 203,237 204,790
------------------------------ -------- --------- --------- -------- --------- ---------
Theoretical tax
at UK corporation
tax rate of 19%
(31 May 2017: 20%) (540) 25,610 (25,070) 311 40,647 40,958
Non-taxable investment,
derivative and currency
gains - (26,175) (26,175) - (40,717) (40,717)
Effect of expenses
in excess of taxable
income - 185 185 - 70 70
Expenses disallowed
for tax purposes - 380 380 - - -
Carry forward/(utilised)
management expenses 540 - 540 (311) - (311)
Withholding tax
deducted from distributions (9,170) - (9,170) (4,345) - (4,345)
------------------------------ -------- --------- --------- -------- --------- ---------
(9,170) - (9,170) (4,345) - (4,345)
------------------------------ -------- --------- --------- -------- --------- ---------
Factors That May Affect Future Tax Charges
The Company is an investment trust and therefore is not subject
to tax on capital gains. Deferred tax is not provided on capital
gains and losses arising on the revaluation or disposal of
investments because the Company meets (and intends to meet for the
foreseeable future) the conditions for approval as an investment
trust company.
No deferred tax asset has been recognised in respect of excess
management expenses and expenses in excess of taxable income as
they will only be recoverable to the extent that there is
sufficient future taxable revenue. As at 31 May 2018, excess
management expenses are estimated to be in excess of GBP165m (31
May 2017: GBP135m).
At 31 May 2018, the Company had no unprovided deferred tax
liabilities (31 May 2017: GBPnil).
8. Return per share
31 May 2018 31 May 2017
Revenue Capital Total Revenue Capital Total
-------------------------- --------- -------- ----------- -------- -------- -----------
Return for the
financial period
in GBP'000 (12,015) 134,792 122,777 (2,792) 203,237 200,445
Weighted average
ordinary and redeemable
shares 57,980,242 63,359,547
Return per share (20.72)p 232.48p 211.76p (4.41)p 320.77p 316.36p
-------------------------- --------- -------- ----------- -------- -------- -----------
As described in note 14, during the year, the Company
consolidated its ordinary and redeemable share capital into a
single class of ordinary shares. On 31 October 2017, each remaining
redeemable share was re-designated as an Ordinary share, therefore
no separate return per share analysis has been presented for
redeemable class for the year ended 31 May 2018.
There are no dilutive effects to earnings per share.
9a. Movements on Investments
31 May 2018 31 May 2017
GBP'000 GBP'000
----------------------------------------- ------------ ------------
Book cost brought forward 729,164 650,818
Acquisitions at cost 251,327 246,929
Capital distributions - proceeds (350,693) (295,637)
Capital distributions - realised
gains on sales 134,777 127,054
----------------------------------------- ------------ ------------
Book cost at year/period end 764,575 729,164
----------------------------------------- ------------ ------------
Unrealised appreciation of investments
Unlisted investments 509,592 493,614
Listed investments 570 1,364
----------------------------------------- ------------ ------------
Valuation of investments at year/period
end 1,274,737 1,224,142
----------------------------------------- ------------ ------------
9b. Analysis of Investments
31 May 2018 31 May 2017
GBP'000 GBP'000
------------------------------------- ------------ ------------
Sterling
Unlisted investments 26,694 37,371
26,694 37,371
------------------------------------- ------------ ------------
USA dollar
Unlisted investments 980,063 944,681
Listed investments 568 1,431
980,631 946,112
------------------------------------- ------------ ------------
Euro
Unlisted investments 238,925 215,227
238,925 215,227
------------------------------------- ------------ ------------
Other
Unlisted investments 28,485 25,432
Listed investments 2
------------------------------------- ------------ ------------
28,457 25,432
------------------------------------- ------------ ------------
1,274,737 1,224,142
------------------------------------- ------------ ------------
Realised gains on sales 134,777 127,054
Amounts previously recognised
as unrealised appreciation on
those sales 1,364 391
Increase in unrealised appreciation 13,820 73,529
Revaluation of amounts owed
in respect of transactions (183) 224
------------------------------------- ------------ ------------
Gains on investments 149,778 201,198
------------------------------------- ------------ ------------
Further analysis of the investment portfolio is provided in the
Manager's Review above.
Transaction costs, (incurred at the point of the transaction)
incidental to the acquisition of investments totalled GBPnil (31
May 2017: GBPnil) and to the disposals of investments totalled
GBP11,000 (31 May 2017: GBP22,000) for the period. In addition,
legal fees incidental to the acquisition of investments totalled
GBP972,000 (31 May 2017: GBP783,000) and to the share consolidation
totalled GBP2,002,000 (31 May 2017: GBPnil) as disclosed in Note 4,
have been taken to the capital column in the Income Statement since
they are capital in nature. For the period ended 31 May 2017, there
is also a credit of GBP433,000 included in the capital column of
the Income Statement received from a break fee.
9c. Material Investment
At the period end, the Company held the following material
holdings in the following investments:
Closing net
assets value
Investment %Ownership GBPM
------------------------------ ----------- --------------
Ares Corporate Opportunities
Fund IV 0.9% 29.6
10. Fair Value Hierarchy
Financial Assets at Fair Value Through Profit or Loss at 31 May
2018
Level
Level 1 Level 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------- --------- --------- ---------- ----------
Unlisted holdings - - 1,274,167 1,274,167
Listed holdings 570 - - 570
------------------- --------- --------- ---------- ----------
570 - 1,274,167 1,274,737
------------------- --------- --------- ---------- ----------
Financial Assets at Fair Value Through Profit or Loss at 31 May
2017
Level
Level 1 Level 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------- --------- --------- ---------- ----------
Unlisted holdings - - 1,222,711 1,222,711
Listed holdings 1,431 - - 1,431
------------------- --------- --------- ---------- ----------
1,431 - 1,222,711 1,224,142
------------------- --------- --------- ---------- ----------
Financial Liabilities at Fair Value Through Profit or Loss at 31
May 2018
Level Level Level
1 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------- ---------- ---------- --------- ---------
Asset Linked Note - - 131,585 131,585
------------------- ---------- ---------- --------- ---------
Financial Liabilities at Fair Value Through Profit or Loss at 31
May 2017
Level Level Level
1 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------ --------- --------- --------- ---------
Asset Linked Note - - - -
------------------ --------- --------- --------- ---------
11. Debtors
31 May 2018 31 May 2017
GBP'000 GBP'000
-------------------------------- ------------ ------------
Amounts owed by investment
funds 724 1,014
Prepayments and accrued income 3,167 647
-------------------------------- ------------ ------------
3,891 1,661
-------------------------------- ------------ ------------
12. Creditors Amounts Falling Due Within One Year
31 May 2018 31 May 2017
GBP'000 GBP'000
------------------------------- ------------ ------------
Investment management fees 1,284 1,233
Amounts owed in respect of
transactions 478 3,392
ALN repayment to the Investor 16,475 -
Other creditors and accruals 809 897
------------------------------- ------------ ------------
19,046 5,522
------------------------------- ------------ ------------
13. Creditors Amounts Falling Due After One Year - Asset Linked
Note
31 May 2018 31 May 2017
GBP'000 GBP'000
-------------------------------- ------------ ------------
Balance brought forward - -
Initial principal amount issued 200,000 -
Repayments made to the Investor (77,152) -
Fair value movements through 11,166 -
profit or loss
Expense Charge and ALN share
of witholding taxes (2,429) -
Transfer to creditors due (16,475) -
within one year
-------------------------------- ------------ ------------
115,100 -
-------------------------------- ------------ ------------
As part of the share consolidation effected on 31 October 2017,
PIP issued an Asset Linked Note ("ALN") with an initial principal
amount of GBP200m to the Investor. Payments under the ALN are made
quarterly in arrears and are linked to the ALN share (c75%) of the
net cash flow from a reference portfolio which is comprised of
interests held by PIP in over 300 of its oldest private equity
funds, substantially 2006 and earlier vintages. PIP retains the net
cash flow relating to the remaining c25% of the reference
portfolio.
The ALN is held at fair value through profit or loss and
therefore movements in fair value are reflected in the Income
Statement. The Directors do not believe there to be a material own
credit risk, due to the fact that repayments are only due when net
cash flow is received from the reference portfolio. Fair value is
calculated as the sum of the ALN share of fair value of the
reference portfolio plus the ALN share of undistributed net cash
flow which is equivalent to the amount which would be required to
be repaid had the ALN matured on 31 May 2018. Therefore no fair
value movement has occurred during the year as a result of changes
to credit risk.
A pro rata share of the Company's Total Ongoing Charges is
allocated to the ALN, reducing each quarterly payment ("the Expense
Charge") and deducted from Other Expenses in the Income
Statement.
The ALN's share of net cash flow is calculated after withholding
taxation suffered. These amounts are deducted from Taxation in the
Income Statement.
During the year, the Company made repayments totalling GBP77.1m,
representing the ALN share of net cash flow for the nine month
period to 28 February 2018. The fair value of the ALN at 31 May
2018 was GBP131.6m, of which GBP16.5m represents the net cash flow
for the three months to 31 May 2018, due for repayment on 31 August
2018. This amount has therefore been transferred to amounts due
within one year (see Note 12).
14. Called-up Share Capital
31 May 2018 31 May 2017
Shares GBP'000 Shares GBP'000
----------------------------- ------------- --------- ----------- --------
Allotted, called-up and
fully paid:
Ordinary Shares of 67p
each
Opening position 33,062,013 22,153 33,062,013 22,153
Issue of shares following
conversion 21,242,434 14,232 - -
Cancellation of shares (190,0000) (128) - -
----------------------------- ------------- --------- ----------- --------
Closing position 54,114,447 36,257 33,062,013 22,153
----------------------------- ------------- --------- ----------- --------
Redeemable Shares of
1p each
Opening position 30,297,534 303 30,297,534 303
Redemption of shares
to ALN (9,055,100) (91) - -
Conversion to ordinary
shares (21,242,434) (212) - -
----------------------------- ------------- --------- ----------- --------
Closing position - - 30,297,534 303
----------------------------- ------------- --------- ----------- --------
Deferred shares of 66p
each
Opening position - - - -
Bonus issue of shares
to redeemable shareholders 21,242,434 14,020 - -
Conversion to ordinary
shares (21,242,434) (14,020) - -
----------------------------- ------------- --------- ----------- --------
Closing position - - - -
----------------------------- ------------- --------- ----------- --------
Total shares in issue 54,114,447 36,257 63,359,547 22,456
----------------------------- ------------- --------- ----------- --------
During the year to 31 May 2018, the Company consolidated its
ordinary and redeemable share capital into a single class of
ordinary shares. The Company also issued an unlisted ALN. See Note
13 for further information.
The reorganisation of the share capital was implemented on 31
October 2017 and consisted of:
a) a redemption by the Company of 9,055,100 redeemable shares
owned by the Investor for an aggregate consideration of GBP200m and
the subsequent application of these redemption proceeds for the
subscription for the ALN by the Investor;
b) a bonus issue of new deferred shares of 66p each in the
capital of the Company; and
c) the subsequent consolidation, sub-division and redesignation
of the remaining redeemable shares and the new deferred shares into
new ordinary shares of 67p each in the capital of the Company,
ranking pari passu in all respects with the existing ordinary
shares.
During the period 190,000 ordinary shares (31 May 2017: nil)
were bought back in the market for cancellation. The total
consideration paid, including commission and stamp duty, was
GBP3,546,000 (31 May 2017: GBPnil).
Each holder of ordinary shares is entitled, on a show of hands,
to one vote and, on a poll, to one vote for each ordinary share
held.
15. Reserves
Capital
Capital Other reserve
Share redemption capital on Revenue
premium reserve reserve investments reserve*
GBP'000 GBP'000 GBP'000 held GBP'000
GBP'000
------------------------------------------ ---------- ------------- ----------- ------------- -----------
Beginning of period 283,555 3,089 645,011 496,100 (62,678)
Transfer - - 1,122 (1,122) -
Net gain on realisation of investments
- - 134,777 - -
Increase in unrealised appreciation - - - 13,820 -
Losses on financial instruments at
fair value through profit or loss -
ALN - - - (10,083) -
Transfer on disposal of investments - - - 1,364 -
Revaluation of amounts owed in respect
of transactions - - (183) - -
Exchange differences on currency - - (2,282) - -
Exchange differences on other capital
items - - 353 - -
Legal and professional expenses charged
to capital - - (972) - -
Other expenses charged to capital - - (2,002) - -
Share re-organisation and share buybacks (14,020) 219 (203,546) - -
Revenue return for the year - - - - (12,015)
------------------------------------------ ---------- ------------- ----------- ------------- -----------
End of year 269,535 3,308 572,278 500,079 (74,693)
------------------------------------------ ---------- ------------- ----------- ------------- -----------
* Reserves that are distributable by way of dividends. In
addition, the Other Capital Reserve can be used for share
buybacks.
16. Net Asset Value per Share
31 May 2018 31 May 2017
------------------------------------ ------------ ------------
Net assets attributable in
GBP'000 1,306,764 1,387,533
ordinary and redeemable shares* 54,114,447 63,359,547
Net asset value per share
- ordinary (31 May 2017: ordinary
and redeemable 2,414.82p 2,189.94p
------------------------------------ ------------ ------------
* The redeemable shares converted to ordinary shares on 31
October 2017 and were admitted to trading on the Main Market of the
London Stock Exchange on 1 November 2017. As at 31 May 2018 there
are only ordinary shares in issue.
17. Reconciliation of Return Before Financing Costs and Taxation
to Net Cash Flow from Operating Activities
31 May 2018 31 May 2017
GBP'000 GBP'000
----------------------------------------- ------------ ------------
Return before finance costs and
taxation 133,897 206,581
Withholding tax deducted (9,170) (4,345)
Gains on investments (149,778) (201,198)
Currency losses/(gains) on cash
and borrowings 1,929 (2,389)
(Decrease)/Increase in creditors (31) 117
(Increase)/Decrease in other debtors (2,896) 52
Losses on financial liabilities 11,166 -
at fair value through profit or
loss - ALN
Expenses and taxation associated (2,429) -
with ALN
----------------------------------------- ------------ ------------
Net cash flow from operating activities (17,312) (1,182)
----------------------------------------- ------------ ------------
18. Contingencies, Guarantees and Financial Commitments
At 31 May 2018, there were financial commitments of GBP440.2m
(31 May 2017: GBP444.5m) in respect of investments in partly paid
shares and interests in private equity funds.
Further detail of the available finance cover is provided in
Note 19.
19. Analysis of Financial Assets and Liabilities
The primary investment objective of the Company is to seek to
maximise long-term capital growth for its shareholders by investing
in funds specialising in unquoted investments, acquiring unquoted
portfolios and participating directly in private placements.
Investments are not restricted to a single market but are made when
the opportunity arises and on an international basis.
The Company's financial instruments comprise securities and
other investments, cash balances and debtors and creditors that
arise from its operations, for example sales and purchases awaiting
settlement and debtors for accrued income.
The principal risks the Company faces in its portfolio
management activities are:
-- Liquidity/marketability risk;
-- Interest rate risk;
-- Market price risk; and
-- Foreign currency risk.
The Company has little exposure to credit risk. The Manager
monitors the financial risks affecting the Company on a daily basis
and the Directors regularly receive financial information, which is
used to identify and monitor risk.
In accordance with FRS 102 an analysis of financial assets and
liabilities, which identifies the risk to the Company of holding
such items, is given below.
Liquidity Risk
Due to the nature of the Company's investment policy, the
largest proportion of the portfolio is invested in unquoted
securities, many of which are less readily marketable than, for
example, "blue-chip" UK equities. The Directors believe that the
Company, as a closed-end fund with no fixed wind-up date, is
ideally suited to making long-term investments in instruments with
limited marketability. The investments in unquoted securities are
monitored by the Board on a regular basis.
There are times when opportunities for the Company to acquire
secondary unquoted portfolios of interests or co-investments may be
limited due to the cyclical nature of their occurrence. As a
result, at times of low investment opportunity, some funds may be
held on deposit or invested in gilts and other fixed interest
government bonds. It is the nature of investment in private equity
that a commitment (see Note 18 for outstanding commitments as at 31
May 2018) to invest will be made and that calls for payments will
then be received from the unlisted investee entity. These payments
are usually on an ad-hoc basis and may be called at any instance
over a number of years. The Company's ability to meet these
commitments is dependent upon it receiving cash distributions from
its private equity investments and, to the extent these are
insufficient, on the availability of financing facilities. In order
to cover any shortfalls, the Company entered into a multi-currency
revolving credit facility with The Royal Bank of Scotland plc and
Lloyds Bank plc and comprising facilities of $139m and EUR67m of
which at 31 May 2018 the sterling equivalent of GBPnil (31 May
2017: GBPnil) was drawn down (see Note 6 for further information).
On 1 June 2018, the Company agreed a new GBP175m multi-currency
revolving credit facility agreement, arranged by Lloyds Bank plc
and NatWest Markets plc. This will replace the GBP150m loan
facility agreement which was due to expire in November 2018. See
note 21 for further information.
The principal covenant that applies to the loan facility is that
gross borrowings do not exceed 30% of adjusted gross asset
value.
Total available financing as at 31 May 2018 stood at GBP308.6m
(31 May 2017: GBP332.8m), comprising GBP145.8m (31 May 2017:
GBP167.3m) in cash balances and GBP162.8m (31 May 2017: GBP165.5m)
(sterling equivalent) in undrawn bank facilities. The available
financing along with the private equity portfolio exceeded the
outstanding commitments by 3.6 times (31 May 2017: 3.5 times).
Interest Rate Risk
The Company may use gearing to achieve its investment objectives
and manage cash flows and uses a multi-currency revolving credit
facility for this purpose.
Interest on the revolving credit facility is payable at variable
rates determined subject to drawdown. Variable rates are defined as
LIBOR or EURIBOR + 2.35%, dependent on the currency drawn. The
interest rate is then fixed for the duration that the loan is drawn
down. At 31 May 2018 there was the sterling equivalent of GBPnil
funds drawn down on the loan facilities (31 May 2017: GBPnil). A
commitment fee of 0.94% per annum is payable in respect of the
amounts available for drawdown in each facility.
Non-interest rate exposure
The remainder of the Company's portfolio and current assets are
not subject to interest rate risks.
Financial assets for 2018 and 2017 consisted of investments,
cash and debtors (excluding prepayments). As at 31 May 2018, the
interest rate risk and maturity profile of the Company's financial
assets was as follows
Fixed
interest
No Matures Matures average
Maturity within after interest
Total Date 1 year 1 year rate
31 May 2018 GBP'000 GBP'000 GBP'000 GBP'000 %
---------------- ---------- ----------- ---------- ---------- ----------
Fair value of no interest rate risk
financial assets
Sterling 58,993 58,993 - - -
US dollar 1,109,499 1,109,499 - - -
Euro 241,035 241,035 - - -
Other 29,347 29,347 - - -
---------------- ---------- ----------- ---------- ---------- ----------
1,438,874 1,438,874 - - -
---------------- ---------- ----------- ---------- ---------- ----------
The interest rate and maturity profile of the Company's
financial assets as at 31 May 2017 was as follows:
Fixed
interest
No Matures Matures average
Maturity within after interest
Total Date 1 year 1 year rate
31 May 2017 GBP'000 GBP'000 GBP'000 GBP'000 %
---------------- ---------- ----------- ---------- ---------- ----------
Fair value of no interest rate risk
financial assets
Sterling 63,196 63,196 - - -
US dollar 1,081,502 1,081,502 - - -
Euro 218,090 218,090 - - -
Other 29,620 29,620 - - -
---------------- ---------- ----------- ---------- ---------- ----------
1,392,408 1,392,408 - - -
---------------- ---------- ----------- ---------- ---------- ----------
Financial Liabilities
At 31 May 2018 the Company had drawn the sterling equivalent of
GBPnil (31 May 2017: GBPnil) of its four-year committed revolving
dollar and euro credit facilities, expiring November 2018, of $139m
and EUR67m respectively with The Royal Bank of Scotland plc and
Lloyds TSB Bank plc. Interest is incurred at a variable rate as
agreed at the time of drawdown and is payable at the maturity date
of each advance. At the period end, interest of GBPnil (31 May
2017: GBPnil) was accruing. On 1 June 2018, the Company agreed a
new GBP175m multi-currency revolving credit facility agreement,
arranged by Lloyds Bank plc and NatWest Markets plc. This will
replace the GBP150m loan facility agreement which was due to expire
in November 2018. See Note 21 below for further information.
At 31 May 2018 and 31 May 2017, other than the ALN, all
financial liabilities were due within one year and comprised
short-term creditors. The ALN is repayable by no later than 31
August 2027.
Market Price Risk
The method of valuation of the fixed asset investments is
described in Note 1(D) above. The nature of the Company's fixed
asset investments, with a high proportion of the portfolio invested
in unquoted securities, means that the investments are valued by
the Directors after due consideration of the most recent available
information from the underlying investments.
PIP's portfolio is well diversified by the sectors in which the
underlying companies operate. This sectoral diversification helps
to minimise the effects of cyclical trends within particular
industry segments.
If the investment portfolio fell by 20% from the 31 May 2018
valuation, with all other variables held constant, there would have
been a reduction of GBP254,958,000 (31 May 2017 based on a fall of
20%: GBP244,828,000) in the return before taxation. An increase of
20% would have increased the return before taxation by an equal and
opposite amount.
Foreign Currency Risk
Since it is the Company's policy to invest in a diverse
portfolio of investments based in a number of countries, the
Company is exposed to the risk of movement in a number of foreign
exchange rates. A geographical analysis of the portfolio and hence
its exposure to currency risk is provided above and in Note 9b.
Although it is permitted to do so, the Company did not hedge the
portfolio against the movement in exchange rates during the
financial period.
The investment approach and the Manager's consideration of the
associated risk are discussed in further detail in the Strategic
Report and the Manager's Review above.
The Company settles its transactions from its bank accounts at
an agreed rate of exchange at the date on which the bargain was
made. As at 31 May 2018, realised exchange gains of GBP353,000 (31
May 2017: realised exchange losses of GBP159,000) and realised
losses relating to currency of GBP2,282,000 (31 May 2017: realised
gains of GBP2,548,000) have been taken to the capital reserve.
The Company's exposure to foreign currency excluding private
equity investments is shown below. In relation to this exposure, if
the sterling/dollar and sterling/euro exchange rate had reduced by
10% from that obtained at 31 May 2018, it would have the effect,
with all other variables held constant, of increasing equity
shareholders' funds by GBP13,592,000 (31 May 2017: GBP10,787,000).
If there had been an increase in the sterling/dollar and
sterling/euro exchange rate of 10% it would have the effect of
decreasing equity shareholders' funds by GBP12,686,000 (31 May
2017: GBP16,440,000). The calculations are based on the financial
assets and liabilities and the exchange rate as at 31 May 2018 of
1.33035 (31 May 2017: 1.26735) sterling/dollar and 1.13945 (31 May
2017: 1.13135) sterling/euro. The Company's investment currency
exposure is disclosed in Note 9b.
An analysis of the Company's exposure to foreign currency is
given below:
31 May 31 May 31 May 31 May
2018 2018 2017 2017
Assets Liabilities Assets Liabilities
GBP'000 GBP'000 GBP'000 GBP'000
------------------- ---------- -------------- ---------- --------------
US dollar 128,812 731 135,390 3,480
Euro 2,110 118 2,863 -
Swedish krone 95 - 1,735 -
Norwegian krone 113 - 1,678 -
Australian dollar 653 - 775 -
131,783 849 142,441 3,480
------------------- ---------- -------------- ---------- --------------
Fair Value of Financial Assets and Financial Liabilities
The financial assets of the Company are held at fair value.
Financial liabilities are held at amortised cost, which is not
materially different from fair value. For details of the ALN, see
Note 13.
Managing Capital
The Company's equity comprises ordinary shares and redeemable
shares as described in Note 14. Capital is managed so as to
maximise the return to shareholders while maintaining a capital
base that allows the Company to operate effectively in the
marketplace and sustain future development of the business.
As at 31 May 2018 and 31 May 2017 the Company had bank debt
facilities to increase the Company's liquidity. Details of
available borrowings at the year end can be found earlier in this
Note.
The Company's assets and borrowing levels are reviewed regularly
by the Board of Directors with reference to the loan covenants.
The Company's capital requirement is reviewed regularly by the
Board of Directors.
20. Transactions with the Manager and Related Parties
The amounts paid to the Manager, together with the details of
the Investment Management Agreement, are disclosed in Note 3. The
existence of an Independent Board of Directors demonstrates that
the Company is free to pursue its own financial and operating
policies and therefore, under the AIC SORP, the Manager is not
considered to be a related party.
The Company's related parties are its Directors. Fees paid to
the Company's Board are disclosed in the Directors' Remuneration
Report, which is provided in the full Annual Report. The Company's
National Insurance contribution in relation to Directors'
remuneration is disclosed in Note 4.
There are no other identifiable related parties at the year
end.
21. Post balance sheet events
On 4 June 2018, the Company announced it had agreed a new
GBP175m multi-currency revolving credit facility agreement dated 1
June 2018 ("Loan Facility"), arranged by Lloyds Bank plc and
NatWest Markets plc. This replaces the GBP150m loan facility
agreement which was due to expire in November 2018, as per Note
6.
The new GBP175m four-year Loan Facility has been redenominated
using current exchange rates to $163.0m and EUR59.8m. The terms of
the new facility are materially the same as those of the existing
facility but will expire in June 2022 with an option after one year
to extend, by agreement, the maturity date by another year.
PIP's mature portfolio, which at the year end was reported to
have an average fund vintage maturity of 5.7 years, is in a
cash-generative phase. The Company expects to continue to finance
its new investments and meet its unfunded commitments, amounting to
GBP440m as at 31 May 2018, principally from internally generated
cash resources. As at 31 May 2018, PIP had available cash balances
of GBP145.8m (excluding the short term ALN creditor). Therefore,
based on current exchange rates, PIP's total liquid financial
resources, taking into account the terms of the new Loan Facility
and 31 May 2018 available cash balances, are equivalent to
GBP320.8m.
The new Loan Facility provides a margin of additional assurance
that the Company has the ability to finance its unfunded
commitments in the future.
AIFMD DISCLOSURES
The Company is an alternative investment fund ("AIF") for the
purposes of the Alternative Investment Fund Managers Directive
(Directive 2011/61/EU) ("AIFMD") and the Manager was appointed as
its alternative investment fund manager ("AIFM") for the purposes
of the AIFMD with effect from 21 July 2014. The manager is a "full
scope" AIFM for the purposes of the AIFMD.
The AIFMD requires certain disclosures to be made in the Annual
Report of the Company. Many of these disclosures were already
required by the listing rules and/or United Kingdom Accounting
Standards and these continue to be presented in other sections of
the Annual Report, principally the Strategic Report, the Manager's
Review and the financial statements. This section completes the
disclosures required by the AIFMD.
Assets subject to special arrangements
The Company holds no assets subject to special arrangements
arising from their illiquid nature.
Remuneration disclosure
The total number of staff of the Manager for the period ended 31
May 2018, including staff remunerated by affiliates of the Manager,
was approximately 251, of which 14 were senior management or other
members of staff whose actions have a material impact on the risk
profile of the Company ("Identified Staff").
The total remuneration paid by the Manager and its affiliates to
staff of the Manager in respect of the financial year ended 31 May
2018 attributable to work relating to the Company was as
follows:
Twelve months to 31 Eleven months to31
May 2018 May 2017
Fixed Variable Total Fixed Variable Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------- --------- --------- --------- --------- --------- ---------
Senior Management 542 674 1,216 497 547 1,044
Staff 1,028 662 1,690 849 486 1,335
Total Staff 1,570 1,336 2,906 1,346 1,033 2,379
Identified Staff 325 464 790 271 347 618
------------------- --------- --------- --------- --------- --------- ---------
No carried interest was paid in respect of the Company during
the period.
The above disclosures reflect only that element of the
individuals' remuneration which is attributable to the activities
of the Manager relating to the Company. It is not possible to
attribute remuneration paid to individual staff directly to income
received from any fund and hence the above figures represent a
notional approximation only calculated by reference to the assets
under management of the Company as a proportion of the total assets
under management of the Pantheon Group.
In determining the remuneration paid to its staff, the Manager
takes into account a number of factors including the performance of
the company, the Manager, and each individual member of staff.
These factors are considered over a multi-year framework and
include whether staff have met the Manager's compliance standards.
In addition, the Manager seeks to ensure that its remuneration
policies and practices align financial incentives for staff with
the risks undertaken and results achieved by investors, for example
by ensuring that a proportion of the variable income received by
identified staff is deferred for a period of at least three
years.
Full details of the Pantheon Group's remuneration policies and
practices for staff (which includes the Manager's staff) can be
found at www.pantheon.com.
Leverage
The AIFMD requires the Manager of the Company to set leverage
limits for the Company. For the purposes of the AIFMD, leverage is
any method by which the Company's exposure is increased, whether
through the borrowing of cash or by the use of derivatives or by
any other means. The AIFMD requires leverage to be expressed as a
ratio between the Company's exposure and its net asset value and
prescribes two methodologies, the gross method and the commitment
method (as set out in Commission Delegated Regulation No.
231/2013), for calculating such exposure.
The following leverage limits have been set for the Company:
(i) borrowings shall not exceed 100% of the Company's net asset
value or such lower amount as is agreed from time to time with the
Company's lenders;
(ii) leverage calculated as the ratio between the exposure of
the Company calculated in accordance with the gross method referred
to above and its net asset value shall not exceed 200%; and
(iii) leverage calculated as the ratio between the exposure of
the Company calculated in accordance with the commitment method
referred to above and its net asset value shall not exceed
200%.
Using the methodologies prescribed under the AIFMD, the
Company's leverage as at 31 May 2018 is shown below:
Gross method Commitment method
---------------- --------------- --------------------
Leverage ratio 99% 112%
There have been no changes to the maximum level of leverage
which the Manager may employ on behalf of the Company during the
financial year to 31 May 2018. There are no collateral or asset
reuse arrangements in place.
Risk profile and risk management
The principal risks to which the Company is exposed and the
approach to managing those risks are set out in the Strategic
Report and also in Note 19 above. The investment restrictions which
seek to mitigate some of those principal risks in relation to the
Company's investment activities are set out in the Investment
Policy and under "Board Responsibilities and Relationship with the
Manager" in the Statement on Corporate Governance in the full
Annual Report. Additionally, the individual counterparty exposure
limit for deposits with each of the Company's bank counterparties
has been set at GBP60m or the equivalent in foreign currencies. The
Manager's risk management system incorporates regular review of the
principal risks facing the Company and the investment restrictions
applicable to the Company. The Manager has established appropriate
internal control processes to mitigate the risks, including those
described in the "Mitigation" column in the "Principal Risks and
Uncertainties" section of the Strategic Report. These investment
restrictions have not been exceeded in the period to 31 May
2018.
Article 23(1) disclosures to investors
The AIFMD requires certain information to be made available to
investors in the Company before they invest and requires that
material changes to this information be disclosed in the Annual
Report of the Company. The information required to be disclosed is
contained in the document "Information for Investors" which is
available on the Company's website at www.piplc.com.
There have been no material changes to this information
requiring disclosure.
ANNUAL GENERAL MEETING
The Company's Annual General Meeting will be held on Wednesday,
31 October 2018 at 10.30am at The British Academy, 10-11 Carlton
House Terrace, London SW1Y 5AH.
NATIONAL STORAGE MECHANISM
A copy of the Annual Report and Financial Statements will be
submitted shortly to the National Storage Mechanism ("NSM") and
will be available for inspection at the NSM, which is situated at:
www.morningstar.co.uk/uk/nsm.
ENDS
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on this document (or any
other website) is incorporated into, or forms part of, this
announcement.
LEI: 2138001B3CE5S5PEE928
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR UBSNRWUAWRAR
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August 08, 2018 02:00 ET (06:00 GMT)
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