PANTHEON INTERNATIONAL: Private equity trust delivers a 32% return in five years – better than profits from investing in the FTSE All-Share Index
Investment trust Pantheon International invests in private companies in the hope of delivering stellar returns for shareholders. Over the past five years, it has produced a respectable return for investors of 32 per cent, better than the profits someone would have got from investing in the FTSE All-Share Index (13 per cent).
Since its launch in 1987, it has produced an annual return of 12.4 per cent, compared with 7.4 per cent for the FTSE All-Share.
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Although private equity doesn’t have a good reputation in many people’s eyes (essentially, because of its ruthless focus on profits), the manager of this FTSE250-listed trust staunchly defends its work.
‘What we do is help fund fast-growing businesses,’ says Helen Steers. ‘It’s about funding business growth and expansion. We invest for the long term, typically for between five and seven years.’
The trust’s approach is all based around diversification. It invests in companies across all business sectors, although the portfolio is skewed towards technology and healthcare stocks.
‘Our technology exposure is what I would call boring tech,’ says Steers. ‘For example, it is in firms striving to improve cybersecurity. It’s not racy.’
Overall, it has holdings in more than 1,000 companies, with no one position representing more than one per cent of the fund. Its biggest stake is in US healthcare provider Lifepoint.
In addition, it invests in private companies through a variety of means. Its main route is via 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 unlisted companies and Pantheon International then gets a slice of the profits as holdings are sold – typically to a rival business or occasionally via a stock market listing. ‘These funds we invest in,’ says Steers, ‘are by invitation only. We invest alongside other institutional investors and endowment foundations. They’re difficult for retail investors to get into because of the high commitment levels.’
It will also invest directly in a private company – but only alongside a private equity fund it is already a stakeholder in. And sometimes it will buy a stake in a fund from an institution that wants to sell.
A recent success story for the trust was the sale of a holding in UK pharmaceutical company EUSA Pharma, based in Hertfordshire. It was bought by Italian pharma business Recordati, generating a return equivalent to five times the capital it originally invested back in 2015. More recently, it has invested in UK company Access Group, a provider of business management software for small businesses. It has also invested in US orthodontics specialist Smile Doctors.
The challenging economic backdrop means Steers and her team are ‘extremely selective’ about which companies they are prepared to invest in. ‘The bar has got higher,’ she says. ‘We have to ensure that companies we buy will get through these turbulent times.’
The difficult economic backdrop is one reason why the trust’s share price (£2.50) sits at a significant discount (49 per cent) to the value of its assets. ‘The share price has not kept up with the growth in asset values,’ says Steers. Over the past year, assets have grown by 24 per cent.
Pantheon International is a good asset diversifier. But it should only represent a small slice of any overall investment portfolio. Its total annual charges of 3.9 per cent are also at the expensive end of the spectrum. The stock market ID code is BP37WF1 and the ticker is PIN.