PANTHEON INTERNATIONAL: Private equity trust delivers a 32% return in five years
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PANTHEON INTERNATIONAL: Private equity trust delivers 32% return over five years – better than gains from investments in the FTSE All-Share Index
Investment trust Pantheon International invests in private companies with the hope of generating fantastic returns for shareholders. Over the past five years, it has provided investors with a respectable return of 32 percent, better than the gains anyone would have made by investing in the FTSE All-Share Index (13 percent).
Since its launch in 1987, it has delivered an annual return of 12.4 percent, compared to 7.4 percent for the FTSE All-Share.
While private equity does not have a good reputation in the eyes of many people (mainly because of its relentless focus on profit), the manager of this FTSE250-listed trust steadfastly defends his work.
“What we do is help fund high-growth companies,” says Helen Steers. “It’s about financing business growth and expansion. We invest for the long term, usually between five and seven years.’
The trust’s approach is based entirely on diversification. It invests in companies across all business sectors, although the portfolio has a strong focus on technology and health stocks.
“Our exposure to technology is what I would call boring technology,” Steers says. ‘For example, in companies that strive to improve cybersecurity. It’s not spicy.’
In total, it has holdings in more than 1,000 companies, with no holding representing more than one percent of the fund. Its main interest is in US healthcare provider Lifepoint.
In addition, it invests in private companies in various ways. The main route is through private equity funds set up by specialists such as Insight Venture Partners, Index Ventures and Providence Equity Partners.
These funds invest in a portfolio of privately held companies and Pantheon International then gets a share of the profits when the holdings are sold – usually to a rival company or occasionally through a stock exchange. ‘These funds in which we invest,’ says Steers, ‘are by invitation only. We invest together with other institutional investors and endowment funds. They are difficult for retail investors to enter because of the high level of commitment.”
It will also invest directly in a private company – but only alongside a private equity fund in which it already has a stake. And sometimes it buys a stake in a fund of an institution that wants to sell.
A recent success story for the trust was the sale of a stake in the British pharmaceutical company EUSA Pharma, based in Hertfordshire. It was bought by Italian pharmaceutical company Recordati and generated a return equal to five times the capital it originally invested in 2015. More recently, it has invested in British company Access Group, a provider of business management software for small businesses. It has also invested in American orthodontics specialist Smile Doctors.
Due to the challenging economic background, Steers and her team are ‘extremely selective’ in the companies in which they want to invest. “The bar has been raised,” she says. “We have to make sure that the companies we buy get through these turbulent times.”
The difficult economic backdrop is one of the reasons why the trust’s share price (£2.50) is at a significant discount (49 percent) to the value of its assets. “The share price has not kept up with asset value growth,” Steers says. In the past year, the assets have grown by 24 percent.
Pantheon International is a good asset diversification. But it should only represent a small portion of an overall investment portfolio. The total annual cost of 3.9 percent is also on the expensive end of the spectrum. The exchange ID code is BP37WF1 and the ticker is PIN.