Annual Report • Dec 31, 2013
Annual Report
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PIP invests in a diversified portfolio of private equity assets across the world, principally through funds.
Private equity funds purchase large equity stakes in private companies. This gives investors access to a broader universe of opportunities than that offered by public markets. Private equity managers are long-term, disciplined investors who can bring about beneficial changes to businesses and align shareholder interests with those of company management through majority ownership.
The Manager, Pantheon, is one of the world's foremost private equity specialists. With more than 30 years' experience, and a team of 70 investment professionals globally, Pantheon is well positioned to guide PIP towards its objective of maximising capital growth.
| Half-Year at a Glance | 1 |
|---|---|
| Performance Summary | 2 |
| Chairman's Statement | 4 |
| Company Strategy | 6 |
| The Manager's Review | 7 |
| Objective and Investment Policy | 30 |
| Interim Management Report and Responsibility Statement of the Directors |
31 |
| Income Statement (unaudited) | 32 |
| Reconciliation of Movements in Equity Shareholders' Funds (unaudited) |
33 |
| Balance Sheet (unaudited) | 34 |
| Cash Flow Statement (unaudited) | 35 |
| Notes to the Half-Yearly Financial Statements (unaudited) | 36 |
| Independent Review Report | 39 |
| Directors and Contacts | 40 |
The above chart reconciles the opening and closing NAV per share for the six months to 31st December 2013.
| SINCE | |||||
|---|---|---|---|---|---|
| Performance at | 1 YEAR | 3 YEARS | 5 YEARS | 10 YEARS | INCEPTION |
| 31st December 2013 | % | % P.A. | % P.A. | % P.A. | % P.A. |
| NAV per share | 8.1 | 10.0 | 3.0 | 9.2 | 11.2 |
| Ordinary share price | 16.5 | 18.0 | 33.8 | 7.9 | 10.7 |
| FTSE All-Share Total Return | 20.8 | 9.4 | 14.3 | 8.8 | 8.2 |
| MSCI World Total Return (sterling) | 24.9 | 9.9 | 12.8 | 8.4 | 7.1 |
PIP was launched on 18th September 1987. The figures since inception assume reinvestment of dividends, capital repayments and cash flows from the exercise of warrants.
| Ordinary shares | 33,832,013 |
|---|---|
| Redeemable shares | 33,012,534 |
| Total | 66,844,547 |
During the period, underlying portfolio growth of 5.7% was offset by negative foreign exchange movements as sterling strengthened against the US dollar, resulting in a decrease in the NAV per share of 2.1% to 1,303.9p per share. The share prices of the ordinary and redeemable shares declined by 1.3% and 3.6% respectively. Our belief in the positive outlook for continued portfolio value growth is based on the following key factors:
Developed markets showed more signs of recovery over the second half of 2013, thriving on continuing quantitative easing measures ("QE") in the US, Europe and Japan. The faster growing economies of the emerging markets have slowed, but attractive investments can be made by experienced managers that are used to the high levels of market volatility typically associated with these markets. Seeking only high-quality assets managed by the best managers remains our key priority, given that the course of economic and market recovery remains vulnerable to the effects of monetary policy.
Against this backdrop, before foreign exchange effects, PIP's underlying assets generated a return of 5.7%. Share buybacks added 0.3% to the NAV per share. Sterling's strength against the US dollar, up by 9.2% during the period, led to negative foreign exchange effects of 7.1% on NAV per share as approximately 70% of the portfolio is denominated in US dollars. Excluding foreign exchange effects, the larger buyout, and venture and growth portfolio segments were the best performers, gaining 8.2% and 6.5% respectively over the period. US assets performed strongest regionally, returning 8.1%.
Private equity managers impose a set of disciplines on their investments to boost growth through a well-aligned, capitalefficient investment model. Underlying growth rates within the Company's portfolio indicate encouraging trends, with those
sampled showing earnings growth of 12.0%, higher than those shown for the equivalent periods for the MSCI World and FTSE All-Share indices.
The listed private equity sector average discount remains substantially wider than the average investment trust discount. In our view, there is scope for further narrowing of PIP's share price discounts which, at 21% for the ordinary shares and 22% for the redeemable shares at 31st December 2013, do not reflect the Company's strength and potential. 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. The Company began buying back shares in August 2011 and so far has invested £68.6m in buying back 11.5% of the Company's shares. During the halfyear to 31st December 2013, PIP invested £10.0m to buy back and cancel 0.7m ordinary shares and 0.3m redeemable shares, resulting in an uplift to NAV per share of 4.4p or 0.3% of PIP's NAV per share at 30th June 2013.
Distributions of £93m were received in the period, equivalent to an annualised rate of 23% of opening portfolio assets. Calls from underlying private equity funds totalled £19m. PIP's positive net cash flows are a function of the portfolio's maturity, which has a weighted average fund age of 7.8 years. Exits often occur at an uplift to their previous holding value as managers are able to realise a premium on sale. PIP's largest 50 distributions, representing 31% by value of total distributions, occurred at an average uplift of 24%. This contributed significantly to NAV growth in the period and remains an important factor for future performance given the maturity of PIP's portfolio.
The Company's net cash at 31st December 2013 stood at £68m. The Company's loan facility, amounting to approximately £97m and which expires in June 2015, remained fully unutilised. Undrawn commitments of £188m as at 31st December 2013 were covered by assets and loan facilities by a factor of 5.2 times. Additionally, more than 60% of the undrawn commitments are older than six years and therefore unlikely to be fully called down. This provides ample flexibility to take advantage of new investment opportunities.
PIP has continued to actively redeploy capital during the period. Secondary activity picked up in the second half of 2013 and in December the Company committed £70.7m to four secondaries, the majority of which comprised US buyout funds. PIP also committed £20.2m to 11 new co-investments and made two primary fund commitments for £5.1m. Our strategic focus on secondary interests ensures we can continue to take advantage of the liquid market conditions to realise investment returns.
Our objective is to optimise PIP's ability to deploy capital systematically through long-term relationships with a large number of high-quality managers worldwide in order to maximise capital growth and generate returns in excess of public markets.
We expect to see high volumes in the secondary market within which PIP's Manager can seek out good-quality assets with a focus on relative value. We will continue to add co-investments alongside best of breed managers to build our investment exposure to current vintages and will make limited primary commitments to access those opportunities not yet so readily available through the secondary market. This enables us to build a portfolio that is naturally highly cash-generative. This also enables the Company to buy back its shares when this presents an attractive investment opportunity.
Our flexible approach to investing enables us to maintain PIP's relatively low risk profile, exercising firm control over the level of undrawn commitments.
The outlook for investing in secondary interests remains good. Despite a slow start in 2013, an estimated \$27.5bn of secondary deals were transacted, an increase on 2012 according to Cogent, an intermediary active in the secondary market. We expect to see a similar level of deal activity in 2014.
2013 saw exit markets flourish. We think the increased M&A trends are sustainable across many sectors and the increasingly active IPO markets can add significantly to the potential for private equity exits. The Company's mature, US-weighted portfolio is well-positioned to benefit, and for new investments, our focus on secondaries is an excellent way to take further advantage of these conditions.
TOM BARTLAM Chairman 27th February 2014
PIP's strategy is to invest with leading private equity managers whilst reducing investment risk through diversification of the underlying portfolio by geography, investment stage and sector. This strategy is implemented through PIP's access to Pantheon's primary, secondary and co-investment activities. PIP has the flexibility to vary the size and emphasis of its investments depending on its available financing.
The spread of performance in private equity is much wider than in other asset classes and the selection of managers has a significant influence on investment performance. As a specialist fund-offunds manager monitoring and researching the global private equity market, Pantheon, PIP's Manager, is well-positioned to identify fund managers who have the skills and strategies to deliver superior performance within their particular market segments.
The current portfolio reflects PIP's prolonged access to Pantheon's highly successful primary and secondary investments over the past 26 years. Only investments that have passed through rigorous research and analysis can be selected.
It is the Board's current intention to emphasise secondary investment as the Company makes new commitments.
Secondary purchases of existing interests in private equity funds are typically acquired between three and seven years after a fund's inception, when such funds are substantially invested. As a result, they tend to have relatively low levels of undrawn commitments. PIP benefits from secondaries because the fees and expenses in the first few years have been paid and distributions from the funds will be returned over a shorter time period. This helps to reduce the drag to performance from young and immature funds, known as the "J-curve effect". In addition, secondary assets can be purchased at a discount, especially in cases where the seller has a need for liquidity, increasing the opportunity for outperformance.
The shorter duration of secondary investments and lower associated undrawn commitments will enable the Company to maintain its financial strength. Under Pantheon's allocation policy, and in accordance with the terms of its management agreement, PIP is entitled to invest alongside Pantheon's latest global secondary fund, Pantheon Global Secondary Fund V, in a predetermined ratio, benefiting from access to larger
secondary opportunities that it would not have had the capacity to complete alone. The secondary programme enables PIP to acquire attractively priced secondary interests as they become available, and aims to outperform market averages through judicious selection, pricing and timing.
Whilst the intention is to emphasise secondary investment, the Company will also participate in co-investments alongside established private equity managers. The breadth and depth of Pantheon's General Partner relationships provide a significant advantage for the sourcing and evaluation of co-investments. As with secondary investing, co-investments allow the Company to put money to work at the time it is committed. In addition, as there are lower or no management fees charged on co-investments by the underlying private equity manager, co-investing can represent a cost-efficient way of investing, whilst providing PIP with exposure to current vintages.
Investing in private equity through a primary commitment strategy (e.g. commitments to new private equity funds) can reduce the Company's financial flexibility by increasing the proportion of immature assets in its portfolio and by increasing its undrawn commitments relative to its assets. New primary investments have longer payback periods, requiring the Company to maintain higher levels of financing facilities against undrawn commitments. For these reasons and because the current outlook for secondary investment and co-investment is favourable, the Board de-emphasises primary commitments. However, the Company will consider making primary commitments on a targeted basis for portfolio construction purposes.
The investment rationale for any new primary commitments will always be weighed against their effects on the Company's financial flexibility so as to keep the undrawn commitments to a level that can comfortably be expected to be financed from internally generated cash flows.
In certain circumstances, usually where the Company's shares are quoted at a significant discount to NAV, the Board may view the shares as presenting an attractive investment opportunity relative to other uses of cash, such as new investment commitments. In such circumstances, the Board will consider targeted buybacks of ordinary and redeemable shares instead of, or in addition to, new investments.
Five years after plunging into financial crisis, the world's financial systems are repairing themselves. Many developed economies are faring better, or are approaching the point at which they seem set to improve. Banks and financial institutions are better capitalised, while global regulation aims to prevent further shocks to the system. Emerging markets, and in particular China and India, could pick up steam again, although the former seems unlikely to return to double-digit economic growth.
As we leave 2013 behind us, changes to monetary policy in the US and economic reforms in China, the world's two largest economies, loom large on macroeconomic and political agendas in the year ahead. Tapering, which signals the end to the Federal Reserve's massive QE programme, comes with recognition of a job done, at least in part, as the US economy beats initial estimates to register annualised growth of 4.1% in the third quarter of 2013.1 Meanwhile, financial and social reforms in China signal an intention to keep modernising the economy, which continues to slow as it shifts from an export-led model to one oriented towards domestic consumption.
What happens in the US and China has far-reaching consequences, but the key theme for policymakers everywhere this year remains growth – not just how to get it, but how to keep it. The green shoots that had emerged in the US a year ago have continued to grow. European economies are following suit as the IMF predicts 0.5% growth for Germany and 1.7% for the UK in 2013,2 while their domestic policymakers expect better outcomes. Growth in many emerging markets is slowing but still exceeds growth in developed economies, continuing the trend of global rebalancing towards Asia, where some four billion of the world's seven billion people live. But despite these welcome improvements, risks remain. Inflating economies with cheap capital is one thing, having the courage to carry out necessary structural reforms to sustain growth is another altogether. Politicians can obstruct as much as they have the potential to pave the way for change. A scrap between Democrats and Republicans in the US during 2013 over raising the debt ceiling spooked markets globally, even though the right decision was taken at the eleventh hour. Meanwhile, simmering tensions between China and Japan over the Senkaku Islands point to non-economic risks that could have significant consequences.
The Federal Reserve's QE has succeeded in shoring-up bank balance sheets but it has now cut its bond-buying programme from \$85bn a month to \$65bn a month.3 The move has been well trailed, but the impact of removing the \$2.8 trillion economic crutch will be felt widely and arguably most keenly in emerging markets where much of the surplus liquidity flowed during 2013. The irony is that the US market felt a positive liquidity shock in anticipation of the start of tapering, as financial institutions started to bring money home. We have entered uncharted territory as global markets have never before experienced such a significant withdrawal of liquidity.4
Cheap energy prices have provided a subsequent boost to US businesses and consumers, helping to create an attractive investment backdrop for the US industrial sector in particular. Signs that the US is considering the merits of exporting shale gas could eventually also have a beneficial impact on businesses in importing countries with high gas prices, including those in Asia and Europe.
Internal politics remain the US's worst enemy. The scuffle over the debt ceiling rattled markets, as did the US government shutdown in October 2013, which took an estimated \$24bn out of the economy, or 0.6% from GDP growth, in the final quarter of 2013.5 The impact on economic activity may have been marginal given the acceleration in underlying economic growth in the US, but the impact on sentiment was significant. The message to the world is that the US system faces crisis every time an important economic or political decision must be taken.
Bureau of Economic Analysis data released 30th January 2014 2 International Monetary Fund, Report World Economic Outlook: Update 21st January 2014 3 Federal Reserve Board press release, 29th January 2014 4 Financial Times, US stocks set record as Fed steps back, 19th December 2013, Global shares rally after taper move, 19th December 2013, World markets braced for "Dectaper", 18th December 2013 5 Impact of the Debt Ceiling Debate on the U.S. Economy – Getting Worse by the Day, Standard & Poor's, 16th October 2013
Markets spent much of 2013 trying to figure out the impact of tapering. Brazil, India, Indonesia, Turkey and South Africa may see the greatest impact due to reliance on rapid credit growth and weak current account balances. Emerging market currencies will likely weaken, and stock markets and bond prices will remain volatile – the question is how governments will react.
Managing a soft landing in emerging markets exposed to China and the US will be difficult and could require currency depreciation to restart growth, as well as structural reforms. In the long term, positive demographics point to opportunities after short-term turbulence. Indonesia, as an example, has the world's fourth largest population of 237m, high basic literacy of 96.8%6 and an ambitious target GDP per head of \$5,000 in 2014, even if the reality was lagging at \$3,592 in 2012.7
Meanwhile, sentiment towards Europe has turned a corner. Overseas investors returned as their fears about a break-up of the Eurozone receded. Improving sentiment has impacted European private equity also, with North American institutions providing 25% of commitments to European funds closed in 2012 and 2013, up from 11% in 2010 and 2011.8 Furthermore, renewed domestic investor belief in domestic business prospects has catalysed the IPO market across the continent. A total of 158 IPOs in 2013 raised \$30bn, double the amount raised in 2012.9
Confidence in Northern Europe, notably Scandinavia and Germany, is stronger than in Southern European countries, particularly Spain, Italy and Greece, but painful readjustments to reduce wage bills and improve Spain's competitive position have had some success and the country's outlook is brightening. As the IMF marked down its forecasts for emerging markets, it wrote them up for Europe; even Spain is now expected to grow 0.6% in 2014 as the Eurozone expands 1%.10
In Europe, serious concerns remain however, not least for youth unemployment. According to the latest data, 58% of those aged under 25 in Greece are unemployed, almost matched by 57% in Spain. Across the European Union as a whole, youth unemployment is lower, but still worrying at 24%.11 Creating jobs for young people is critical to sustaining growth and containing social unrest.
Conditions in both regions remain supportive of private equity activity as credit market conditions are unusually accommodating and IPO activity is recovering. High yield bond issuance increased in 2013, particularly in Europe,12 as pricing remains low and covenants flexible. Investor demand for credit continues to grow, absorbing the higher issuance volumes. Recovering GDP, low base rates and low default rates are likely to support credit markets this year.
In 2013, \$163.0bn was raised in 864 IPOs globally, a 27% increase on 201213 despite China's IPO market suspension, reflecting increased investor confidence in public market gains and signs of global recovery. Although 2014 was set for a strong start, the public market volatility in January shows that markets remain vulnerable to investor anxiety over the rate of monetary tightening.
In spite of recent political drama, the US market is central to global private equity. We remain positive on the prospects for industrial and services businesses that benefit directly and indirectly from technological development and the domestic energy boom as well as those positioned to benefit from domestic economic recovery.
In Europe, while the picture is more mixed, we expect to continue to source investments in portfolios and businesses that can benefit from recovery in the developed markets both within Europe and outside, and also those export and service businesses that can take advantage of significant consumer trends in emerging markets. Through the secondary market, we can target high-quality portfolios that have significant potential for near-term realisation activity so as to benefit from the supportive M&A and IPO markets, as well as further potential accommodation from the credit markets.
6 Indonesia Demographic and Health Survey 2012 7 http://www.indonesia-investments.com/finance/macroeconomic-indicators 8 Preqin data; Revolving door of investors boosts Europe fundraising, Private Equity News, 1st October 2013 9 Ernst & Young Global IPO Trends Q4 2013 10 IMF Report World Economic Outlook: Update 21st January 2014 11 Euro area unemployment rate at 12.1%, Eurostat press release, 29th November 2013 12 BC Partners 13 Global IPO Trends, Q4 2013, Ernst & Young
(CONTINUED)
As the global economy has started to recover from the financial crisis, so too has the private equity industry. More exits, as corporate buyers return to M&A markets and IPOs recover, have increased the flow of capital back to LPs;private equity has shown good returns even from the depths of the cycle.14 With renewed confidence and increased liquidity generated from profitable exits, capital is flowing back into private equity once more. Some emerging and developed markets offer opportunities, but in view of such significant transition, caution is needed when selecting managers and investments that can prosper in a more volatile environment.
Market weakness during 2013 in a number of important emerging markets presents an opportunity for a patient investor to take advantage of better pricing conditions to acquire investments that have strong positioning in their markets.
2013 was a record year in the secondary market, with volume reaching \$27.5bn,15 a 10% increase versus 2012. After a slow first half, mainly due to a lull in bank selling activity, secondary market volume rebounded significantly in the second half of 2013 and surged as the year drew to a close. This positive momentum is likely to continue through 2014, supported by an improving macroeconomic outlook and secondary market price stability, in part driven by strong distribution activity.
Public pension plans and financial institutions still represent a substantial portion of secondary market volume (57% of activity by dollar in 201315). Banks are likely to remain active sellers in 2014 with the finalisation of the Volcker rule. The seller universe continues to broaden, with new sellers attracted towards more active portfolio management by valuation stability. Another key theme is the increasing number of transactions, including fund recapitalisation or wind-downs from managers of tail-end funds approaching their termination date. Pantheon has significant experience structuring favourable outcomes in such situations.
Pantheon screened over \$54bn of deals across approximately 300 sellers during the calendar year 2013, committing to transactions representing nearly 4% by value of all deals reported. With a likely backdrop of rising prices, Pantheon will continue to target investment opportunities that are less competitive where assets are undervalued.
The recovery may be more established than last year, but we are not out of the woods yet. Political inaction, or governments taking the wrong action, could quickly stifle economic growth. Structural reforms need to accompany fiscal and monetary stimulus to cement the recovery. That could mean more pain and more shocks, though such crises now seem less likely to mutate into global contagion.
For private equity, maintaining balanced allocations across geographies and vintages has always been the key to smoothing out the effects of boom and bust cycles. Spotting undervalued sectors and businesses and having the knowledge and skills to carve out new niches can yield great results. Private equity stands wellpositioned to benefit.
14 Preqin data comparison Q3 2012 and Q3 2013; Preqin data 1989–2011 Private equity returns compared to MSCI World Index 15 Cogent Partners Secondary Market Trends & Outlook, January 2014
| £93m Distributions from PIP's mature portfolio |
23% Annualised distribution rate |
24% Average uplift on PIP's 50 largest distributions |
|---|---|---|
| £19m Calls made on existing commitments |
£76m New commitments made to private equity funds, mainly secondaries |
£20m Committed to 11 co-investments |
| £74m Net portfolio cash flow generated |
5.7% Return on underlying assets |
7.8 years Weighted average age of portfolio |
PIP received more than 8001 distributions in the half-year, with many at significant uplifts to carrying value. The Company's mature and diversified portfolio should continue to generate significant distributions in the coming quarters.
Distributions by Region and Stage
PIP received £93m in proceeds from the portfolio in the six months to 31st December 2013, implying an annualised distribution rate of 23% of the opening private equity assets.
The US accounted for the majority of PIP's distributions, where market conditions enabled a good level of exits. European distributions were also strong, consistent with the signs of recovery shown by the wider European economy.
Quarterly distribution rates remained strong in the half-year, reflecting both market conditions and the maturity of PIP's portfolio.
Generalist 2%
Mature vintages tend to distribute at higher rates. With a weighted average fund maturity of 7.8 years, PIP has a mature portfolio that should continue to generate significant levels of cash, particularly if we see sustained improvements in financial markets.
1 This figure looks through feeders and funds-of-funds. 2 Distribution rate equals distributions in period divided by opening portfolio value.
Over a two-and-a-half-year investment period, Vue made three add-on acquisitions and doubled the number of cinemas under ownership
EBITDA more than doubled between acquisition and June 2013 with a successful pan-Asian expansion strategy
Revenue and EBITDA doubled under Genstar's ownership, with expansion of its global footprint through organic growth and strategic acquisitions
Company is performing well and has returned cash in the first year of investment. The company was purchased at a lower EBITDA multiple than quoted comparable companies' averages
Revenue doubled under Equistone's investment period, with the bulk of growth achieved organically through expansion into the rapidly growing and highly complex e-security market
During Advent's ownership, the company's EBITDA almost tripled as a result of three key actions: further diversification of product offering, capacity extension and geographical expansion
(CONTINUED)
The chart shows the range of multiples on initial cost achieved by the underlying fund manager on PIP's largest 50 distributions where information was available. The value-weighted average cost multiple of the sample was 3.0 times, highlighting the continued ability of private equity managers to create significant value over the course of an investment.
1 The available data in the sample represented approximately 31% by value of PIP's total distributions for the half-year to 31st December 2013. This data is based upon gross cost multiples available at the time of the distribution.
The chart shows the range of uplifts on liquidity event achieved by the underlying fund manager on the largest 50 distributions where information was available. The value-weighted average uplift of the sample was 24%. This average uplift is consistent with PIP's view that realisations tend to be significantly incremental to returns. PIP's mature portfolio is well placed to continue to generate a good level of distributions in the coming year.
2 Uplift on liquidity event compares the value received upon realisation against the investment's carrying value prior to the transaction taking place. In the event of an IPO, the uplift is the difference between the carrying value prior to the IPO and the value post IPO. The available data in the sample represented approximately 31% by value of PIP's total distributions for the half-year to 31st December 2013.
SAMPLE DISTRIBUTIONS BY NUMBER (%)
All sectors provided good levels of distributions.
The most common forms of exit within the largest 50 distributions were secondary buyouts and trade sales. PIP also benefited from a number of IPOs, predominantly in Europe.
| PRA International Healthcare Clinical research organisation 2.1 1 Paper Source Industrials Wholesale paper distributor 1.7 2 Computerlinks Information Technology IT security and internet solutions 1.5 3 Vue Entertainment Consumer Multiplex cinema operator 1.4 4 US Silica Materials Miner and processor of industrial sand 1.3 5 Avanza Industrials Transport services provider 1.2 6 Oxea Group Materials Supplier of chemicals and derivatives 1.2 7 Host Europe Group Information Technology Internet hosting company 1.0 8 McGraw-Hill Education Consumer Educational materials and learning solutions 1.0 9 Lojas Americanas Consumer Brazilian department store chain 0.9 10 Cathedral Capital Financials Catastrophe insurance provider 0.9 11 Cover-More Financials Travel insurance provider 0.9 12 Tinkoff Credit Systems Financials Credit card and consumer finance company 0.9 13 Rosetta Stone Consumer Language learning software solutions 0.9 14 Hugo Boss Consumer Fashion and luxury goods 0.8 15 Allied Glass Group Materials Glass containers and bottles 0.8 16 Hydron Consumer Contact lens manufacturer 0.8 17 Realogy Corporation Financials Real estate franchise and brokerage 0.7 18 Bargain Booze Consumer UK off licence and convenience store chain 0.7 19 Campofrio Food Group Consumer Processed meat products 0.7 20 Powervar, Inc. Industrials Power management system and protection equipment provider 0.6 21 R&R Ice Cream Consumer Private-label frozen food products 0.6 22 The Brickman Group Industrials Commercial landscaping services 0.6 23 CliniSys Solutions Limited Healthcare Laboratory software systems 0.6 24 Astex Pharmaceuticals Healthcare Development of oncology and virology drugs 0.6 25 HUB International Financials Insurance brokerage firm 0.6 26 Japan Home Centre Consumer Houseware retail stores 0.5 27 Domestic & General Financials Extended warranties for major domestic electrical appliances 0.5 28 Stock Spirits Group Consumer Producer and distributor of branded spirits 0.5 29 HCA Healthcare Healthcare Healthcare service provider 0.5 30 Yandex Information Technology Russian language search engine and portal 0.5 31 ConvaTec Healthcare Medical technologies 0.5 32 Genesee & Wyoming Industrials Railroad operator 0.5 33 Ascribe Healthcare Software solutions for healthcare providers 0.5 34 Rhiag Group Consumer Replacement automotive component distributor 0.5 35 Merlin Entertainment Consumer Leisure facilities 0.4 36 Copano Energy Energy Transportation and processing of natural gas 0.4 37 Sprouts Farmers Market Consumer Organic and healthy-living grocery segment 0.4 38 ExactTarget Information Technology Cross-channel digital marketing software-as-a-service solutions 0.4 39 ProSiebenSat.1 Consumer German television broadcasting 0.4 40 Neiman Marcus Group Consumer Luxury retailer 0.4 41 MidCap Financial Financials Debt solutions to middle market healthcare companies 0.4 42 Northern Tier Energy Energy Downstream energy company 0.4 43 bpost Industrials Belgium postal services provider 0.4 44 Trainline.com Information Technology Online train ticket retailer 0.4 45 RE/MAX Financials Real estate franchise 0.4 46 Tableau Software Information Technology Big data visualisation software 0.4 47 HellermannTyton Industrials Cable management solutions 0.4 48 Diversified Foodsupply Industrials Equipment maintenance for food service industry 0.4 49 J. Crew Consumer Specialty apparel retailer 0.4 50 TOTAL 35.5 COVERAGE OF TOTAL DISTRIBUTIONS 38% |
NUMBER | COMPANY1 | SECTOR | DESCRIPTION | FUND DISTRIBUTIONS £M |
|---|---|---|---|---|---|
Relates to the main company associated with each distribution.
Investments called during the half-year ranged across many sectors and regions, from retail firms to restaurant chains, IT companies to specialised manufacturers and from financial services companies to oil and gas exploration companies.
PIP's call rate continued to decline in the September quarter, consistent with the trend from the first six months of 2013. However, the call rate jumped significantly in the December quarter as PIP received a number of larger capital calls from managers.
The largest 25 calls show a high proportion of new investment focused on the consumer sector. Good-quality consumer companies, often operating in niches with solid customer bases and sound business models, should be well positioned to benefit from a continuation in the recovery of the global economy.
1 Call rate equals calls in period divided by opening undrawn commitments. All call figures exclude the acquisition cost of new secondary and co-investment transactions.
17
| COMPANY 1 | SECTOR | DESCRIPTION | FUND CALLS £M |
|---|---|---|---|
| Byron Burger | Consumer | Chain of high-quality burger restaurants | 2.1 |
| Dedalus | Information Technology | Software development for healthcare providers | 0.7 |
| Beats Electronics | Consumer | Headphones and audio accessories | 0.6 |
| ILX II | Energy | Upstream oil and gas company | 0.5 |
| Umoe Schat-Harding; Noreq | Industrials | Marine life-saving systems | 0.5 |
| Tecomet | Healthcare | Medical instrument manufacturer | 0.4 |
| Santander Asset Management; Dudalina | Financials; Consumer | SAM: Asset management; D: Brazilian fashion manufacturer | 0.4 |
| Assisted Living Concepts; AV Homes | Healthcare; Financials | ALC: Senior care provider; AV: Property development | 0.4 |
| Neiman Marcus | Consumer | Luxury retailer | 0.3 |
| Camfin | Energy | Oil and gas refining and marketing | 0.3 |
| TOTAL | 6.2 | ||
| COVERAGE OF TOTAL CALLS | 33% |
| COMPANY | SECTOR | DESCRIPTION | COMMITMENT £M |
|---|---|---|---|
| Allied Glass | Materials | Glass packaging for food and beverage industries | 2.3 |
| Bracket | Healthcare | Pharmaceutical clinical trial support services | 2.3 |
| Heptagon | Information Technology | Optical components for electronic devices | 2.1 |
| P&I | Information Technology | Payroll and HR software provider | 2.1 |
| ILX II | Energy | Oil and gas exploration | 2.0 |
| ISTA | Industrials | Utility metering hardware and services | 2.0 |
| Xeikon | Industrials | Printing systems supplier | 1.9 |
| Neiman Marcus | Consumer | Luxury goods retailer | 1.8 |
| Inseec | Consumer | Post-secondary education services provider | 1.4 |
| Globecomm | Telecom Services | Communication services and infrastructure | 1.3 |
| Schat Harding | Industrials | Life boat manufacturer and service provider | 1.0 |
| TOTAL | 20.2 |
1 Relates to the main company or companies associated with each call. Calls with insufficient information available have been excluded from the largest 10 list, with the next largest call listed in its place.
PIP committed £96m to new investments during the half-year, concentrated on US buyout assets. These commitments were on average approximately 62% funded on completion, resulting in an initial investment of £60m.
In line with our investment strategy, the majority of new commitments were across four secondary transactions. The four transactions saw PIP committing to 29 funds. PIP also invested in 11 co-investments, and made two primary commitments, taking advantage of attractive opportunities. Co-investments offer PIP access to private equity investments at a lower management cost.
Calls 59% of new commitments were to funds of vintage 2005 to 2008, reflective of the supply of these funds in the secondary market. Co-investments and primary commitments offer PIP exposure to more recent vintages which are currently less available in the secondary market.
Pantheon had information advantage given prior coverage of the managers
Portfolio of three brand name US buyout fund interests with global exposure
(Apax France)
US luxury retailer
the online platform
Attractive long-term growth characteristics and resilience through downturn Capital investment opportunities in systems, store improvements and
Bracket Global (Parthenon Capital Partners)
At 31st December 2013, 7% of PIP's portfolio value and 9% of PIP's outstanding commitments were comprised of funds-offunds directly managed by Pantheon. Pantheon is not entitled to management and commitment fees in respect of PIP's holdings in, and outstanding commitments to, the firm's
managed fund-of-funds vehicles. In addition, Pantheon has agreed that PIP will never be disadvantaged in terms of fees compared with the position it would have been in had it made investments directly into the underlying funds rather than indirectly through such fund-of-funds vehicles.
1 The funds acquired in new secondary transactions are not named due to non-disclosure agreements.
2 Includes three funds which were closed in January 2014. In addition, the unfunded component at acquisition includes a partial deferral of the initial purchase price.
The Company offers a global, diversified selection of private equity assets, carefully selected by Pantheon for their quality. The diversification of PIP's portfolio, with assets spread across different investment styles and stages including buyout, venture and growth, and special situations, helps to reduce volatility both of returns and cash flows. The maturity profile of the portfolio ensures that PIP is not overly exposed to any one vintage. PIP's geographical diversification extends its exposure beyond the US and Europe, to regions with higher rates of economic growth such as Asia.
The majority of PIP's geographical exposure is focused on the US and Europe, reflecting the fact that these regions have the most developed private equity markets.
PIP's assets based in Asia and other regions provide access to faster-growing economies.
| USA | 54% |
|---|---|
| Europe | 33% |
| Asia and other | 13% |
PIP's portfolio is well diversified across different private equity investment styles and stages.
PIP's portfolio is predominantly made up of buyout funds. Exposure to these funds increased in the half-year driven by new investments. Exposure to co-investments, largely buyout in nature, increased to 5% (from 3%) during the half-year, also due to new investments.
PIP has a significant exposure to venture and growth-focused funds, many of which were acquired through the secondary market. The size of PIP's venture and growth portfolio is reducing as a result of distributions and the Company's emphasis on buyouts when making new investments.
1 Fund geography, stage, maturity and primary/secondary charts are based upon underlying fund valuations and account for 100% of PIP's overall portfolio value. Company sector and company geography charts are based upon underlying company valuations at 30th June 2013 and account for greater than 95% of PIP's overall portfolio.
57% of the portfolio is derived from primary transactions. However, PIP's strategic emphasis means that secondaries are becoming an increasingly large proportion of the portfolio.
Primary 57% Secondary 43%
PIP's sectoral diversification helps to minimise the effects of cyclical trends within particular industry segments. Relative to the FTSE All-Share and MSCI World indices, PIP has higher exposure to information technology, and lower exposure to the banking, mining and utilities sectors.
Half of PIP's portfolio is in companies based in North America which has, in our view, better growth prospects than many other areas of the developed world. PIP's European exposure, which represents just over onethird of the portfolio, is predominantly in companies based in the stronger Northern European economies, including the UK, Scandinavia and Germany. Approximately 15% of PIP's portfolio companies are principally active in Asia and other regions, providing access to faster-growing economies such as China and India.
| North America | 52% |
|---|---|
| Asia and other | 15% |
| UK | 11% |
| Scandinavia | 5% |
| Germany | 4% |
| Benelux | 3% |
| Central and Eastern Europe | 3% |
| France | 2% |
| Italy | 2% |
| Iberia | 2% |
| Other Europe | 1% |
Portfolio Return: Half-Year to 31st December 2013 12.0 10.0 8.0 6.0 4.0 2.0 0.0 PORTFOLIO WEIGHTING (%) RETURN (%) LARGE/MEGA BUYOUT VENTURE & GROWTH PIP GENERALIST CO-INVESTMENTS SMALL/MID BUYOUT SPECIAL SITUATIONS NAV% 29% 27% 100% 1% 5% 32% 5% 6.5% 5.4% 8.2% 5.7% 5.2% 2.1% 3.7%
Venture and growth and buyout investments have differing leverage characteristics.
Valuation Multiple at 30th June 2013
Annual EBITDA Growth: PIP Sample vs Indices
1 Portfolio returns include income, exclude gains and losses from foreign exchange movements, and look through feeders and funds-of-funds.
2 Buyout Sample Methodology The sample buyout figures for the 12 months to 30th June 2013 were calculated from the companies in PIP's largest 50 buyout funds and direct investments at 30th June 2013. The figures are based on unaudited data collected by Pantheon from managers with which PIP is invested. The revenue and EBITDA figures were based upon the 12 months to 30th June 2013 and provide coverage of 47% and 48% respectively of PIP's buyout portfolio. Individual company revenue and EBITDA growth figures were calculated in local currency and capped between +100% and -100% to avoid large distortions from excessive outliers. Enterprise value is defined as carrying value + net debt. The net debt and enterprise value figures were based upon 30th June 2013 underlying valuations. The valuation multiple sample covers approximately 50% of PIP's buyout portfolio. The debt multiple sample covers 45% of PIP's buyout portfolio. The weightings are by portfolio NAV. Historical figures are consistent with PIP's prior annual reports and do not contain the same sampled companies as the current period. Index statistics sourced from S&P Capital IQ and Bloomberg.
1 Returns exclude foreign exchange movements.
2 Distribution rate equals distributions in period divided by opening portfolio value.
At 31st December 2013 PIP had cash balances of £68m.
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 is due to expire in June 2015 and comprises facilities of \$82m and €57m which, using exchange rates at 31st December 2013, amount to a sterling equivalent of £97m. At 31st December 2013 the Loan Facility remained fully undrawn.
At 31st December 2013, the Company had £165m of available financing, comprised of its cash balances and Loan Facility. The sum of PIP's available financing and private equity portfolio provides 5.2 times cover relative to undrawn commitments.
It should be noted that a portion of the Company's undrawn commitments of £188m are unlikely to be called in full by the underlying managers. When a fund is past its investment period, which is typically between five and six years, it generally cannot make any new investments (only drawing capital to fund existing follow-on investments or pay expenses). As a result, the rate of capital calls in these funds tends to slow dramatically. Approximately 63% of the Company's undrawn commitments are in fund vintages that are greater than six years old.
PIP bought back 1.4%1 of its shares in the half-year, taking advantage of the investment opportunity offered by its shares continuing to trade at high discounts. In total, 0.7m ordinary shares and 0.3m redeemable shares were bought back at weighted average discounts of 22% and 25% respectively, resulting in a total uplift to NAV per share of 4.4p, or 0.3% of opening NAV per share. Whilst PIP's shares trade at high discounts the Board will continue to consider further share buybacks for investment purposes.
Undrawn Commitments Portfolio Value Available Cash and Bank Loan Facility
PIP's outstanding commitments to investments decreased to £188m at 31st December 2013 compared with £195m at 30th June 2013. The Company paid calls of £19m and acquired an additional £36m of outstanding commitments associated with new investments made in the half-year. The remaining movements of -£24m were caused by foreign exchange movements and cancellations of outstanding commitments in the portfolio's underlying funds.
63% of PIP's undrawn commitments are in the 2007 vintage or older. Most relate to funds that are outside their investment periods and, as such, are expected to have slower call rates. It is likely that a portion of these commitments will not be drawn.
| % OF PIP'S TOTAL PRIVATE | ||||
|---|---|---|---|---|
| NUMBER | MANAGER | REGION2 | STAGE BIAS | EQUITY ASSET VALUE |
| 1 | TPG | Global | Buyout | 4.2% |
| 2 | Providence Equity Partners | USA | Buyout | 2.4% |
| 3 | Carlyle Group | Global | Generalist | 2.4% |
| 4 | Apax Partners | Europe | Buyout | 2.3% |
| 5 | Blackstone Capital Partners | USA | Buyout | 2.2% |
| 6 | Vision Capital | Europe | Buyout | 2.1% |
| 7 | CVC Capital Partners | Global | Buyout | 2.1% |
| 8 | Apollo Management | USA | Buyout | 2.0% |
| 9 | Hutton Collins | Europe | Special Situations | 1.7% |
| 10 | Brentwood Associates | USA | Buyout | 1.6% |
| 11 | Golden Gate Capital | USA | Buyout | 1.6% |
| 12 | EQT | Global | Buyout | 1.6% |
| 13 | Cinven Partners | Europe | Buyout | 1.4% |
| 14 | Equistone | Europe | Buyout | 1.4% |
| 15 | Baring Vostok Capital Partners | Russia | Buyout | 1.3% |
| 16 | Oak Investment Partners | USA | Venture and Growth | 1.2% |
| 17 | Baring Private Equity Asia | Asia | Growth | 1.2% |
| 18 | Bain Capital | USA | Buyout | 1.2% |
| 19 | Doughty Hanson & Co | Europe | Buyout | 1.2% |
| 20 | Nova Capital Management | Europe | Buyout | 1.1% |
| 21 | IK Investment Partners | Europe | Buyout | 1.1% |
| 22 | Permira | Europe | Buyout | 1.0% |
| 23 | Mid-Europa Partners | Europe | Buyout | 1.0% |
| 24 | Nordic Capital | Europe | Buyout | 1.0% |
| 25 | Mercapital | Europe | Buyout | 0.9% |
| 26 | Summit Partners | Global | Generalist | 0.9% |
| 27 | Avista Capital Partners | USA | Buyout | 0.9% |
| 28 | Riverstone Holdings | USA | Energy | 0.9% |
| 29 | Altor Capital | Europe | Buyout | 0.9% |
| 30 | Francisco Partners | USA | Buyout | 0.9% |
| 31 | Polaris Venture Partners | USA | Venture and Growth | 0.9% |
| 32 | Matlin Patterson | USA | Special Situations | 0.9% |
| 33 | Genstar Capital Partners | USA | Buyout | 0.9% |
| 34 | ABS Capital Partners | USA | Venture and Growth | 0.9% |
| 35 | Canaan Partners | USA | Venture and Growth | 0.9% |
| 36 | New Enterprise Associates | USA | Venture and Growth | 0.8% |
| 37 | Warburg Pincus Partners | Global | Generalist | 0.8% |
| 38 | Catalyst Investors | USA | Venture and Growth | 0.8% |
| 39 | Tricor US Management | USA | Buyout | 0.8% |
| 40 | Sterling Investment Partners | USA | Buyout | 0.8% |
| 41 | Technology Crossover Ventures | USA | Venture and Growth | 0.8% |
| 42 | Bridgepoint Partners | Europe | Buyout | 0.7% |
| 43 | KKR | Global | Buyout | 0.7% |
| 44 | Bencis Capital Partners | Europe | Buyout | 0.7% |
| 45 | Thomas H Lee Partners | USA | Buyout | 0.7% |
| 46 | Index Ventures | Europe | Venture and Growth | 0.7% |
| 47 | ARCH Venture Partners | USA | Venture and Growth | 0.7% |
| 48 | Hony Capital | Asia | Buyout | 0.6% |
| 49 | Weston Presidio Capital | USA | Venture and Growth | 0.6% |
| 50 | Yorktown Partners | USA | Energy | 0.6% |
| Coverage | of PIP's total private equity asset value |
61.0% |
Percentages look through feeders and funds-of-funds.
Refers to the regional exposure of the funds in which PIP is invested.
| % OF PIP'S TOTAL PRIVATE | ||||
|---|---|---|---|---|
| NUMBER | COMPANY | COUNTRY | SECTOR | EQUITY ASSET VALUE |
| 1 | Attendo | Sweden | Healthcare | 1.0% |
| 2 | JDR | USA | Energy | 0.9% |
| 3 | Spotify | Sweden | Information Technology | 0.8% |
| 4 | Bibby Scientific | UK | Industrials | 0.8% |
| 5 | Applied Medical Resources | USA | Healthcare | 0.7% |
| 6 | InterXion | Netherlands | Information Technology | 0.7% |
| 7 | Convatec | USA | Healthcare | 0.5% |
| 8 | LBX Pharmacy Chain | China | Consumer | 0.5% |
| 9 | SoftBrands | USA | Information Technology | 0.5% |
| 10 | Fairway Market | USA | Consumer | 0.5% |
| 11 | Oriental Brewery Company | South Korea | Consumer | 0.4% |
| 12 | CSPC Pharmaceutical | China | Healthcare | 0.4% |
| 13 | Alarm.com | USA | Industrials | 0.4% |
| 14 | CPL Industries | UK | Energy | 0.4% |
| 15 | CPI Card Group | USA | Industrials | 0.4% |
| 16 | Cosan | Brazil | Energy | 0.4% |
| 17 | Nord Anglia Education | China | Consumer | 0.4% |
| 18 | EP Energy | USA | Energy | 0.4% |
| 19 | The Teaching Company | USA | Consumer | 0.4% |
| 20 | Property Portfolio | UK | Financials | 0.4% |
| 21 | PRA International | USA | Healthcare | 0.3% |
| 22 | AutoTrader Group | USA | Information Technology | 0.3% |
| 23 | Mindbody | USA | Information Technology | 0.3% |
| 24 | Zoe's Kitchen | USA | Consumer | 0.3% |
| 25 | Michaels Stores | USA | Consumer | 0.3% |
| 26 | GGC Credit Opps | USA | Financials | 0.3% |
| 27 | Standard Pacific Corporation | USA | Consumer | 0.3% |
| 28 | Wrist | Denmark | Industrials | 0.3% |
| 29 | Evonik | Germany | Materials | 0.3% |
| 30 | Allison Transmission | USA | Industrials | 0.3% |
| 31 | China Yongda Automobiles | China | Consumer | 0.3% |
| 32 | Jimmy John's | USA | Consumer | 0.3% |
| 33 | Classic Fine Foods | Singapore | Consumer | 0.3% |
| 34 | Booz Allen Hamilton | USA | Industrials | 0.3% |
| 35 | TMF | Netherlands | Financials | 0.3% |
| 36 | BrightHouse | UK | Consumer | 0.3% |
| 37 | Vitruvian Exploration | USA | Energy | 0.3% |
| 38 | Byron Burger | UK | Consumer | 0.3% |
| 39 | USI | USA | Financials | 0.3% |
| 40 | Siltron | South Korea | Information Technology | 0.3% |
| 41 | Standard Bancshares | USA | Financials | 0.3% |
| 42 | Heptagon | USA | Information Technology | 0.3% |
| 43 | Syniverse Technologies | USA | Telecommunication Services | 0.3% |
| 44 | Wagamama | UK | Consumer | 0.2% |
| 45 | Allied Glass | Europe | Industrials | 0.2% |
| 46 | K-Mac Enterprises | USA | Consumer | 0.2% |
| 47 | Visma | Norway | Information Technology | 0.2% |
| 48 | Caffè Nero | UK | Consumer | 0.2% |
| 49 | ATI | USA | Healthcare | 0.2% |
| 50 | Sapphire Energy | USA | Energy | 0.2% |
| TOTAL | 19.2% |
The largest 50 companies table is based upon underlying company valuations at 30th June 2013, adjusted for known calls, distributions, new investment commitments and post-valuation information.
| NAV | ORDINARY | PRIVATE EQUITY | OUTSTANDING | |||
|---|---|---|---|---|---|---|
| NAV1,2 | PER SHARE2 | SHARE PRICE | PORTFOLIO | COMMITMENTS | ||
| Historical Data | (£M) | (PENCE) | (PENCE) | (£M) | (£M) | |
| Half-year ended 31st December 2013 | 871.6 | 1,303.9 | 1,028.0 | 803 | 188 | |
| Financial year end (30th June): | ||||||
| 2013 | 903.3 | 1,331.9 | 1,042.0 | 826 | 195 | |
| 2012 | 845.4 | 1,193.5 | 725.5 | 800 | 191 | |
| 2011 | 733.1 | 1,104.1 | 714.0 | 810 | 243 | |
| 2010 | 636.5 | 958.7 | 486.0 | 763 | 331 | |
| 2009 | 513.6 | 773.6 | 295.3 | 648 | 428 | |
| 2008 | 736.1 | 1,108.7 | 750.0 | 806 | 641 | |
| 2007 | 610.3 | 919.2 | 917.5 | 527 | 528 | |
| 2006 | 441.0 | 796.8 | 726.5 | 372 | 365 | |
| 2005 | 381.5 | 657.9 | 650.5 | 315 | 245 | |
| 2004 | 245.2 | 572.5 | 463.0 | 233 | 137 | |
| 2003 | 220.9 | 546.8 | 447.0 | 237 | 158 | |
| 2002 | 196.4 | 541.6 | 486.5 | 175 | 138 | |
| 2001 | 206.1 | 669.1 | 574.0 | 201 | 138 | |
| 2000 | 161.3 | 599.9 | 457.5 | 140 | 77 | |
| 1999 | 145.8 | 405.6 | 302.5 | 78 | 45 | |
| 1998 | 131.3 | 368.6 | 294.5 | 79 | 50 | |
| 1997 | 116.8 | 328.4 | 270.0 | 73 | 47 | |
| 1996 | 106.2 | 302.5 | 225.0 | 48 | 25 | |
| 1995 | 86.9 | 255.1 | 207.5 | 33 | 8 | |
| 1994 | 47.4 | 239.6 | 176.5 | 42 | 7 | |
| 1993 | 30.8 | 195.5 | 172.5 | 28 | 1 | |
| 1992 | 21.3 | 139.7 | 93.5 | 28 | 0 | |
| 1991 | 21.0 | 129.1 | 86.5 | 31 | 1 | |
| 1990 | 20.2 | 126.7 | 80.5 | 32 | 2 | |
| 1989 | 16.7 | 120.9 | 95.0 | 25 | 2 | |
| 1988 | 12.4 | 102.5 | 75.0 | 2 | 0 |
1 Includes participating loan notes in issue between 2000 and 2004.
Historical NAV and NAV per share figures disclosed in the table above relate to adjusted NAV and adjusted NAV per share where applicable.
The Company's primary investment objective is to maximise capital growth by investing in a diversified portfolio of private equity funds and directly in private companies.
The Company's policy is to make unquoted investments, in general by subscribing for investments in new private equity funds ("Primary Investment") and by buying secondary interests in existing private equity funds ("Secondary Investment"), and from time to time to capitalise further on its fund investment activities by acquiring direct holdings in unquoted companies, 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 invest in private equity funds which are quoted. In addition, the Company may from time to time hold quoted investments in consequence of such investments being distributed to the Company from its fund investments or in consequence of an investment in an unquoted company becoming quoted. The Company will not otherwise normally invest in quoted securities, although the Company 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:
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 pipeline of future cash flows alters.
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.
The important events that have occurred during the period under review, the key factors influencing the financial statements and the principal uncertainties for the remaining six months of the financial year are set out in the Chairman's Statement and the Manager's Review.
The principal risks facing the Company are substantially unchanged since the date of the Annual Report for the year ended 30th June 2013 and continue to be as set out in that report.
Risks faced by the Company include, but are not limited to, funding of investment commitments, risks relating to investment opportunities, financial risk of private equity, long-term nature of private equity investments, liquidity risk, valuation uncertainty, gearing, foreign currency risk, the unregulated nature of underlying investments, defaults on commitments, taxation, the risks associated with the engagement of the Manager or other third party advisers and the implementation of the Alternative Investment Fund Managers' Directive ("AIFMD").
Each Director confirms that to the best of their knowledge:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Company during that period; and any changes in the related party transactions described in the last annual report that could do so.
This Half-Yearly Financial Report was approved by the Board of Directors on 27th February 2014 and the above responsibility statement was signed on its behalf by Tom Bartlam, Chairman.
| SIX MONTHS TO 31ST DECEMBER 2013 | SIX MONTHS TO 31ST DECEMBER 2012 | YEAR TO 30TH JUNE 2013 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| REVENUE | CAPITAL | TOTAL* | REVENUE | CAPITAL | TOTAL* | REVENUE | CAPITAL | TOTAL* | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| (Losses)/gains on investments designated | |||||||||
| at fair value through profit or loss** | - | (15,946) | (15,946) | - | 3,319 | 3,319 | - | 82,202 | 82,202 |
| Currency (losses)/gains on cash and | |||||||||
| borrowings | - | (7,466) | (7,466) | - | (1,401) | (1,401) | - | 3,720 | 3,720 |
| Investment income | 7,925 | - | 7,925 | 6,600 | - | 6,600 | 12,410 | - | 12,410 |
| Investment management fees | (4,232) | - | (4,232) | (4,317) | - | (4,317) | (8,839) | - | (8,839) |
| Other expenses | (615) | - | (615) | (543) | - | (543) | (1,134) | - | (1,134) |
| Return on ordinary activities before |
|||||||||
| financing costs and tax |
3,078 | (23,412) | (20,334) | 1,740 | 1,918 | 3,658 | 2,437 | 85,922 | 88,359 |
| Interest payable and similar charges/ | |||||||||
| finance costs | (724) | - | (724) | (715) | - | (715) | (1,453) | - | (1,453) |
| Return on ordinary activities |
|||||||||
| before tax |
2,354 | (23,412) | (21,058) | 1,025 | 1,918 | 2,943 | 984 | 85,922 | 86,906 |
| Tax on ordinary activities | (612) | - | (612) | (1,037) | - | (1,037) | (2,401) | - | (2,401) |
| Return on ordinary activities after |
|||||||||
| tax for the period *** |
1,742 | (23,412) | (21,670) | (12) | 1,918 | 1,906 | (1,417) | 85,922 | 84,505 |
* The total column of the statement represents the Company's profit and loss statement prepared in accordance with UK Accounting Standards. The supplementary revenue return and capital columns are prepared under guidance published by the Association of Investment Companies.
All revenue and capital items in the above statement relate to continuing operations.
No operations were acquired or discontinued during the period.
There were no recognised gains or losses other than those passing through the Income Statement.
| CAPITAL | ||||||||
|---|---|---|---|---|---|---|---|---|
| CAPITAL | OTHER | RESERVE ON | ||||||
| SHARE | SHARE REDEMPTION | CAPITAL | INVESTMENTS | SPECIAL | REVENUE | |||
| CAPITAL | PREMIUM | RESERVE | RESERVE | HELD | RESERVE | RESERVE | TOTAL | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Movement for the six months ended | ||||||||
| 31st December 2013 | ||||||||
| OPENING EQUITY SHAREHOLDERS' FUNDS | 23,454 | 283,555 | 2,091 | 314,138 | 296,763 | 41,304 | (58,021) | 903,284 |
| Return for the period | - | - | - | 10,969 | (34,381) | - | 1,742 | (21,670) |
| Ordinary shares bought back for cancellation | (452) | - | 452 | - | - | (7,044) | - | (7,044) |
| Redeemable shares bought back for cancellation | (3) | - | 3 | - | - | (3,005) | - | (3,005) |
| CLOSING EQUITY SHAREHOLDERS' FUNDS | 22,999 | 283,555 | 2,546 | 325,107 | 262,382 | 31,255 | (56,279) | 871,565 |
| Movement for the six months ended | ||||||||
| 31st December 2012 | ||||||||
| OPENING EQUITY SHAREHOLDERS' FUNDS | 24,549 | 283,555 | 996 | 265,724 | 259,255 | 67,939 | (56,604) | 845,414 |
| Return for the period | - | - | - | 19,581 | (17,663) | - | (12) | 1,906 |
| Ordinary shares bought back for cancellation | (718) | - | 718 | - | - | (9,074) | - | (9,074) |
| Redeemable shares bought back for cancellation | (8) | - | 8 | - | - | (6,951) | - | (6,951) |
| CLOSING EQUITY SHAREHOLDERS' FUNDS | 23,823 | 283,555 | 1,722 | 285,305 | 241,592 | 51,914 | (56,616) | 831,295 |
| Movement for the year ended | ||||||||
| 30th June 2013 | ||||||||
| OPENING EQUITY SHAREHOLDERS' FUNDS | 24,549 | 283,555 | 996 | 265,724 | 259,255 | 67,939 | (56,604) | 845,414 |
| Return for the year | - | - | - | 48,414 | 37,508 | - | (1,417) | 84,505 |
| Ordinary shares bought back for cancellation | (1,081) | - | 1,081 | - | - | (14,764) | - | (14,764) |
| Redeemable shares bought back for cancellation | (14) | - | 14 | - | - | (11,871) | - | (11,871) |
| CLOSING EQUITY SHAREHOLDERS' FUNDS | 23,454 | 283,555 | 2,091 | 314,138 | 296,763 | 41,304 | (58,021) | 903,284 |
| AS AT 31ST DECEMBER 2013 | AS AT 31ST DECEMBER 2012 | AS AT 30TH JUNE 2013 | ||
|---|---|---|---|---|
| £'000 | £'000 | £'000 | ||
| Fixed assets | ||||
| Investments designated at fair value through profit or loss | 803,366 | 766,719 | 826,423 | |
| Current assets | ||||
| Debtors | 967 | 1,998 | 1,051 | |
| Cash at bank | 68,103 | 69,915 | 78,387 | |
| 69,070 | 71,913 | 79,438 | ||
| Creditors: amounts falling due within one year | ||||
| Other creditors | 871 | 7,337 | 2,577 | |
| 871 | 7,337 | 2,577 | ||
| NET CURRENT ASSETS | 68,199 | 64,576 | 76,861 | |
| NET ASSETS | 871,565 | 831,295 | 903,284 | |
| Capital and reserves | ||||
| Called-up share capital | 22,999 | 23,823 | 23,454 | |
| Share premium | 283,555 | 283,555 | 283,555 | |
| Capital redemption reserve | 2,546 | 1,722 | 2,091 | |
| Other capital reserve | 325,107 | 285,305 | 314,138 | |
| Capital reserve on investments held | 262,382 | 241,592 | 296,763 | |
| Special reserve | 31,255 | 51,914 | 41,304 | |
| Revenue reserve | (56,279) | (56,616) | (58,021) | |
| TOTAL EQUITY SHAREHOLDERS' FUNDS | 871,565 | 831,295 | 903,284 | |
| NET ASSET VALUE PER SHARE – ORDINARY AND REDEEMABLE | 1,303.87p | 1,206.32p | 1,331.89p | |
| Number of Ordinary shares in issue |
33,832,013 | 35,049,013 | 34,507,013 | |
| Number of redeemable shares in issue |
33,012,534 | 33,862,534 | 33,312,534 | |
| Total shares in issue |
66,844,547 | 68,911,547 | 67,819,547 |
| SIX MONTHS TO | SIX MONTHS TO | YEAR TO | |
|---|---|---|---|
| 31ST DECEMBER 2013 | 31ST DECEMBER 2012 | 30TH JUNE 2013 | |
| £'000 | £'000 | £'000 | |
| Cash flow from operating activities | |||
| Investment income received | 7,899 | 6,570 | 12,357 |
| Deposit and other interest received | 26 | 30 | 53 |
| Investment management fees paid | (4,481) | (4,387) | (9,574) |
| Performance fee paid | - | - | (5,057) |
| Secretarial fees paid | (115) | (127) | (211) |
| Other cash payments | (477) | (68) | (1,077) |
| Withholding tax deducted | (612) | (1,037) | (2,401) |
| NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES | 2,240 | 981 | (5,910) |
| Servicing of finance | |||
| Loan commitment and arrangement fees paid | (551) | (539) | (1,138) |
| NET CASH OUTFLOW FROM RETURNS ON INVESTMENT AND SERVICING OF FINANCE | (551) | (539) | (1,138) |
| Capital expenditure and financial investment | |||
| Purchases of investments | (78,866) | (63,262) | (128,198) |
| Disposals of investments | 85,811 | 99,024 | 183,995 |
| NET CASH INFLOW FROM CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT | 6,945 | 35,762 | 55,797 |
| NET CASH INFLOW BEFORE FINANCING | 8,634 | 36,204 | 48,749 |
| Financing | |||
| Ordinary shares purchased for cancellation | (8,484) | (9,074) | (13,324) |
| Redeemable shares purchased for cancellation | (3,005) | (6,951) | (11,871) |
| NET CASH OUTFLOW FROM FINANCING | (11,489) | (16,025) | (25,195) |
| (DECREASE)/INCREASE IN CASH | (2,855) | 20,179 | 23,554 |
The financial information has been prepared using the accounting policies set out in the statutory accounts for the year ended 30th June 2013 and are in accordance with the Accounting Standards Board Statement 'Half-Yearly Financial Reports' issued in July 2007.
These accounting policies are based on the historical cost basis of accounting, except for the measurement at fair value of investments and financial instruments, and are in accordance with applicable UK accounting standards.
The accounting policies are also consistent with the Statement of Recommended Practice (revised January 2009) issued by the Association of Investment Companies.
The financial information contained in this Half-Yearly Financial Report is not the Company's statutory accounts. The financial information for the six months ended 31st December 2013 and 31st December 2012 are not for a financial year and have not been audited but have been reviewed by the Company's auditors and their report is attached. The statutory accounts for the financial year ended 30th June 2013 have been delivered to the Registrar of Companies and received an audit report which was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain any statements under section 498 (2) and (3) of the Companies Act 2006.
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 Chairman's Statement and Manager's Review on pages 4 to 29.
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 the foreseeable future. For this reason, they consider it appropriate to continue to adopt the going concern basis in preparing the financial statements.
The tax charge for the six months to 31st December 2013 is £612,000 (six months to 31st December 2012: £1,037,000; year to 30th June 2013: £2,401,000). The tax charge is wholly comprised of irrecoverable withholding tax suffered. Investment gains are exempt from capital gains tax owing to the Company's status as an investment trust.
Under the FCA listing rules, the Manager, Pantheon Ventures (UK) LLP, is regarded as a related party of the Company.
During the period, services with a total value of £4,522,000, being £4,232,000 directly from Pantheon Ventures (UK) LLP and £290,000 via Pantheon managed fund investments (31st December 2012: £4,620,000, £4,317,000 and £303,000; year to 30th June 2013: £9,454,000, £8,839,000 and £615,000 respectively) were purchased by the Company. At 31st December 2013, the amount due to Pantheon Ventures (UK) LLP in management fees disclosed under creditors was £520,000.
The Manager is entitled to a monthly management fee at an annual rate of (i) 1.5% on the value of the Company's investment assets up to £150m and (ii) 1% on the value of such assets in excess of £150m. In addition, the Manager is entitled to a monthly commitment fee of 0.5% per annum on the aggregate amount committed (but unpaid) in respect of investments, up to a maximum amount equal to the total value of the Company's investment assets.
The Manager is entitled to a performance fee from the Company in respect of each 12 calendar month period ending on 30th 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 six month period ended 31st December 2013, the notional performance fee hurdle is a net asset value per share of 1,932.06p.
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.
| 6. Return per Ordinary and Redeemable Share | |
|---|---|
| SIX MONTHS TO 31ST DECEMBER 2013 | SIX MONTHS TO 31ST DECEMBER 2012 | YEAR TO 30TH JUNE 2013 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| REVENUE | CAPITAL | TOTAL | REVENUE | CAPITAL | TOTAL | REVENUE | CAPITAL | TOTAL | |
| Return on ordinary activities | |||||||||
| after tax £'000 | 1,742 | (23,412) | (21,670) | (12) | 1,918 | 1,906 | (1,417) | 85,922 | 84,505 |
| Weighted average ordinary | |||||||||
| and redeemable shares | 67,389,248 | 70,204,792 | 69,296,879 | ||||||
| Return per ordinary and | |||||||||
| redeemable share | 2.58p | (34.74)p | (32.16)p | (0.02)p | 2.73p | 2.71p | (2.04)p | 123.99p | 121.95p |
| 31ST DECEMBER 2013 | 31ST DECEMBER 2012 | 30TH JUNE 2013 | |
|---|---|---|---|
| Net assets attributable in £'000 | 871,565 | 831,295 | 903,284 |
| Ordinary and redeemable shares | 66,844,547 | 68,911,547 | 67,819,547 |
| Net asset value per share – ordinary and redeemable | 1,303.87p | 1,206.32p | 1,331.89p |
| SIX MONTHS TO 31ST DECEMBER 2013 £'000 |
SIX MONTHS TO 31ST DECEMBER 2012 £'000 |
YEAR TO 30TH JUNE 2013 £'000 |
|
|---|---|---|---|
| Return on ordinary activities before financing costs and tax | (20,334) | 3,658 | 88,359 |
| Withholding tax deducted | (612) | (1,037) | (2,401) |
| Losses/(gains) on investments | 15,946 | (3,319) | (82,202) |
| Currency losses/(gains) on cash and borrowings | 7,466 | 1,401 | (3,720) |
| (Decrease)/increase in creditors | (266) | 261 | (5,921) |
| Decrease/(increase) in other debtors | 40 | 17 | (25) |
| Net cash inflow /(outflow ) from operating activities |
2,240 | 981 | (5,910) |
| 9. Reconciliation of Net Cash Flows to Movements in Net Funds | ||||
|---|---|---|---|---|
| SIX MONTHS TO | SIX MONTHS TO | YEAR TO | ||
| 31ST DECEMBER 2013 | 31ST DECEMBER 2012 | 30TH JUNE 2013 | ||
| £'000 | £'000 | £'000 | ||
| (Decrease)/increase in cash in the period | (2,855) | 20,179 | 23,554 | |
| Non-cash movement | ||||
| – foreign exchange (losses)/gains | (7,429) | (1,407) | 3,690 | |
| Movement in net cash flows | (10,284) | 18,772 | 27,244 | |
| Net cash at beginning of period | 78,387 | 51,143 | 51,143 | |
| Net funds at end of period |
68,103 | 69,915 | 78,387 | |
| 10. Analysis of Net Funds | |||
|---|---|---|---|
| 31ST DECEMBER 2013 | 31ST DECEMBER 2012 | 30TH JUNE 2013 | |
| £'000 | £'000 | £'000 | |
| Cash at bank | 68,103 | 69,915 | 78,387 |
| 68,103 | 69,915 | 78,387 | |
| LEVEL 1 | LEVEL 2 | LEVEL 3 | TOTAL | |
|---|---|---|---|---|
| £'000 | £'000 | £'000 | £'000 | |
| Unlisted holdings | - | - | 803,327 | 803,327 |
| Listed holdings | 39 | - | - | 39 |
| Total | 39 | - | 803,327 | 803,366 |
| PRIVATE EQUITY INVESTMENTS | |
|---|---|
| £'000 | |
| Opening balance | 826,224 |
| Purchases at cost | 78,866 |
| Transfer of book cost to level 1* | (892) |
| Sales proceeds | (84,371) |
| Total gains or losses included in "Gains on investments" in the Income Statement | |
| – on assets sold | 17,761 |
| – on assets held as at 31st December 2013 | (34,261) |
| CLOSING BALANCE | 803,327 |
* The transfer of book cost to level 1 is due to stock distributions received from private equity investments.
At 31st December 2013 there were financial commitments outstanding of £187.8m (31st December 2012: £183.0m; 30th June 2013: £195.1m) in respect of investments in partly paid shares and interests in private equity funds.
TO PANTHEON INTERNATIONAL PARTICIPATIONS PLC
We have been engaged by the Company to review the financial information in the Half-Yearly Financial Report for the six months ended 31st December 2013 which comprises the Income Statement, Reconciliation of Movements in Equity Shareholders' Funds, Balance Sheet, Cash Flow Statement and Notes to the Half-Yearly Financial Statements. We have read the other information contained in the Half-Yearly Financial Report which comprises only the Performance Summary, Chairman's Statement, Manager's Review and the Interim Management Report and Responsibility Statement of the Directors and considered whether it contains any apparent misstatements or material inconsistencies with the information in the set of financial statements.
This report is made solely to the Company in accordance with guidance contained in ISRE (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity'. Our review work has been undertaken so that we might state to the Company those matters we are required to state to them in a review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusion we have formed.
The Half-Yearly Financial Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Half-Yearly Financial Report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in Note 1, the annual financial statements of the Company are prepared in accordance with applicable United Kingdom law and Accounting Standards (United Kingdom Generally Accepted Accounting Practice) and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts', issued in January 2009. The financial information in the Half-Yearly Financial Report has been prepared in accordance with the Accounting Standards Board Statement 'Half-Yearly Financial Reports' issued in July 2007.
Our responsibility is to express to the Company a conclusion on the financial information in the Half-Yearly Financial Report based on our review.
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Based on our review, nothing has come to our attention that causes us to believe that the financial information in the Half-Yearly Financial Report for the six months ended 31st December 2013 is not prepared, in all material respects, in accordance with the Accounting Standards Board Statement 'Half-Yearly Financial Reports' and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Auditor London 27th February 2014
Tom Bartlam (Chairman) Ian Barby Sir Laurie Magnus Susannah Nicklin Peter Readman Rhoddy Swire
Pantheon Ventures (UK) LLP Authorised and regulated by the FCA
Norfolk House 31 St. James's Square London SW1Y 4JR
Telephone: 020 7484 6200 PIP Investor Relations: [email protected] PIP website: www.pipplc.com Pantheon website: www.pantheon.com
(trading as Capita Asset Services) Beaufort House 51 New North Road Exeter EX4 4EP
Telephone: 01392 412122
Grant Thornton UK LLP 30 Finsbury Square London EC2P 2YU
88 Wood Street London EC2V 7QR
Telephone: 0871 664 0300 Calls cost 10p per minute plus network charges, lines are open 8.30 am–5.30 pm Monday–Friday
Telephone from overseas: +44 (0)20 8639 3399
Covington & Burling LLP 265 Strand London WC2R 1BH
The Share Centre Ltd PO Box 2000 Aylesbury Buckinghamshire HP21 8ZB
Telephone: 08456 185 130 Email: [email protected] Website: www.share.com
Norfolk House 31 St. James's Square London SW1Y 4JR United Kingdom
Telephone: +44 (0)20 7484 6200 Facsimile: +44 (0)20 7484 6201 E-mail: [email protected] Internet: www.pipplc.com
Registered in England number: 2147984 A member of the Association of Investment Companies
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