Private equity fund Pantheon International (PIN) has simplified the capital allocation policy funding share buybacks but disappointed those who hoped for a step-change in the battle to rerate its depressed share price.
Ahead of a capital markets session in the City of London this afternoon to explain phase three of its three-year corporate strategy programme, the £1.5bn investment trust pledged to invest its capital more consistently through the economic cycle as it seeks to improve returns and make them less volatile.
With its shares stuck on a 35% discount below net asset value, the company said it would also increase funds for share buybacks with 20% of gross distributions from investments allocated to a buyback pool which the board could use when the shares trade more than 20% below net asset value.
Previously, buybacks were tiered with 26%-50% of net cash flow allocated to purchasing stock when the shares traded between 30%-49% below NAV.
Deutsche Numis analyst Gavin Trodd said targeting a 20% discount was not “particulary aspirational” and the new approach looked inferior to rival HarbourVest Global Private Equity (HVPE) which since January has allocated 30% of gross distributions to buybacks. The analyst preferred HVPE over PIN, arguing its continuation vote next year offered better scope for its 32% discount to narrow.
Nevertheless, he calculated the new policy would have provided £63m for share buybacks in the past year, more than the £57m PIN’s board had bought back.
PIN’s commitments came as the investor in private equity funds run by Pantheon Ventures and other managers prepared to say more about its plans to increase marketing to high net worth investors and financial advisers.
Our view
Matthew Read, senior analyst at QuotedData, said: “We are approaching the third anniversary of Pantheon International’s board setting out its strategic plan in October 2022. Nearly three years on, and with more than £270m spent on buybacks, the trust still trades on a wide discount – 35% at the time of writing.
“Listed private equity has been deeply out of favour over this period. Despite the fact that companies are staying private for longer and that private equity has tended to outperform listed markets over the long term, sentiment towards the sector has been poor. Funds such as PIN, with exposure through general partners, have also been disproportionately penalised by cost disclosure rules. Some of these factors are beyond management’s control, but the size of the discount remains a pressing issue and we are encouraged to see the board addressing it head-on with stage three of its plan.
“In his final results statement, outgoing chair John Singer highlighted that ‘marketing is key’ to increasing demand. PIN has already launched a campaign aimed at high-net-worth individuals, supported by a marketing agency, with further initiatives to follow this year. This is being reinforced by a more consistent investment approach, a clearer capital allocation policy – including greater use of asset sales – and a commitment to allocate 20% of distributions to buybacks.
“The key question is whether these measures will be enough. We think shareholders will want the board to set a clear benchmark for where it believes the discount should be, to provide a yardstick for progress. Having made discount control a central focus, investors are likely to expect to see tangible improvement over the next 12 months and will be disappointed if it does not materialise.”
