Interim / Quarterly Report • Dec 31, 2016
Interim / Quarterly Report
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Pantheon International Plc Half-Yearly Financial Report 31 December 2016
Pantheon International ("PIP" or the "Company") invests in a diversified portfolio of private equity assets managed by third party managers across the world.
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 35 years' experience, and a team of over 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 |
| Historical Data | 4 |
| Chairman's Statement | 5 |
| Objective and Investment Policy | 7 |
| Manager's Review | 8 |
| Interim Management Report and Responsibility Statement of the Directors | 37 |
| Income Statement (unaudited) | 38 |
| Statement of Changes in Equity (unaudited) | 39 |
| Balance Sheet (unaudited) | 40 |
| Cash Flow Statement (unaudited) | 41 |
| Notes to the Half-Yearly Financial Statements (unaudited) | 42 |
| Independent Review Report | 46 |
| Glossary of Terms | 47 |
| Directors and Contacts | 48 |
TO 31 DECEMBER 2016
| Other Indicators |
|---|
| +12% | +35% | +28% |
|---|---|---|
| NAV per share increase | Ordinary share price increase | Redeemable share price increase |
| FTSE All Share TR: +12% MSCI World TR: +16% |
FTSE All Share TR: +12% MSCI World TR: +16% |
FTSE All Share TR: +12% MSCI World TR: +16% |
| 17% | £1,324 m |
2,089.5p |
| Ordinary share price discount to NAV |
Net Asset Value | NAV per share |
| JUN 2016: 31% | JUN 2016: £1,187m | JUN 2016: 1,873.6p |
| 28% | £112m | £125m |
| Redeemable share price discount to NAV |
Net cash flow generated from PIP's portfolio in the half year |
New investment commitments made in the half year, £59m of which was drawn |
| JUN 2016: 37% | ||
| 1.35% | 7.0 years | 3.5x |
| Total ongoing charges excluding tax (annualised) |
Weighted average fund age of portfolio |
Ratio of assets and available financing to undrawn commitments |
| JUN 2016: 1.34% | JUN 2016: 7.3 YEARS | JUN 2016: 3.4x |
1
The above chart reconciles the opening and closing NAV per share for the six months to 31 December 2016. * Taxes relate to withholding taxes on investment distributions.
| Performance as at 31 December 2016 | 1 YEAR % |
3 YEARS % P.A. |
5 YEARS % P.A. |
10 YEARS % P.A. |
SINCE INCEPTION % P.A. |
|---|---|---|---|---|---|
| NAV per share* | 26.1 | 17.0 | 13.0 | 9.7 | 11.8 |
| Ordinary share price* | 31.8 | 19.0 | 22.6 | 7.8 | 11.6 |
| FTSE All-Share Total Return | 16.8 | 6.1 | 10.1 | 5.6 | 8.0 |
| MSCI World Total Return (sterling) | 29.0 | 15.1 | 16.3 | 9.3 | 7.9 |
* PIP was launched on 18 September 1987. The figures since inception assume reinvestment of dividends, capital repayments and cash flows from the exercise of warrants.
Historical Record
* Includes the effects of dividends, capital repayments and warrants. NAV figure based upon adjusted NAV per share where applicable.
| Total | 63,359,547 |
|---|---|
| Redeemable shares | 30,297,534 |
| Ordinary shares | 33,062,013 |
| NAV1,2 (£M) |
NAV PER SHARE 2 (PENCE) |
ORDINARY SHARE PRICE (PENCE) |
PRIVATE EQUITY PORTFOLIO (£M) |
OUTSTANDING COMMITMENTS (£M) |
|
|---|---|---|---|---|---|
| Half year ended 31 December 2016 | 1,324 | 2,089.5 | 1,733.0 | 1,154 | 433 |
| Financial year ended 30 June: | |||||
| 2016 | 1,187 | 1,873.6 | 1,285.0 | 1,072 | 382 |
| 2015 | 1,000 | 1,532.4 | 1,272.0 | 862 | 256 |
| 2014 | 902 | 1,364.2 | 1,150.0 | 815 | 176 |
| 2013 | 903 | 1,331.9 | 1,042.0 | 826 | 195 |
| 2012 | 845 | 1,193.5 | 725.5 | 800 | 191 |
| 2011 | 733 | 1,104.1 | 714.0 | 810 | 243 |
| 2010 | 637 | 958.7 | 486.0 | 763 | 331 |
| 2009 | 514 | 773.6 | 295.3 | 648 | 428 |
| 2008 | 736 | 1,108.7 | 750.0 | 806 | 641 |
| 2007 | 610 | 919.2 | 917.5 | 527 | 528 |
| 2006 | 441 | 796.8 | 726.5 | 372 | 365 |
| 2005 | 382 | 657.9 | 650.5 | 315 | 245 |
| 2004 | 245 | 572.5 | 463.0 | 233 | 137 |
| 2003 | 221 | 546.8 | 447.0 | 237 | 158 |
| 2002 | 196 | 541.6 | 486.5 | 175 | 138 |
| 2001 | 206 | 669.1 | 574.0 | 201 | 138 |
| 2000 | 161 | 599.9 | 457.5 | 140 | 77 |
| 1999 | 146 | 405.6 | 302.5 | 78 | 45 |
| 1998 | 131 | 368.6 | 294.5 | 79 | 50 |
| 1997 | 117 | 328.4 | 270.0 | 73 | 47 |
| 1996 | 106 | 302.5 | 225.0 | 48 | 25 |
| 1995 | 87 | 255.1 | 207.5 | 33 | 8 |
| 1994 | 47 | 239.6 | 176.5 | 42 | 7 |
| 1993 | 31 | 195.5 | 172.5 | 28 | 1 |
| 1992 | 21 | 139.7 | 93.5 | 28 | 0 |
| 1991 | 21 | 129.1 | 86.5 | 31 | 1 |
| 1990 | 20 | 126.7 | 80.5 | 32 | 2 |
| 1989 | 17 | 120.9 | 95.0 | 25 | 2 |
| 1988 | 12 | 102.5 | 75.0 | 2 | 0 |
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 has delivered good results during the second half of 2016. As at 31 December 2016, the Company's net assets stood at £1.3bn and the NAV per share has exceeded £20. In addition, the renewed investor interest in the listed private equity sector has resulted in a very positive performance in both share classes over the last six months. The ordinary and redeemable share prices rose by 35% and 28% respectively and, although they both continue to trade at wide discounts, these discounts have narrowed significantly. Both classes of share outperformed the FTSE All-Share (12.0%) and MSCI World (15.8%) indices over the same period and, at the time of writing, PIP's combined market capitalisation is just over £1bn.
The political surprises of 2016 have increased the economic uncertainties ahead as the consequent changes in policy, particularly in the US and Europe, affect the terms of global trade. It is the Board's view that the long-term nature of private equity coupled with the expertise of PIP's manager, Pantheon, in selecting the best managers globally - means that the Company is well-positioned to respond advantageously to those challenges. It should continue to appeal to investors seeking access to the potentially more attractive returns available from private equity while also diversifying their portfolios.
During the half year to 31 December 2016, PIP's NAV per share increased by 11.5% to 2,089.5p, and net assets rose from £1,187m to £1,324m. Assets in the underlying portfolio generated returns of 5.8% and foreign exchange gains added 6.8% to the NAV per share, reflecting the weighting of PIP's portfolio in non-UK assets and the continued weakness in sterling. These gains were offset by expenses and taxes (-0.9%).
Our portfolio emphasises buyout funds, which performed well during the six months to 31 December 2016, although the returns in the small/mid buyout portfolio were more subdued due to company-specific events. Early stage venture assets showed least growth, impacted in part by the disposal of some older tail-end assets in a secondary sale at a discount to NAV. This segment, which expanded to 22% in particular through secondary purchases of assets following the technology sector downturn, has reduced to 6.5% of the portfolio and continues to diminish through realisations. The Special Situations portfolio, which consists primarily of energy funds that had felt the effects of declining oil prices, has started to recover and delivered positive returns during the half year. The Company has reported previously that it had taken advantage of the dislocation in the energy sector and acquired additional assets at attractive prices, contributing to the good performance from this segment.
During the half year to 31 December 2016, PIP's portfolio generated £154.9m of distributions including £14.3m in respect of previously reported disposals of secondary interests. Excluding these disposals, PIP's annualised distribution rate would be 26% of opening portfolio assets. Trade sales and secondary buyouts continued to represent the most significant source of exit activity. During the period, calls from existing commitments to private equity funds amounted to £42.9m, equivalent to an annualised call rate of 22% of opening undrawn commitments. This resulted in a net portfolio cash inflow of £112m during the period before new investments are taken into account. The weighted average fund age in PIP's portfolio is 7.0 years, which supports the cash-generative nature of PIP's mature portfolio.
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Global deal activity has remained strong and assets have continued to be highly priced during the first half of PIP's financial year. Against this backdrop, Pantheon's disciplined approach to assessing investment opportunities means it has been more challenging to secure secondary deals, which offer significant potential to create value, at attractive prices. Notwithstanding this challenging environment, PIP continues to see interesting opportunities derived from Pantheon's network and access to high quality private equity managers globally. PIP made 19 new investments in the half year, predominantly in the US and Europe across the buyout and growth stages, amounting to £125.1m in commitments, of which £58.7m was drawn at the time of purchase. This included £48.2m committed to two secondary transactions, £36.1m committed to 11 co-investments and £40.8m to six primary commitments, which allowed the Company to continue to manage its maturity profile while gaining access to niche funds that are unlikely to trade on the secondary market. The Company has an active deal pipeline and, since the half year end, has committed an additional £18.2m.
As at 31 December 2016, the Company held cash of £173m and the balance sheet remained ungeared. In October, the Company announced that it had agreed an additional multi-currency revolving credit facility agreement ("Loan Facility") of £50m, which was an extension to the existing 4-year facility that is in place until November 2018. The Loan Facility, denominated as to US\$139m and as to €67m, was equivalent to £169m as at 31 December 2016. Therefore, together with its undrawn credit facility, the Company had total liquid resources of £342m available to meet total undrawn commitments of £433m. Its undrawn commitment cover (comprising the sum of PIP's available financing and private equity portfolio) was comfortable at 3.5x.
In addition to providing cover to meet undrawn commitments, PIP's robust cash position also gives it the flexibility to pursue larger portfolios in the secondaries market. It also enables it to maintain its opportunistic approach to buying back PIP's shares when they offer an attractive investment opportunity relative to other potential new investment commitments. Any such purchase is dependent upon the prevailing market conditions and must also comply with the relevant regulatory requirements.
I became Chairman of PIP upon the conclusion of its Annual General Meeting ("AGM") on 23 November 2016, succeeding Tom Bartlam who had been Chairman for 12 years. Susannah Nicklin replaced me as Senior Independent Director. Given Tom's considerable experience within the private equity sector, the Board was keen to appoint new directors who could bring similar market knowledge to its deliberations. Following a careful search, we were delighted to announce the appointment of two new Non-Executive Directors, John Burgess and John Singer, who took up their
positions following the AGM. Both have very strong track records of investing in global private equity and understand first-hand the dynamics of managing such assets through multiple economic cycles. I am confident that we have a strong Board in place, with the right mix of experience and skills, as we face the opportunities and challenges that will arise in the year ahead and beyond.
The political and economic uncertainties experienced in 2016 will continue to feature during the year ahead. The new US administration, the implications of Brexit and possible changes in the political landscape in Europe will throw up many questions for investors. The majority of PIP's portfolio (58%) is invested in the US, where it is still unclear what changes are likely to occur in regulation and tax policy. While the proposed removal of the tax deductibility for interest expenses would have a serious impact on the cash flow characteristics for companies acquired by US buyout fund managers, given the amount of debt normally used to finance such acquisitions, the proposed lower corporation tax rate should mitigate this impact.
High demand and strong fundraising activities have resulted in record levels of "dry powder" in the private equity market and this trend looks set to continue into 2017. Although the elevated pricing levels have created a more challenging and competitive landscape for sourcing new deals, it should also be noted that managers have been able to take advantage of the high valuation environment by using the secondary market to manage their portfolios and realise assets. These conditions in turn, enable continued realisations from PIP's mature portfolio. We are confident that our manager, Pantheon, has the expertise and experience to select deals effectively, screening out funds that have mixed growth prospects, high leverage or limited upside potential, whilst taking advantage of sector dislocations and cyclical downturns where pricing is more compelling.
PIP offers access to a global and diversified portfolio of high quality private equity assets that are selected by leading managers with a track record of identifying and managing investments actively to secure better investment returns through multiple cycles. We expect the second half of PIP's financial year to be at least as active as the first. We will maintain our disciplined approach and continue to focus on generating healthy returns and maximising capital growth over the long term for our shareholders.
SIR LAURIE MAGNUS Chairman 13 March 2017
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 ("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 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 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:
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.
7
The rise of populism, so dramatically influenced the political agenda in the US and UK in 2016, is now a recognisable political reality in many of the mature democracies facing lower rates of economic growth following the global financial crisis. With elections due to be held in France, Germany and the Netherlands in 2017, further upsets to the liberal international political landscape are a real possibility. While the political surprises of 2016 have increased uncertainty, it is our belief that market dislocations and distressed situations can often create compelling investment opportunities for long-term private equity investors. More than ever, it is paramount that we continue to work with the best managers who are nimble and able to respond to change quickly and effectively.
Based on what we currently know about the economic plans of the new US administration, it is difficult to be optimistic about the medium to long-term economic prospects for the US economy if trade barriers are erected. However, the Trump administration could be positive for equity investors, at least in the short term. Fiscal stimulus in the first part of his term of office could have a significant positive impact on US economic activity, and therefore corporate earnings. This might provide support for the current high equity valuations and, at the same time, a steeper US yield curve could provide greater opportunities for normalising US monetary policy. Should all these outcomes come to pass, they are likely be positive for US private equity.
However, the proposed removal of the tax deductibility for interest expenses would have a serious impact on the cash flow characteristics for companies acquired by US buyout fund managers, given the amount of debt normally used to finance such acquisitions, although this impact would be mitigated by the proposed lower corporation tax rate. Any policy that reduces corporation tax and lowers taxes on remittances from corporate earnings held offshore will be unambiguously positive for corporate cash flows and therefore should support US buyout activity; it also provides greater personal incentives for entrepreneurial behaviour. To the extent that such gains are not fully incorporated into the cost of acquiring new investments, their impact on US private equity returns could be positive, at least until the longer-term likely detrimental effects of lower foreign trade, a higher fiscal deficit, higher inflation and higher long-term interest rates become visible.
In 2016, fundraising continued at a pace in the US with 457 funds raising \$188bn1 . Exit activity was also strong while new investments were at lower levels than in the previous year, possibly as a result of the political uncertainty. The US has the deepest, most established and resilient private equity market in the world, and it is where the majority of PIP's portfolio is invested. We expect this to continue as we work
with leading managers that have experience of investing in companies which can deliver strong earnings growth regardless of the economic and political environment. In terms of the sectors that PIP has invested in, traditional energy assets, healthcare and financial services are likely to perform well under this new administration. The US-based energy assets that PIP acquired at attractive prices last year have contributed positively to performance during the first half of the financial year.
The UK Government's intention to trigger Article 50 of the Lisbon Treaty in March, as well as the elections due to be held in France, Germany and the Netherlands, will create greater political uncertainty across Europe during 2017. These uncertainties increase the risk to economic performance in Europe and the financial markets will remain subject to greater volatility depending on the outcomes of these important political processes.
Although deal flow initially slowed in the UK immediately following the "Brexit" vote, the economic impact of the referendum has been muted so far and deal activity rates are recovering. Experienced managers have been able to take advantage of the uncertain environment and, in some cases, have negotiated more attractive pricing for investments. While the UK is the largest private equity market in Europe, it represents a small portion (less than 10%) of PIP's portfolio.
Despite the gloomy outlook for the political environment and muted economic growth forecasts, fundraising activity in Europe was strong in 2016 with 170 funds raising a total of €100bn2 . This was driven by a number of well-established larger buyout managers raising even larger successor funds. Dry powder (being private equity capital commitments waiting to be invested) has been steadily rising over the past few years and we believe that the current high levels represent 3-4 years of deployment in Europe. This reinforces the need for investment discipline and rigorous manager selection,
2017 Preqin Global Private Equity and Venture Capital Report
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reflecting Pantheon's conviction about a manager's ability to deploy capital diligently. We expect fundraising in Europe in 2017 to be lower than in 2016, due to a smaller cluster of large funds in the market, however we expect that the best managers, particularly in the mid-market, will still be able to take advantage of the buoyant fundraising environment and raise funds above their target sizes.
In terms of new investments, a mix of founder- and familyowned primary management buyouts, corporate carve-outs and transformational secondary buyouts will present compelling new opportunities. Purchase price multiples in the small and mid-cap space have been notably lower when compared with the upper middle and large buyout segment of the market. Managers have managed to maintain their discipline and we have not seen too much price inflation at the smaller end of the market during the year. This trend supports Pantheon's approach of targeting mid-market buyout opportunities where pricing levels are often more attractive.
Exit activity in Europe continued at a robust pace during 2016 across buyout investments; the majority of deals were exited through secondary buyouts and strategic sales. We expect this to continue in 2017 with corporate buyers taking advantage of the depreciation of the euro and sterling versus the US dollar to acquire companies based in Europe. Furthermore, larger buyout funds with reserves of dry powder will continue to target small and medium sized deals in secondary and tertiary buyouts.
As China has continued to rebalance its economic model away from manufacturing to domestic consumption, there was a further slowdown in growth in 2016 with warnings that this could continue in 2017. Fears about China's rising debt levels and an unwinding property boom, along with concerns over how future trade relations with the US may look under a Trump presidency, have weighed on investor sentiment. As a result, investment activity, fundraising levels and exits in 2016 were slightly down on the previous year. However, this could at least be partly explained by the higher number of large pan-regional funds raising capital in 2015, which were not as prevalent in 2016. We expect to see more large funds returning to raise capital in 2017.
Despite the prevailing headwinds, underlying earnings have remained strong and the lower levels of foreign capital flowing into the region has arguably created more deal opportunities for private equity managers. Pantheon focuses on opportunities within domestic consumption (e.g. healthcare, education and consumer) and therefore these could be largely unaffected by the US administration's stated aims of imposing higher trade tariffs on Chinese imports. In addition, we are seeing a good flow of opportunities in the technology sector where companies are able to scale up quickly.
More recently, India has experienced stronger economic growth than China although government moves against the unofficial economy, leading to the elimination from circulation (in late 2016) of the two highest value banknotes, is likely to have a short-term negative impact on consumption and economic growth. Nevertheless, the move to introduce electronic payments and smart financing solutions has produced some interesting investment opportunities for the Company.
Overall, we remain relatively cautious on Latin America although we will continue to respond to compelling deal opportunities in the region.
While Asia and emerging markets represent a smaller part of PIP's portfolio, when compared to North America and Europe, we will continue to acquire assets in the region that support PIP's long-term investment strategy.
A very active second half of 2016 offset the relatively slow start, with overall private equity secondary volume transacted reaching \$33bn3 , a modest increase from \$32.5bn in 2015. After the jolt to the markets in June following the UK's Brexit vote, a more stable macroeconomic outlook saw secondary buyers bid more determinedly for portfolios, helping to sustain pricing at attractive levels.
In addition to improving economic fundamentals, the conclusion of successful fundraisings in the secondary market, including Pantheon's latest global secondary fund, increased the level of dry powder in the secondary market to \$70bn, thereby helping to fuel demand. Seller behaviour has also adjusted, as greater awareness and familiarity has resulted in more frequent use of the secondary market to actively manage portfolios. Indeed, the key sellers were public and private pension funds, and asset managers, which each accounted for 25% of deal volume.4
Due to the strength of underlying demand, and the more positive market sentiment in the second half of the year, the average high bid for secondary interests increased to 95% of NAV, slightly up on the 94% average high bid price in 2015. The implied level of discount masks a divergence in pricing between pre-crisis and post-crisis funds where pricing for post-2009 vintage funds in particular saw higher average pricing, running to premiums to NAV, offsetting the higher discounts, often in double digits, to NAV seen for mature funds. Funds with a vintage of 2006 or earlier represented over 55% of total funds offered on the market in 2016, up from 48% in the previous year.
3 Greenhill Cogent Secondary Market Trends & Outlook, January 2017
4Evercore 2016 Survey Results 2016.
In addition, transactions led by managers restructuring or recapitalising a fund, accounted for 25% of the total transaction volume, meaningfully up from the prior year's 15% proportion of total volume. Pantheon has sought out such transactions but only in cases where the manager is of a high quality, the underlying companies have considerable growth potential and where the alignment with the manager can be appropriately structured.
Given the full average pricing, Pantheon is careful to screen out funds with more questionable growth prospects, unjustifiably high leverage or limited upside potential. Instead, origination has focused on secondary opportunities that are not as competitively bid, either as a result of a restrictive manager who is keen to extend a pre-existing relationship or where the manager sees Pantheon as a strong potential partner. Pantheon's approach continues to be very selective, transacting 10 deals worth approximately \$825m in 2016.
The co-investment market, comprising a variety of institutional investors including sovereign wealth funds, pension funds, family offices and other co-investment funds, has remained competitive over the past six months. Through its continuous efforts to position itself with favoured managers, Pantheon has been able to respond effectively to this and has maintained a robust deal flow in terms of quality and volume. Pantheon has continued to co-invest in opportunities with strong downside protection, favourable demographic trends, attractive growth features and that, crucially, represent a strong sector, geographic and style fit with the investment strategy of the deal sponsors. While Pantheon assesses deals across all sectors, information technology and industrials in particular have offered interesting deal opportunities
during the half year. Pantheon will continue to be disciplined when assessing co-investment opportunities and will maintain its thorough approach to due diligence while ensuring that it is in a prime position to source deal flow and deliver on its co-investment strategy as opportunities arise.
We will remain vigilant to macroeconomic and political developments during 2017, however it is our view that private equity should continue to outperform relative to other asset classes. This will be driven by a number of factors including, but not limited to, the illiquidity premium generated by private equity, the approach of our managers, who are nimble and reactive to changing market dynamics, as well as their confidence in seeking deal opportunities in market dislocations, mispricing and distressed situations. We believe that our managers continue to exercise discipline on leverage levels, despite the good availability of debt, and that the underlying portfolio companies will still benefit from those managers' operational expertise and experience, which will in turn drive future growth. Private equity gives investors access to parts of the economy that they would not be able to reach via public markets and the revenue and earnings reported by a sample of the underlying companies in PIP's portfolio consistently outperform the broader equity benchmark indices.
Pantheon has a strong track record of selecting the best managers and gaining privileged access to the most compelling deals via those relationships. Although uncertain times lie ahead, we believe that we are well-positioned to draw on over 35 years' experience of investing in private equity funds globally and that we will be able to respond effectively to the challenges and opportunities during the coming year.
5 Source: Greenhill Cogent: Secondary Market Trends & Outlook, January 2016. Figures excluding real estate transactions
SIX MONTHS TO 31 DECEMBER 2016
1 Realisation events are classified as exit realisations when proceeds equate to at least 80% of total investment value and once confirmation of exit realisation is received from the manager. Uplift on full exit compares the value received upon realisation against the investment's carrying value up to six months prior to the transaction taking place. The analysis only includes exit realisations that occurred during the financial period and disregards the impact of any proceeds received outside of the six month period covered in the uplift analysis. Exit realisations represented approximately 39% of PIP's gross distributions for the six month period to 31 December 2016. 2 Distributions included £14m proceeds from secondary disposals, excluding such distributions results in an annualised distribution rate of 26%.
Strategic Report
The Company offers a global, diversified selection of high quality private equity assets, which have been carefully selected by Pantheon. The diversification of PIP's portfolio, with assets spread across different investment styles and stages, helps to reduce the volatility of both 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.
At 31 December 2016, 3% of PIP's portfolio value and 2% of PIP's outstanding commitments were comprised of funds-of-funds managed directly by Pantheon. 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 fee on uncalled commitments payable by PIP to Pantheon. In addition, Pantheon has agreed that the total fees (including performance fees) payable by Pantheon Funds to members of the Pantheon group and attributable to PIP's investments
in Pantheon Funds shall be less than the total fees (excluding the performance fee) that PIP would have been charged under its management agreement with Pantheon had it invested directly in all of the underlying investments of the relevant Pantheon Funds instead of through the relevant Pantheon Funds. With the consent of the Board of Directors, the Company can agree that an investment fund managed or advised by the Pantheon group shall not be treated as a Pantheon Fund for this purpose (so that the fee rebate described above would not apply in respect of an investment in such fund).
1 Fund geography, stage, maturity and primary/secondary/co-investment 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 as at 30 June 2016 and account for over 90% of PIP's overall portfolio value.
2 EM: Emerging Markets 3 Global category contains funds with no target allocation to any particular region equal to or exceeding 60%.
The portfolio is well diversified by fund vintage.
New primary commitments and co-investments are increasing PIP's exposure to more recent vintages, with the 2010 and later segment of the portfolio increasing to 43% (from 35% as at 30 June 2016).
| 2016 . | 8% | ||||||
|---|---|---|---|---|---|---|---|
| 2015 . | 13% | ||||||
| 2014 . | 8% | ||||||
| 2013 . | 5% | ||||||
| 2012 . | 4% | ||||||
| 2011 . | 4% | ||||||
| 2010 . | 1% | ||||||
| 2009 . | 2% | ||||||
| 2008 | 13% | ||||||
| 2007 | 19% | ||||||
| 2006 | 10% | ||||||
| 2005 and earlier | 13% | ||||||
Secondary investments continue to constitute the largest component of PIP's portfolio.
Co-investments are becoming a more established part of PIP's portfolio at 24% of value (up from 20% as at 30 June 2016).
| Secondary | 46% | |||
|---|---|---|---|---|
| Primary | 30% | |||
| Co-investments | 24% |
PIP's sectoral exposure diversifies the effects of cyclical trends within particular industry segments.
Relative to the FTSE All-Share and MSCI World indices, PIP has greater exposure to information technology, and lower exposure to the banking, mining and energy sectors.
| Consumer 27% |
|---|
| Information Technology 26% |
| Healthcare 14% |
| Industrials 12% |
| Financials . 9% |
| Energy . 7% |
| Materials 3% |
| Telecommunication Services . 2% |
Over half of the portfolio is invested in companies based in North America, which benefit from greater capital market scope and depth.
PIP's European exposure, which represents appproximately a third of the portfolio, is predominantly in companies based in the stronger Northern European economies, including the UK, Scandinavia and Germany.
13% of PIP's portfolio is based in Asia, providing access to faster-growing economies such as China and India.
| North America | 57% |
|---|---|
| Asia | 13% |
| UK . | 7% |
| Scandinavia . | 4% |
| Germany 4% | |
| Benelux . | 3% |
| Italy . | 3% |
| Other Europe | 3% |
| Iberia 2% | |
| France | 2% |
| Central and Eastern Europe | 1% |
| Rest of World . | 1% |
1 Company sector and company geography charts are based on underlying company valuations as at 30 June 2016 and account for over 90% of PIP's overall portfolio value.
Venture, growth and buyout investments have differing leverage characteristics.
1 Portfolio stage returns include income, exclude gains and losses from foreign exchange movements, and look through feeders and funds-of-funds to the underlying funds.
2 Remaining 2% of PIP's portfolio represents the generalist segment which significantly outperformed (17.8%) the rest of the portfolio. This return skews the analysis and therefore is not displayed in the chart.
3 The data is based on a sample of PIP's buyout funds. Buyout Sample Methodology: The sample buyout figures for the 12 months to 30 June 2016 were calculated from the companies, where information was available. The figures are based on unaudited data. The revenue and EBITDA figures were based upon the last 12 months to 30 June 2016 or, where not available, the closest annual period disclosed, and provide coverage of 40% (for both revenue and EBITDA growth) of PIP's buyout portfolio. Individual company revenue and EBITDA growth figures were capped between +100% and –100% to avoid large distortions from excessive outliers. Sample data for 2011-2016 is based on the same methodology and provides coverage of 60% - 75% of the portfolio in each year. Enterprise value is defined as carrying value + net debt. The net debt and enterprise value figures were based on underlying valuations as at 30 June 2016, or the closest period end disclosed. The valuation multiple sample covers approximately 31% of PIP's buyout portfolio. The debt multiple sample covers 32% of PIP's buyout portfolio. Data sourced from Bloomberg.
Annual Revenue Growth: PIP Sample vs Indices
1 The data is based on a sample of PIP's buyout funds. Buyout Sample Methodology: The sample buyout figures for the 12 months to 30 June 2016 were calculated from the companies, where information was available. The figures are based on unaudited data. The revenue and EBITDA figures were based upon the last 12 months to 30 June 2016 or, where not available, the closest annual period disclosed, and provide coverage of 40% (for both revenue and EBITDA growth) of PIP's buyout portfolio. Individual company revenue and EBITDA growth figures were capped between +100% and –100% to avoid large distortions from excessive outliers. Sample data for 2011-2015 is based on the same methodology and provides coverage of 60% - 75% of the portfolio in each year. Enterprise value is defined as carrying value + net debt. The net debt and enterprise value figures were based on underlying valuations as at 30 June 2016, or the closest period end disclosed. The valuation multiple sample covers approximately 31% of PIP's buyout portfolio. The debt multiple sample covers 32% of PIP's buyout portfolio. Data sourced from Bloomberg. ENTERPRISE VALUE/EBITDA
Average Venture and Growth Return
PERCENTAGE OF VENTURE AND GROWTH ASSETS (%)
Average Venture and Growth Distribution Rate (Annualised)
1 Returns exclude gains from foreign exchange movements.
2 Distribution rate equals distributions in period divided by opening portfolio value.
PIP received more than 9001 distributions in the half year, with many reflecting realisations at significant uplifts to carrying value. PIP's mature portfolio should continue to generate significant distributions. Distributions in the period included £14m of proceeds from the sale of secondary stakes of some of PIP's older fund interests.
Quarterly distribution rates remain strong, increasing to over 30% on an annualised basis in the last quarter. This reflected the maturity of PIP's portfolio.
Mature vintages continue to distribute at higher rates, with 2009 and earlier funds distributing at a rate in excess of 40% of opening value. With a weighted fund maturity of 7.0 years, PIP's portfolio should continue to generate significant levels of cash.
The chart shows the range of uplifts achieved by the underlying fund manager on exit realisations in the year. The value weighted average uplift in the half year to 31 December 2016 was 35%. This average uplift is consistent with our view that realisations can be significantly incremental to returns. PIP's mature portfolio is well placed to continue to generate a good level of distributions from exit realisations in the coming year.
1 Realisation events are classified as exit realisations when proceeds equate to at least 80% of total investment value and once confirmation of exit realisation is received from the manager. Uplift on full exit compares the value received upon realisation against the investment's carrying value up to six months prior to the transaction taking place. The analysis only includes exit realisations that occurred during the half year and discards the impact of any proceeds received outside of the six month period covered in the uplift analysis. Exit realisations represented approximately 39% of PIP's gross distributions for the half year to 31 December 2016.
The portfolio benefited from strong realisation activity, particularly in the information technology, consumer, industrials and healthcare sectors.
Trade sales and secondary buyouts represented the most significant source of exit activity during the six month period.
A Polish business which specialises in modern management of municipal household waste, owning six plants with a combined processing capacity of over 860,000 tons of waste per year. NOVAGO is currently the largest producer of alternative fuel from municipal waste in Poland.
Location Europe Sector Utilities Sub-Sector Electric Utilities Stage Medium buyout PIP Distribution/GP return £1.3 million
PIP invested as part of a primary investment in Abris CEE Mid-Market Fund II. Key merits of the commitment were:
| Location | North America |
|---|---|
| Sector | Healthcare |
| Sub-Sector | Healthcare Technology |
| Stage | Medium buyout |
| PIP Distribution/GP return | £2.3 million (\$2.8m) |
Value Creation
Press Ganey is a provider of patient experience, performance analytics and strategic advisory solutions for healthcare organisations. As a strategic partner to more than 26,000 healthcare organisations worldwide, it is an industry leader in helping clients transform and improve the patient experience.
• M&A strategy: The business made a number of synergistic acquisitions under the ownership of Vestar, which was underpinned by solid organic growth • Re-positioning business: Shift from paper records to digital formats
PIP invested as part of a primary investment in Vestar Capital Partners V. Key merits of the commitment were:
A leader in the development of novel and selective drugs to treat a range of debilitating neurological disorders
Distributions: £0.9 million Cost multiple: 4.3x
A data-driven, technology-enabled marketing solutions provider
Distributions: £2.1 million Cost multiple: 3.3x
A global provider of healthcare and pharma-consulting to biopharmaceutical clients seeking to realise their strategic goals
Distributions: £2.1 million Cost multiple: Confidential A global company specialising in industrial induction heating solutions
Distributions: £1.5 million Cost multiple: 2.4x
Designer and manufacturer of marine life-saving systems for cruise, merchant, and offshore industries in Norway and internationally
Distributions: £1.7 million Cost multiple: 1.4x
A leading North American provider of laundry detergent, fabric softeners and other household products, with annual sales of approximately \$1.6 billion
Distributions: £1.9 million Cost multiple: 2.3x
| COMPANY1 | SECTOR | DESCRIPTION FUND DISTRIBUTIONS £M |
|
|---|---|---|---|
| Ministry Brands | Information Technology | Cloud software for member-based organisations | 9.3 |
| Inghams Enterprises | Consumer | Producer of poultry products | 6.2 |
| Alarm.Com | Information Technology | Alarm solutions for residential and corporate customers | 4.5 |
| K-Mac | Consumer | Operates Taco Bell stores and KFC restaurants | 4.1 |
| Jimmy John's | Consumer | Operates and franchises restaurants that offer gourmet sandwiches | 3.3 |
| Voltage Security | Information Technology | Provides data protection and other cyber security solutions | 3.2 |
| Groupe SMCP | Consumer | Designs and distributes fashion apparel for men and women | 2.7 |
| P&I Personal & Informatik | Information Technology | European provider of software solutions for human resources management | 2.6 |
| Fort Dearborn | Industrials | Manufactures and supplies decorative labels to customers in North America | 2.5 |
| InSite Wireless | Industrials | Provides communications facilities for the wireless industry | 2.5 |
| MINDBODY | Information technology | Online business management software provider | 2.4 |
| Press Ganey | Healthcare | Provides performance improvement solutions for the medical profession | 2.3 |
| SRA International | Information Technology | Provides technology and strategic consulting services to the US government | 2.2 |
| Sensus Metering Systems | Information Technology | Provides data collection and metering solutions for utilities worldwide | 2.1 |
| PointPark Properties | Financials | A real estate investment company | 2.1 |
| Ansira | Information Technology | A data-driven technology-enabled marketing solutions provider | 2.1 |
| Inventive Health | Healthcare | Global provider of healthcare and pharma consulting | 2.1 |
| Fläkt Woods | Industrials | Distributor of air-technology based solutions for buildings and infrastructure | 2.0 |
| LMS Intellibound | Industrials | Provides third party logistics services to distribution centres in the US | 2.0 |
| Adapt | Information Technology | An engineering services business | 1.9 |
| Sun Products Corporation | Consumer | Manufactures and sells cleaning products and other household products | 1.9 |
| Wuerttembergische Metallwarenfabrik | Consumer | Provides tableware and kitchenware products | 1.7 |
| Language Line | Industrials | Provides language interpretation and document translation services | 1.7 |
| Harding Safety | Industrials | Manufactures marine life-saving systems predominantly in Norway | 1.7 |
| EmployBridge | Industrials | US-based provider of professional and energy staffing solutions | 1.6 |
| GH Electrotermia | Industrials | Manufactures and repairs induction heating systems | 1.5 |
| Dedalus | Healthcare | Provides healthcare services predominantly in Italy | 1.5 |
| Red Lobster Seafood | Consumer | US-based seafood restaurants chain | 1.5 |
| Angel Island Capital | Financials | Focuses on debt investment opportunities | 1.5 |
| Cosan | Energy | Global business which specialises in fuel distribution and power generation | 1.4 |
| Merkle | Consumer | Operates as a customer relationship marketing agency in the US | 1.4 |
| Spotify | Information Technology | Provides a digital music service through various mobile and other platforms | 1.3 |
| NOVAGO | Utilities | Polish business specialising in municipal household waste management | 1.3 |
| The Coastal Companies | Consumer | US distributor of fresh produce and processes fruit and vegetables | 1.3 |
| Freescale Semiconductor | Information Technology | Manufacture and design of embedded processing solutions | 1.2 |
| Axalta Coating Systems | Materials | Global manufacturer of coating systems for transportation industry | 1.2 |
| Epicor Software | Information Technology | Global provider of enterprise applications software and services | 1.2 |
| 1.2 | |||
| ZUK | Utilities | Polish business dealing in waste management services | |
| Ctrip | Consumer | Provides travel agent service for retail and corporate clients in China | 1.2 |
| ConvaTec Healthcare | Healthcare | Global medical products and technologies company | 1.1 |
| Payformance | Information Technology | Provides electronic payment and billing system technology | 1.1 |
| nora Systems | Industrials | Produces rubber floor coverings and footwear components in Europe | 1.0 |
| Intelligrated | Industrials | Produces automated material handling solutions | 1.0 |
| Acrisure | Financials | US retail insurance broker | 1.0 |
| Palletways | Industrials | Produces palletised freight services for logistics providers | 1.0 |
| Fischbein | Industrials | Global manufacturer of equipment food processing and material handling applications | 1.0 |
| Booz Allen Hamilton | Information Technology | Provides management and technology consulting services in the US | 1.0 |
| Trader Corporation | Consumer | Provider of online classified advertising for Canadian auto dealers | 1.0 |
| Electronic Funds Source | Financials | Provider of corporate payment solutions such as payroll and settlement | 0.9 |
| Oxford Finance | Financials | Global provider of debt to life sciences and healthcare services companies | 0.9 |
| TOTAL | 100.4 | ||
| COVERAGE OF TOTAL DISTRIBUTIONS | 65% |
1 Relates to the main company associated with each distribution.
Calls on exisiting investments made during the half year ranged across regions and sectors, including cloud-based software, logistics, telecommunications and oil and gas exploration companies.
Average quarterly call rate for the half year to 31 December 2016 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.
The top 50 company investments were dominated by co-investments made during the period.
The largest sectors represented were information technology and industrials, which also featured prominently in the calls drawn from unfunded across the company's portfolio (see above chart).
| Secondary | 33% | |||
|---|---|---|---|---|
| Primary | 21% |
| Information Technology | 30% | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Industrials | 26% | ||||||||||
| Consumer | 18% | ||||||||||
| Financials | 14% | ||||||||||
| Energy . | 4% | ||||||||||
| Other 3% | |||||||||||
| Telecommunication Services | 2% | ||||||||||
| Healthcare . | 2% | ||||||||||
| Utilities 1% |
PIP committed £125m to new investments during the half year, mostly to buyout and growth equity funds. £59m was drawn at the time of purchase.
Although the emphasis continues to be on secondary commitments, PIP's half year investment activity demonstrates the depth of opportunity in attractive co-investments and primaries.
Primaries and co-investments, which accounted for slightly over half of total commitments in the half year, offer exposure to more recent vintages.
PIP committed £48m to two secondary transactions during the half year, comprising 13 underlying funds. In addition, PIP committed £41m to six primaries, which added current vintage exposure with high quality managers.
| REGION | STAGE | DESCRIPTION | COMMITMENTS £M | % FUNDED2 |
|---|---|---|---|---|
| Global | Various | A North American portfolio comprised mostly of small buyout funds | 41 | 71% |
| Europe | Large/Mega | An interest in a European bank managed by a global large buyout manager focused on the financial services sector | 7 | 100% |
| TOTAL | 48 | 75% |
| INVESTMENT | STAGE | DESCRIPTION | COMMITMENTS £M |
|---|---|---|---|
| Riverstone Global Energy and Power Fund VI Special Sits | A North American energy fund | 1 | |
| Arbor Investments IV | Small/Mid | A North American middle-market buyout fund focusing on food, beverage and packaging industries | 7 |
| IK VIII | Small/Mid | A European medium buyout fund | 11 |
| LYFE Capital Fund II | Growth | A growth fund focused on the healthcare sector in China | 8 |
| KKR Americas Fund XII | Large/Mega | A North American mid-market buyout fund | 2 |
| Veritas Capital Fund VI | Large/Mega | A North American large buyout fund | 12 |
| TOTAL | 41 |
2 The funding level does not include deferred payments.
PIP's focus on secondary investments allows PIP to access funds at a stage when the assets are generating cash distributions. Competition for secondary deals has remained strong during the half year, however PIP continues to see interesting opportunities derived from Pantheon's network and access to high quality private equity managers globally.
Transaction completed in September 2016.
| Location | North America |
|---|---|
| Sector | Diversified |
| Stage | Small Buyout |
| Vintage | 2016 |
| PIP Commitment | \$71.0m (£41.4m) |
Transaction completed in November 2016.
| Location | Europe |
|---|---|
| Sector | Financials |
| Stage | Large buyout |
| Vintage | 2016 |
| PIP Commitment | €8.9 m (£6.8m) |
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. By adding newer vintages, PIP is also able to manage the maturity profile of its portfolio.
Established in 1999, Arbor Investments has cultivated a reputation as both a strategic player and premier private equity manager in the US food and beverage sector.
Arbor facilitates its hands-on investment approach through its Operating Partner model, which provides strategic direction, operational advice and management services to portfolio companies. Arbor has historically exited businesses through sales to strategic buyers, given the established universe of well-capitalised consumer goods companies in search of niche product offerings that can enrich their already established platforms.
Location North America Sector Consumer Staples Stage Small Buyouts Vintage 2016 PIP Commitment \$9.6m (£7.2m)
Arbor IV is a continuation of the manager's long-term strategy of identifying reasonably valued, high quality middle market food and beverage companies in the US and Canada. The manager will pursue private label and brand name food and beverage businesses as well as food service and food-related non-consumable businesses. Arbor will then focus on professionalising and enhancing the portfolio companies through add-on acquisitions and organic growth initiatives.
| Location | Europe |
|---|---|
| Sector | Generalist |
| Stage | Mid-buyout |
| Vintage | 2016 |
| PIP Commitment | €13.1m (£11.0m) |
IK Investment Partners ("IK"), formerly known as Industri Kapital, is a mid-market private equity firm focused on Northern Continental Europe. The manager has gained significant expertise and a strong track record in four subsectors: engineering, food, business process outsourcing and healthcare.
The core strategy is to buy niche, market leading platform businesses with the potential to grow through add-ons, which will enhance growth and provide access to new markets, products, technology or services. Furthermore, IK places strong emphasis on driving operational improvements rather than relying significantly on financial engineering.
IK VIII will focus on companies with enterprise valuations between €100m and €500m. The firm will continue to make investments primarily in Benelux, the DACH region, France and the Nordics, with the flexibility to do some deals in non-core regions, principally in Central and Eastern Europe.
During the half year, PIP committed £36m to 11 co-investments. PIP co-invests alongside selected managers and targets companies with defensible business models and leading market positions.
| Location | Asia | ||
|---|---|---|---|
| Sector | Financial Services | ||
| Stage | Medium Buyout | ||
| Vintage | 2016 | ||
| PIP Commitment | \$5.2m (£4.5m) | ||
ClixCapital, formerly known as GE Capital India, provides smart financing solutions to help local customers in India build and grow their businesses by providing a wide range of non-banking financial services to both corporate and consumer customers.
| Location | Europe |
|---|---|
| Sector | Consumer Staples |
| Stage | Medium Buyout |
| Vintage | 2016 |
| PIP Commitment | £2.9 million |
Profi Rom is one of the fastest-growing supermarket and convenience store operators in Romania. With a network of more than 500 stores across the country, it has national reach and demonstrates a strong and proven format.
ALLEGRO (Mid Europa Partners)
£4.1m Co-Investment APOLLO EDUCATION GROUP (Apollo Global Management and The Vistria Group)
NAVITAS MIDSTREAM PARTNERS (Warburg Pincus)
£3.2m Co-Investment PENN POWER GROUP (LNC Partners)
PIP's outstanding commitments1 to fund investments are well-diversified by stage and geography and will enable the Company to participate in future investments with many of the highest quality fund managers in private equity worldwide. The Board and Manager keep the level of outstanding commitments under review so as not to exceed an amount that can be financed (comfortably) out of cash flows generated internally and for which the Company's liquid resources and unutilised bank facilities can provide sufficient cover in the event that distributions received from the portfolio slow down in adverse market conditions.
PIP's outstanding commitments to investments increased to £433m as at 31 December 2016 compared with £382m as at 30 June 2016. The Company paid calls of £43m and added an additional £66m of outstanding commitments associated with new investments made in the half year. Foreign exchange movements accounted for most of the remaining £28m increase.
The US and Europe have the largest outstanding commitments, reflecting the Company's investment emphasis. Commitments to Asia and other regions provide access to faster-growing economies.
| USA | 55% | ||||
|---|---|---|---|---|---|
| Europe | 28% | ||||
| Asia and EM | 10% | ||||
| Global . | 7% | ||||
PIP's undrawn commitments are diversified across the major stages, with an emphasis on small and mid-market buyout managers. This reflects the focus of recent primary commitments.
| Small/Mid Buyout 40% |
|---|
| Large/Mega Buyout 30% |
| Growth 16% |
| Special Situations 10% |
| Venture . 3% |
| Generalist 1% |
Approximately 28% of PIP's undrawn commitments are in the 2009 vintage or older where draw-downs may naturally occur at a slower pace. It is likely that a portion of these commitments will not be drawn.
The rise in 2015 and 2016 vintage undrawn commitments reflects PIP's recent primary commitment activity.
| 2016 | 37% | ||||||
|---|---|---|---|---|---|---|---|
| 2015 | 21% | ||||||
| 2014 | 7% | ||||||
| 2013 | 4% | ||||||
| 2012 | 1% | ||||||
| 2011 | 1% | ||||||
| 2010 | 1% | ||||||
| 2009 | 1% | ||||||
| 2008 | 7% | ||||||
| 2007 | 8% | ||||||
| 2006 and earlier | 12% |
At 31 December 2016, PIP had cash balances of £173.3m.
In addition to these cash balances, PIP can also finance investments out of its multi-currency revolving credit facility agreement ("Loan Facility"). An increase to the Loan Facility of £50m was agreed in October 2016. The Loan Facility is due to expire in November 2018 and comprises facilities of \$138.8m and €66.6m which, using exchange rates at 31 December 2016, amount to a sterling equivalent of £169.2m. At 31 December 2016, the Loan Facility remained fully undrawn.
At 31 December 2016, the Company had £342.5m of available financing, comprised of its cash balances and Loan Facility. The sum of PIP's available financing and private equity portfolio provide 3.5 times cover relative to undrawn commitments. When a fund is past its investment period, which is typically between five and six years, it generally cannot make any new investments and only draws 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 30% of the Company's undrawn commitments are in fund vintages that are older than six years.
Strategic Report
| NUMBER | MANAGER | REGION2 | STAGE BIAS | % OF PIP'S TOTAL PRIVATE EQUITY ASSET VALUE1 |
|---|---|---|---|---|
| 1 | Providence Equity Partners | USA | Buyout | 6.3% |
| 2 | Texas Pacific Group | USA | Buyout | 4.2% |
| 3 | Baring Private Equity Asia | Asia & EM | Growth | 2.1% |
| 4 | Warburg Pincus Capital | Global | Growth | 2.1% |
| 5 | Unison | USA | Special Situations | 1.8% |
| 6 | The Banc Funds Company | USA | Growth | 1.7% |
| 7 | ABS Capital | USA | Growth | 1.7% |
| 8 | Yorktown Partners4 | USA | Special Situations | 1.5% |
| 9 | Essex Woodlands | Europe | Buyout | 1.4% |
| 10 | MatlinPatterson Global Advisers | USA | Special Situations | 1.3% |
| 11 | Apollo Advisors | USA | Buyout | 1.3% |
| 12 | Kayne Anderson4 | USA | Special Situations | 1.2% |
| 13 | KKR | Europe | Buyout | 1.1% |
| 14 | Insight Venture Partners | USA | Growth | 1.1% |
| 15 | Shamrock Capital Advisors | USA | Buyout | 1.0% |
| 16 | Gemini Capital | Europe | Venture | 1.0% |
| 17 | EQT3 | Asia & EM | Buyout | 0.9% |
| 18 | Francisco Partners Management | USA | Buyout | 0.9% |
| 19 | CVC Capital Partners Europe | Europe | Buyout | 0.9% |
| 20 | Abris Capital | Europe | Buyout | 0.9% |
| 21 | Lee Equity Partners | USA | Growth | 0.9% |
| 22 | Ares Management | USA | Buyout | 0.9% |
| 23 | Bridgepoint Partners | Europe | Buyout | 0.9% |
| 24 | Mid-Europa Partners | Europe | Buyout | 0.9% |
| 25 | IK Investment Partners | Europe | Buyout | 0.9% |
| 26 | Golden Gate Capital | USA | Buyout | 0.9% |
| 27 | Brentwood Associates Private Equity | USA | Buyout | 0.8% |
| 28 | KRG | USA | Buyout | 0.8% |
| 29 | Nordic Capital | Europe | Buyout | 0.8% |
| 30 | Andreessen Horowitz | USA | Growth | 0.8% |
| 31 | ABRY Partners | USA | Buyout | 0.8% |
| 32 | Vision Capital | Europe | Buyout | 0.8% |
| 33 | Equistone Partners Europe | Europe | Buyout | 0.7% |
| 34 | Altor Capital | Europe | Buyout | 0.7% |
| 35 | Not disclosed | USA | Buyout | 0.7% |
| 36 | Baring Vostok Capital Partners | Europe | Buyout | 0.7% |
| 37 | Index Ventures | Europe | Venture | 0.7% |
| 38 | Veritas Capital | USA | Buyout | 0.6% |
| 39 | Sun Capital Partners | USA | Buyout | 0.6% |
| 40 | Carlyle Group | USA | Buyout | 0.6% |
| 41 | Wasserstein Management | USA | Buyout | 0.6% |
| 42 | Technology Crossover Management | USA | Growth | 0.6% |
| 43 | Blackstone Group | USA | Buyout | 0.6% |
| 44 | Lovell Minnick Equity Advisors | USA | Buyout | 0.6% |
| 45 | J.C. Flowers | Europe | Buyout | 0.6% |
| 46 | Polaris Venture Partners | USA | Venture | 0.6% |
| 47 | Thomas H. Lee Partners | USA | Buyout | 0.5% |
| 48 | Hutton Collins | Europe | Special Situations | 0.5% |
| 49 | Stonepeak Infrastructure Partners4 | USA | Special Situations | 0.5% |
| 50 | Apax Partners | Europe | Buyout | 0.5% |
| COVERAGE OF PIP's TOTAL PRIVATE EQUITY ASSET VALUE | 55.5% |
Percentages look through feeders and funds-of-funds. 2 Refers to the regional exposure of funds. 3 The majority of PIP's remaining investments in EQT is held in EQT Greater China II. 4 Predominantly focused on investments in the energy sector.
| NUMBER | COMPANY | COUNTRY | SECTOR | % OF PIP TOTAL NET ASSET VALUE |
|---|---|---|---|---|
| 1 | LBX Pharmacy3 | China | Consumer | 0.9% |
| 2 | Alarm.Com3,4 | USA | Information Technology | 0.9% |
| 3 | ALM Media2,4 | USA | Consumer | 0.8% |
| 4 | Spotify | Sweden | Information Technology | 0.8% |
| 5 | Grupo Farmaceutico Biotoscana2 | Colombia | Healthcare | 0.7% |
| 6 | Not disclosed | France | Healthcare | 0.7% |
| 7 | Western Gas Partners2 | USA | Energy | 0.7% |
| 8 | Abacus Data Systems2 | USA | Information Technology | 0.7% |
| 9 | Vistra and Orangefield2 | Asia | Industrials | 0.6% |
| 10 | ZeniMax Media | USA | Information Technology | 0.6% |
| 11 | Standard Pacific3 | USA | Consumer | 0.6% |
| 12 | StandardAero2 | USA | Industrials | 0.5% |
| 13 | Recorded Books2 | USA | Consumer | 0.5% |
| 14 | Salad Signature2 | Belgium | Consumer | 0.5% |
| 15 | Targa Resources | USA | Energy | 0.5% |
| 16 | Sivantos (Siemens Audiology Solutions)2 | Singapore | Healthcare | 0.5% |
| 17 | Vertical Bridge | USA | Telecommunication Services | 0.5% |
| 18 | Nord Anglia Education3,4 | Hong Kong | Consumer | 0.5% |
| 19 | Blackboard | USA | Information Technology | 0.5% |
| 20 | Applied Medical Resources2 | USA | Healthcare | 0.5% |
| 21 | ConvaTec Healthcare | USA | Healthcare | 0.5% |
| 22 | American Tire Distributors2 | USA | Consumer | 0.4% |
| 23 | IMS Health3,4 | USA | Healthcare | 0.4% |
| 24 | McGraw-Hill Education2 | USA | Consumer | 0.4% |
| 25 | SoftBrands | USA | Information Technology | 0.4% |
| 26 | GlobalTranz Enterprises2 | USA | Industrials | 0.4% |
| 27 | CPL Industries | UK | Energy | 0.4% |
| 28 | Verimatrix | USA | Information Technology | 0.4% |
| 29 | Extraction Oil & Gas2 | USA | Energy | 0.4% |
| 30 | Not disclosed | Mexico | Financials | 0.4% |
| 31 | Rightpoint Consulting2 | USA | Industrials | 0.4% |
| 32 | Atria Convergence Technologies | India | Telecommunication Services | 0.4% |
| 33 | ILX2 | USA | Energy | 0.4% |
| 34 | Univision | USA | Consumer | 0.4% |
| 35 | USI 2,4 | USA | Financials | 0.4% |
| 36 | Alliant Insurance Services2 | USA | Financials | 0.3% |
| 37 | Home Shopping Europe | Germany | Consumer | 0.3% |
| 38 | ista International | Germany | Information Technology | 0.3% |
| 39 | Burning Glass International2 | USA | Information Technology | 0.3% |
| 40 | K-Mac | USA | Consumer | 0.3% |
| 41 | Standard Bancshares2 | USA | Financials | 0.3% |
| 42 | Virgin Pulse2 | USA | Industrials | 0.3% |
| 43 | Jimmy John's4 | USA | Consumer | 0.3% |
| 44 | Vitruvian Exploration | USA | Energy | 0.3% |
| 45 | Antero Resources Corporation3 | USA | Energy | 0.3% |
| 46 | Not disclosed | USA | Information Technology | 0.3% |
| 47 | S-Process Equipment | Germany | Industrials | 0.3% |
| 48 | Flagstar Bancorp | USA | Financials | 0.3% |
| 49 | Michaels Stores3 | USA | Consumer | 0.3% |
| 50 | LogicMonitor, Inc. | USA | Information Technology | 0.3% |
| COVERAGE OF PIP's NET ASSET VALUE | 23.1% |
Strategic Report
The largest 50 companies table is based upon underlying company valuations at 30 June 2016. 2 Co-investments / directs. 3 Listed companies. 4 Liquidation event post 30 June 2016.
IN RESPECT OF THE HALF-YEARLY FINANCIAL REPORT
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 30 June 2016 and continue to be as set out in that report on pages 13-15.
Risks faced by the Company include, but are not limited to, funding of investment commitments and default risk, risks relating to investment opportunities, financial risk of private equity, longterm nature of private equity investments, valuation uncertainty, gearing, foreign currency risk, the unregulated nature of underlying investments, taxation and the risks associated with the engagement of the Manager or other third party advisers.
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 on 13 March 2017 and was signed on its behalf by Sir Laurie Magnus, Chairman.
37
FOR THE SIX MONTHS TO 31 DECEMBER 2016
| SIX MONTHS TO 31 DECEMBER 2016 | SIX MONTHS TO 31 DECEMBER 2015 | YEAR TO 30 JUNE 2016 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| REVENUE | CAPITAL | TOTAL* | REVENUE | CAPITAL | REVENUE | CAPITAL | TOTAL* | |||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
| Gains on investments at fair value through | ||||||||||
| profit or loss** | - | 130,785 | 130,785 | - | 71,063 | 71,063 | - | 191,298 | 191,298 | |
| Currency gains on cash | ||||||||||
| and borrowings | - | 8,276 | 8,276 | - | 10,905 | 10,905 | - | 22,864 | 22,864 | |
| Investment income | 8,394 | - | 8,394 | 7,522 | - | 7,522 | 11,832 | - | 11,832 | |
| Investment management fees | (6,708) | - | (6,708) | (5,264) | - | (5,264) | (11,249) | - | (11,249) | |
| Other expenses | (774) | (150) | (924) | (658) | (478) | (1,136) | (1,531) | (896) | (2,427) | |
| RETURN ON ORDINARY ACTIVITIES BEFORE | ||||||||||
| FINANCING COSTS AND TAX | 912 | 138,911 | 139,823 | 1,600 | 81,490 | 83,090 | (948) | 213,266 | 212,318 | |
| Interest payable and similar charges/finance | ||||||||||
| costs | (913) | - | (913) | (602) | - | (602) | (1,261) | - | (1,261) | |
| RETURN ON ORDINARY ACTIVITIES | ||||||||||
| BEFORE TAX | (1) | 138,911 | 138,910 | 998 | 81,490 | 82,488 | (2,209) | 213,266 | 211,057 | |
| Tax on ordinary activities (Note 4) | (2,087) | - | (2,087) | (1,295) | - | (1,295) | (1,985) | - | (1,985) | |
| RETURN ON ORDINARY ACTIVITIES FOR THE | ||||||||||
| PERIOD, BEING TOTAL COMPREHENSIVE | ||||||||||
| INCOME FOR THE PERIOD(NOTE 8) | (2,088) | 138,911 | 136,823 | (297) | 81,490 | 81,193 | (4,194) | 213,266 | 209,072 | |
| RETURN PER ORDINARY AND | ||||||||||
| REDEEMABLE SHARE (NOTE 8) | (3.29)p | 219.24p | 215.95p | (0.46)p | 124.94p | 124.48p | (6.47)p | 328.99p | 322.52p |
* The Company does not have any income or expense that is not included in the return for the period and accordingly the return for the period is also the total comprehensive income for the period. The total column of the statement represents the Company's Statement of Total Comprehensive Income prepared in accordance with Financial Reporting Standards ("FRS"). 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.
No operations were acquired or discontinued during the period.
There were no recognised gains or losses other than those passing through the Income Statement.
FOR THE SIX MONTHS TO 31 DECEMBER 2016
| 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 | ||||||||
| 31 December 2016 | ||||||||
| OPENING EQUITY SHAREHOLDERS' FUNDS | 22,456 | 283,555 | 3,089 | 515,720 | 422,180 | - | (59,886) | 1,187,114 |
| Return for the period | - | - | - | 81,593 | 57,318 | - | (2,088) | 136,823 |
| Redeemable shares bought back for cancellation | - | - | - | (26) | - | - | - | (26) |
| CLOSING EQUITY SHAREHOLDERS' FUNDS | 22,456 | 283,555 | 3,089 | 597,287 | 479,498 | - | (61,974) | 1,323,911 |
| Movement for the six months ended | ||||||||
| 31 December 2015 | ||||||||
| OPENING EQUITY SHAREHOLDERS' FUNDS | 22,475 | 283,555 | 3,070 | 409,584 | 324,062 | 13,010 | (55,692) | 1,000,064 |
| Return for the period | - | - | - | 59,843 | 21,647 | - | (297) | 81,193 |
| Redeemable shares bought back for cancellation | (1) | - | 1 | - | - | (1,219) | - | (1,219) |
| CLOSING EQUITY SHAREHOLDERS' FUNDS | 22,474 | 283,555 | 3,071 | 469,427 | 345,709 | 11,791 | (55,989) | 1,080,038 |
| Movement for the year ended | ||||||||
| 30 June 2016 | ||||||||
| OPENING EQUITY SHAREHOLDERS' FUNDS | 22,475 | 283,555 | 3,070 | 409,584 | 324,062 | 13,010 | (55,692) | 1,000,064 |
| Return for the year | - | - | - | 115,148 | 98,118 | - | (4,194) | 209,072 |
| Redeemable shares bought back for cancellation | (19) | - | 19 | (9,012) | - | (13,010) | - | (22,022) |
| CLOSING EQUITY SHAREHOLDERS' FUNDS | 22,456 | 283,555 | 3,089 | 515,720 | 422,180 | - | (59,886) | 1,187,114 |
* Reserves that are distributable by way of dividends. In addition, the Special Reserve and Other Capital Reserve can be used for share buybacks.
AS AT 31 DECEMBER 2016
| AS AT 31 DECEMBER 2016 | AS AT 31 DECEMBER 2015 | AS AT 30 JUNE 2016 | |
|---|---|---|---|
| £'000 | £'000 | £'000 | |
| Fixed assets | |||
| Investments at fair value | 1,153,815 | 903,758 | 1,071,876 |
| Current assets | |||
| Debtors | 1,267 | 2,724 | 3,654 |
| Cash at bank | 173,318 | 174,843 | 115,522 |
| 174,585 | 177,567 | 119,176 | |
| Creditors: amounts falling due within one year | |||
| Other creditors | 4,489 | 1,287 | 3,938 |
| 4,489 | 1,287 | 3,938 | |
| NET CURRENT ASSETS | 170,096 | 176,280 | 115,238 |
| NET ASSETS | 1,323,911 | 1,080,038 | 1,187,114 |
| Capital and reserves | |||
| Called-up share capital (Note 7) | 22,456 | 22,474 | 22,456 |
| Share premium | 283,555 | 283,555 | 283,555 |
| Capital redemption reserve | 3,089 | 3,071 | 3,089 |
| Other capital reserve | 597,287 | 469,427 | 515,720 |
| Capital reserve on investments held | 479,498 | 345,709 | 422,180 |
| Special reserve | - | 11,791 | - |
| Revenue reserve | (61,974) | (55,989) | (59,886) |
| TOTAL EQUITY SHAREHOLDERS' FUNDS | 1,323,911 | 1,080,038 | 1,187,114 |
| NET ASSET VALUE PER SHARE – ORDINARY AND REDEEMABLE (NOTE 9) | 2,089.52p | 1,657.53p | 1,873.62p |
| NUMBER OF ORDINARY SHARES IN ISSUE | 33,062,013 | 33,062,013 | 33,062,013 |
| NUMBER OF REDEEMABLE SHARES IN ISSUE | 30,297,534 | 32,097,534 | 30,297,534 |
| TOTAL SHARES IN ISSUE (NOTE 7) | 63,359,547 | 65,159,547 | 63,359,547 |
FOR THE SIX MONTHS TO 31 DECEMBER 2016
| SIX MONTHS TO | SIX MONTHS TO | YEAR TO | |
|---|---|---|---|
| 31 DECEMBER 2016 | 31 DECEMBER 2015 | 30 JUNE 2016 | |
| £'000 | £'000 | £'000 | |
| Cash flows from operating activities | |||
| Investment income received | 8,283 | 7,467 | 11,664 |
| Deposit and other interest received | 117 | 45 | 159 |
| Investment management fees paid | (6,620) | (5,214) | (11,011) |
| Secretarial fees paid | (108) | (125) | (232) |
| Depositary fees paid | (109) | (93) | (193) |
| Other cash payments | (871) | (855) | (1,730) |
| Withholding tax deducted | (2,087) | (1,295) | (1,985) |
| NET CASH OUTFLOW FROM OPERATING ACTIVITIES | (1,395) | (70) | (3,328) |
| Cash flows from investing activities | |||
| Purchases of investments | (102,925) | (115,364) | (263,203) |
| Disposals of investments | 154,624 | 143,614 | 244,540 |
| NET CASH INFLOW/(OUTFLOW) FROM INVESTING ACTIVITIES | 51,699 | 28,250 | (18,663) |
| Cash flows from financing activities | |||
| Redeemable shares purchased for cancellation | (26) | (1,219) | (22,022) |
| Loan commitment and arrangement fees paid | (618) | (491) | (992) |
| NET CASH OUTFLOW FROM FINANCING ACTIVITIES | (644) | (1,710) | (23,014) |
| INCREASE/(DECREASE) IN CASH IN PERIOD | 49,660 | 26,470 | (45,005) |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 115,522 | 137,483 | 137,483 |
| FOREIGN EXCHANGE GAINS | 8,136 | 10,890 | 23,044 |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | 173,318 | 174,843 | 115,522 |
The Company applies FRS 102 and the AIC's SORP (issued in November 2014 and updated in January 2017 with consequential amendments) for its financial year ending 30 June 2017 in its Financial Statements. The financial statements for the six months to 31 December 2016 have therefore been prepared in accordance with FRS 104 'Interim Financial Reporting'. As stated in the Company's Annual Report the Company has early adopted the amendments to FRS 102 paragraph 34.22. The financial statements have been prepared on the same basis as the accounting policies set out in the statutory accounts for the year ended 30 June 2016. They have also been prepared on the assumption that approval as an investment trust will continue to be granted.
The financial information contained in this Half-Yearly Financial Report and the comparative figures for the financial year ended 30 June 2016 are not the Company's statutory accounts for the financial year, but are based on those accounts. The financial information for the six months ended 31 December 2016 and 31 December 2015 are not for a financial year and have not been audited but have been reviewed by the Company's auditors and their report can be found on page 46. The statutory accounts for the financial year ended 30 June 2016 have been delivered to the Registrar of Companies and received an audit report which was unqualified, did not include a reference to any matters which the auditors drew attention by way of emphasis without qualifying the report and did not contain 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 5 to 35.
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 Directors are of the opinion that the Company is engaged in a single segment of business, being investment business.
The tax charge for the six months to 31 December 2016 is £2,087,000 (six months to 31 December 2015: £1,295,000; year to 30 June 2016: £1,985,000). 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.
During the period, services with a total value of £6,995,000, being £6,708,000 directly from Pantheon Ventures (UK) LLP and £287,000 via Pantheon managed fund investments (31 December 2015: £5,570,000; £5,264,000; and £306,000; year to 30 June 2016: £11,824,000; £11,249,000 and £575,000 respectively). At 31 December 2016, the amount due to Pantheon Ventures (UK) LLP in management fees and performance fees disclosed under creditors was £1,168,000 and £nil respectively.
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 for the six months to 31 December 2016 totalled £119,000 (six months to 31 December 2015: £116,000; year to 30 June 2016: £231,000).
There are no other identifiable related parties at the period end.
The Manager is entitled to a performance fee from the Company in respect of each 12 calendar month period ending on 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 six month period ended 31 December 2016, the notional performance fee hurdle is a net asset value per share of 2,633.86p.
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.
During the six months to 31 December 2016 the Company purchased no ordinary or redeemable shares in the market for cancellation, (31 December 2015: 100,000 redeemable shares; year to 30 June 2016: 1,900,000 redeemable shares). As at 31 December 2016 there were 33,062,013 ordinary shares and 30,297,534 redeemable shares in issue, (31 December 2015: 33,062,013 and 32,097,534 respectively, year to 30 June 2016: 33,062,013 and 30,297,534 respectively).
| SIX MONTHS TO 31 DECEMBER 2016 | SIX MONTHS TO 31 DECEMBER 2015 | YEAR TO 30 JUNE 2016 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| REVENUE | CAPITAL | TOTAL | REVENUE | CAPITAL | TOTAL | REVENUE | CAPITAL | TOTAL | |
| Return on ordinary activities | |||||||||
| for the period £'000 | (2,088) | 138,911 | 136,823 | (297) | 81,490 | 81,193 | (4,194) | 213,266 | 209,072 |
| Weighted average ordinary | |||||||||
| and redeemable shares | 63,359,547 | 65,223,677 | 64,823,481 | ||||||
| Return per ordinary and | |||||||||
| redeemable share | (3.29)p | 219.24p | 215.95p | (0.46)p | 124.94p | 124.48p | (6.47)p | 328.99p | 322.52p |
| 31 DECEMBER 2016 | 31 DECEMBER 2015 | 30 JUNE 2016 | |
|---|---|---|---|
| Net assets attributable in £'000 | 1,323,911 | 1,080,038 | 1,187,114 |
| Ordinary and redeemable shares | 63,359,547 | 65,159,547 | 63,359,547 |
| Net asset value per share - ordinary and redeemable | 2,089.52p | 1,657.53p | 1,873.62p |
Strategic Report
| SIX MONTHS TO 31 DECEMBER 2016 |
SIX MONTHS TO 31 DECEMBER 2015 |
YEAR TO 30 JUNE 2016 |
|
|---|---|---|---|
| £'000 | £'000 | £'000 | |
| Return on ordinary activities before finance costs and tax | 139,823 | 83,090 | 212,318 |
| Withholding tax deducted | (2,087) | (1,295) | (1,985) |
| Gains on investments | (130,785) | (71,063) | (191,298) |
| Currency gains on cash and borrowings | (8,276) | (10,905) | (22,864) |
| (Decrease)/increase in creditors | (108) | 26 | 466 |
| Decrease in other debtors | 38 | 77 | 35 |
| NET CASH OUTFLOW FROM OPERATING ACTIVITIES | (1,395) | (70) | (3,328) |
(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 year 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.
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 year end. If there has been a material movement in the value of these holdings, the valuation is adjusted to reflect this.
(ii) Quoted investments are valued at the bid price on the relevant stock exchange.
All investments are initially recognised and subsequently measured at fair value. Changes in fair value are recognised in the Income Statement.
The fair value hierarchy consists of the following three levels:
In accordance with FRS 104, the Company must disclose the fair value hierarchy of financial instruments.
| TOTAL | 1,447 | - | 1,152,368 | 1,153,815 |
|---|---|---|---|---|
| Listed holdings | 1,447 | - | - | 1,447 |
| Unlisted holdings | - | - | 1,152,368 | 1,152,368 |
| £'000 | £'000 | £'000 | £'000 | |
| LEVEL 1 | LEVEL 2 | LEVEL 3 | TOTAL |
| LEVEL 1 | LEVEL 2 | LEVEL 3 | TOTAL | |
|---|---|---|---|---|
| £'000 | £'000 | £'000 | £'000 | |
| Unlisted holdings | - | - | 903,234 | 903,234 |
| Listed holdings | 524 | - | - | 524 |
| TOTAL | 524 | - | 903,234 | 903,758 |
| LEVEL 1 | LEVEL 2 | LEVEL 3 | TOTAL | |
|---|---|---|---|---|
| £'000 | £'000 | £'000 | £'000 | |
| Unlisted holdings | - | - | 1,070,507 | 1,070,507 |
| Listed holdings | 1,369 | - | - | 1,369 |
| TOTAL | 1,369 | - | 1,070,507 | 1,071,876 |
TO PANTHEON INTERNATIONAL Plc
We have been engaged by the Company to review the financial information in the Half-Yearly financial report for the six months ended 31 December 2016, which comprises the Income Statement, Statement of Changes in Equity, 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 the Half Year at a Glance, Performance Summary, Historical Data, Chairman's Statement, Objective and Investment Policy, Manager's Review and Interim Management Report and Responsibility Statement of the Directors and considered whether it contains any apparent misstatements or material inconsistencies with the financial information.
This report is made solely to the Company in accordance with guidance contained in Independent 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. Our review work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent 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 FRS 102 and the Association of Investment Companies' Statement of Recommended Practice (issued in November 2014 and updated in January 2017 with consequential amendments). The financial information in the Half-Yearly financial report has been prepared in accordance with Financial Reporting Standard 104.
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 31 December 2016 is not prepared, in all material respects, in accordance with the basis of accounting described in Note 1.
Statutory Auditor, Chartered Accountants London 13 March 2017
Funds that acquire controlling interests in companies with a view towards later selling those companies or taking them public
Capital calls in the period divided by opening outstanding commitments
Call to limited partners ("LP") to pay-in a portion of the LP's committed capital when the general partner ("GP") has identified a new investment for purchase
Direct shareholding in a company alongside a private equity fund
The amount of capital that each limited partner agrees to contribute to the fund when and as requested by the GP
Calculated by dividing the fund's cumulative distributions and remaining value by paid-in capital. It measures fund performance by showing the fund's total value as a multiple of cost
Cash or stock returned to the LPs after the fund has exited from an investment
Distributions for the period divided by opening portfolio value
A measure of earnings before interest and taxes that exclude non-cash expenses. Valuation methods are commonly based on a comparison of private and public companies' value as a multiple of EBITDA
The sum of a company's market capitalisation and total debt, less cash and cash equivalents
Realisation of an investment through trade sale, sale by public offering (including IPO), or sale to a financial buyer
Private equity fund that, instead of making direct investments in companies, invests in a number of private equity funds to achieve broader diversification of risk, including individual manager risk
The entity managing a private equity fund that has been established as a limited partnership, also commonly referred to as the private equity manager
The first offering of stock by a company to the public on a regulated stock exchange
The IRR, a common measure of private equity performance, is calculated as an annualised compounded rate of return based on the timing of cash flows
Period, typically five years, during which the GP is permitted to make new investments
Illustrates the historical tendency of private equity funds to experience capital outflows and negative returns in early years, and cash flow distributions and investment gains in future years as portfolio companies mature
Institutions or individuals who commit capital to a private equity fund established as a limited partnership. Limited partners are generally protected from legal actions and any losses beyond their original investment
The sale of all remaining assets of a fund prior to its final cessation of operations
Annual fee, typically charged as a percentage of LP commitments to the fund during the investment period and attenuating thereafter, intended to cover the costs of running and administering a fund
Amount by which the value of assets of a fund exceeds liabilities, reflecting the value of an investor's attributable holding
Income and gains from funds following exit realisations less capital calls to finance investments or expenses
Undrawn portion of total commitment
Cumulative amount of capital that has been drawn down
A company that is an investment within a private equity fund
Commitments made to a private equity fund at the time a fund is formed
Investments made in non-public companies through privately negotiated transactions
Purchasing existing private equity fund interests and commitments from an investor seeking liquidity in such funds
Increase in value received upon realisation of an investment relative to its carrying value prior to realisation
Multiple of earnings (typically EBITDA or net income) or revenue applied in valuing a business enterprise
Investment in early and development-stage companies, often used to finance technological product and market development
The first year that the private equity fund makes an investment
Sir Laurie Magnus (Chairman) Ian Barby John Burgess David Melvin Susannah Nicklin John Singer Rhoddy Swire
Authorised and regulated by the FCA
10 Finsbury Square 4th Floor London EC2A 1AF
PIP Investor Relations: [email protected] PIP website: www.piplc.com Pantheon website: www.pantheon.com
(trading as Capita Asset Services) Beaufort House 51 New North Road Exeter EX4 4EP
Telephone: 01392 477500
30 Finsbury Square London EC2P 2YU
88 Wood Street London EC2V 7QR
10 Harewood Avenue London NW1 6AA
The Registry 34 Beckenham Road Beckenham Kent BR3 4TU
Condor House, 5-10 St. Paul's Churchyard London EC4M 8AL
PO Box 2000 Aylesbury Buckinghamshire HP21 8ZB
Telephone: 08456 185 130 Email: [email protected] Website: www.share.com
10 Finsbury Square 4th Floor London EC2A 1AF United Kingdom
| Telephone: | +44 (0)20 3356 1800 |
|---|---|
| Facsimile: | +44 (0)20 3356 1801 |
| E-mail: | [email protected] |
| Internet: | www.piplc.com |
Registered in England number: 2147984 A member of the Association of Investment Companies
PIP IS A FOUNDING MEMBER OF
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