Currency movements negatively impact Apax’s NAV – Apax Global Alpha gives liquid exposure to the expertise of Apax Partners (Apax), the global private equity firm. In their annual report dated 31 December 2017, the portfolio was allocated between 65% in private equity and 35% in “derived investments”, which they describe as investments in equities and debt derived from the insights gained via Apax Partners’ Private Equity activities.
The NAV of the company rose by 10.2% on a total return basis, if currencies had remained at parity with each other. However, during the report period, the euro strengthened by 12.4% against the US dollar*. Therefore, the significant FX impact meant that the return was reduced to 2.2%.
The company reported that on a constant currency basis the private equity component of the portfolio returned 10.0% and the derived investments returned 17.5%. the derived debt sub-portfolio returned 9.8% if currency was unchanged but actually returned-2.0%. The derived equity sub-portfolio returned +35.7% reduced to +24.2% on the same basis.
The company was 98% invested at 31 December 2017 with the portfolio skewed towards private equity. It was included in the FTSE All Share Index and FTSE Small Cap index on 18 September 2017.
Performance comment:
In the report, Tim Breedon CBE, Chairman of Apax Global Alpha, said: that (the company’s) “…strong underlying investment performance in 2017 was depressed by adverse currency movements. The portfolio remains well positioned to deliver future growth.“
Commenting on the company’s investment focus, Ralf Gruss, COO of Apax Partners, said: “The performance for the year was pleasing despite being overshadowed by the weakness of the US dollar. (the company) gained exposure to a number of new and exciting portfolio companies in Private Equity, while realising value in older vintages. The strategy to focus more on equities delivered impressive results in Derived Investments.”
Outlook:
The managers reported that they believe that they are managing a strong private equity portfolio with sound operational performance with the last twelve months’ EBITDA growth of 17.9%. and average leverage of 4.3x They are seeing improving performance from the derived debt portfolio.
Private equity outlook:
- Private Equity remains attractive on a relative basis compared to other asset classes
– Active management of strategic and operational improvements can allow portfolio companies to mature into their high valuations - Confident outlook on the performance of the Apax Funds:
– Most of the difficult assets have been worked through
– Performing assets are increasing in size on both absolute and relative bases
– Investment portfolio of new investments off to a good start
Derived Investments outlook
- Over the past twelve months €130.6m has been invested in to Derived Equity, €147.9m in to Derived Debt
- In Derived Debt:
– Loans remain more attractive than high yield
– Continue to seek out opportunistic/idiosyncratic/value oriented assets which are under-rated by the market - In Derived Equities the focus is on relative value in developed markets and opportunities in emerging markets in sub-sectors such as:
– Financial services
– Health care
– Online/digital
*Source: Apax; Bloomberg 2018.