Pantheon cautiously optimistic

PIP, the UK-listed global private equity fund of funds, has shown a small decline in NAV in its interim results for the six months ending 31 December 2002 but sees encouraging signs.

Pantheon International Participations (PIP), the UK-listed global private equity fund of funds managed by Pantheon Ventures, has released its interim results for the six months ending 31 December 2002.

A combination of falling public equity prices (the company has less than 10 per cent of its capital invested in stock) and the decline in the US dollar against Sterling meant that the Company's fully diluted Net Asset Value (NAV) per share fell by 2.7 per cent to 526.9p (541.6p at 30 June 2002) with total net assets falling from £117m to £114m. Nonetheless the firm, which is invested in over 300 different private equity and venture managers worldwide, pointed to a number of positive developments that encourage it to be cautiously optimistic for the year ahead.

In the accompanying statement to the results, chairman Lionel Stopford Sackville, drew attention to these positive signs. One key factor referenced was that valuations had regained some stability by the latter half of 2002: “Most unquoted fund managers had already grasped the nettle of portfolio write downs during the early part of 2002 in response to the broad decline in markets during the latter part of 2001 and had therefore arrived at valuations within a more conservative framework before the beginning of the period under review.”

To this end the period of marked write downs by funds Pantheon is invested in seemed to be over with Stopford Sackville commenting: “In the case of the valuation [of Pantheon’s private equity funds] at 31 December 2002, more than 80 per cent of portfolio assets were valued on the basis of accounts dated September 2002. Moreover, only 3 per cent were valued on the basis of accounts dated prior to June 2002.”

The company also reported that exits and hence distributions were also occuring during the period, despite the dire state of the IPO market, with Pantheon receiving £21.7m from realisations by underlying funds – including the secondary buyouts of Coral Eurobet and Elifin.

Pantheon committed £97.4m of capital during the second half of 2002, with £23.6m of this being primary commitments to a selection of funds investing in the USA and in Western European markets and focusing on mid-market buyouts or special situations. Destination funds included Alchemy Partners, Barclays Private Equity European Fund, Green Equity Investors IV, Indigo Capital IV, Nordic Capital V, OCM Opportunities Fund IVb and The Resolute Fund.

Stopford Sackville also drew attention to Pantheon’s increased activity in the secondary market – a growing area of opportunity for numerous private equity fund managers.  “The purchases of two substantial portfolios consisting principally of USA and European buyout funds … were transacted during the period for a combined commitment of £59.4m and involved 34 fund interests in total.' The Company also completed secondary purchases of a number of smaller portfolios and single fund interests in the half year, adding secondary holdings in a total of 39 funds to its portfolio during the period at a cost, including unfunded commitments, of £73.8m.

In conclusion Stopford Sackville said: “The company's attitude to current market conditions continues to be one of cautious optimism. Prevailing pricing levels are more realistic than in the recent past. Furthermore, as many fund managers continue to focus their attentions primarily on existing portfolio companies, competition between companies for funding, rather than between fund managers for deals, has re-emerged as a governing force in the unquoted companies market. From an investor's point of view, this represents a healthy and welcome development which offers the potential for the foundations of superior future performance to be laid during the coming phase.”