24 June 2024
Patria Private Equity Trust plc
Legal Entity Identifier (LEI): 2138004MK7VPTZ99EV13
HALF YEARLY REPORT FOR THE SIX MONTHS ENDED 31 MARCH 2024
FINANCIAL HIGHLIGHTS
|
Six months ended |
Year ended |
Six months ended |
|
31 March 2024 |
30 September 2023 |
31 March 2023 |
Net Asset Value Total Return*+ |
2.0% |
5.4% |
3.0% |
Share Price Total Return*+ |
22.9% |
11.7% |
2.3% |
FTSE All - Share Index Total Return |
6.9% |
13.8% |
12.3% |
|
|
|
|
|
As at |
As at |
As at |
|
31 March 2024 |
30 September 2023 |
31 March 2023 |
Net Asset Value |
|
|
|
Share Price |
535.0p |
442.0p |
412.0p |
Expense Ratio*+ |
1.06% |
1.06% |
1.05% |
* Considered to be an Alternative Performance Measure.
+ A Key Performance Indicator by which the performance of the Manager is measured by the Board.
HIGHLIGHTS TO 31 MARCH 2024
· Performance - NAV total return ('NAV TR') for the six months to 31 March 2024 was 2.0%. The valuation of the underlying portfolio increased by 4.4% during the period in underlying currency terms.
· Investment Activity - Three new primary fund commitments (
· Direct Investments - The direct investment portfolio has now reached a portfolio of 30 separate underlying companies and 22% of portfolio NAV (30 September 2023: 26 separate underlying companies and 19% of portfolio NAV).
· Cashflows - The portfolio generated distributions of
· Outstanding Commitments - Outstanding commitments at the period-end amounted to
· Balance Sheet & Liquidity - Cash and cash equivalents of
Patria Private Equity Trust plc ('PPET') is an investment trust with a premium listing on the London Stock Exchange.
PPET provides investors with exposure to leading private equity funds and private companies, mainly in
Patria Capital Partners LLP, a wholly owned subsidiary of Patria Investments Limited, is PPET's alternative investment fund manager ('AIFM') and Manager (the 'Investment Manager' or the 'Manager').
Introduction Patria Investments Limited.
Patria Investments Limited ('Patria'), which acquired the Company's Manager in April 2024, is a leading alternative investment firm with over 35 years of specialised experience in key resilient sectors. Patria has been listed on the NASDAQ index since 2021. Its unique approach combines its knowledge of investment leaders, sector experts and companies' managers, with on-the-ground local experience. With over U$40 billion pro forma assets under management and a global presence, it provides attractive and consistent returns in long-term investment opportunities, while creating sustainable value for the regions where it operates.
CHAIR'S STATEMENT
Introduction
I am delighted to present the Half-Yearly Report for Patria Private Equity Trust plc ('PPET' or 'the Company'), for the six months to 31 March 2024 (the 'Period').
Whilst the past six months have continued to be relatively subdued in terms of private equity market activity, carrying on from where we left off at the end of the last financial year, I was delighted to see PPET's strong share price performance. During the Period, PPET delivered a share price total return of 22.9%, assuming dividend reinvestment. I believe that the buyback programme introduced by the Board in January 2024 has helped to support the improved performance of the share price up to 31 March 2024.
PPET has also continued to perform resiliently from an investment point of view, demonstrating the effectiveness of its investment strategy and the quality of its underlying portfolio of growing, cash generative, mid-market private companies.
Manager and Name Change
In October 2023, abrdn plc ('abrdn') announced the sale of its European-headquartered Private Equity business, which included the Company's investment manager, then called abrdn Capital Partners LLP and now called Patria Capital Partners LLP, to an indirect subsidiary of Patria Investments Limited ('Patria'), a global alternative asset manager listed on the NASDAQ index.
The Board undertook extensive due diligence on the proposed transaction with abrdn, Patria and PPET's Manager, to fully understand the impact of the sale, and what it meant for PPET's shareholders.
After several months of detailed work and the completion of the due diligence exercise, I am delighted that the Board was able to consent to the transaction by waiving the 'Manager Change of Control' provisions set out in PPET's Investment Management Agreement. During our work, the Board received assurances from Patria and the Manager that there will be: (i) no change to the management and administration services which are provided to PPET; (ii) no change to PPET's investment management process; and (iii) no change to the personnel managing PPET.
Importantly, we also received comfort that the transaction will be cost neutral for PPET - there are not expected to be additional costs to shareholders because of it.
The sale completed at the end of April 2024, at which point the Company changed its name from abrdn Private Equity Opportunities Trust plc to Patria Private Equity Trust plc.
I know I speak for the entire Board when I say that we are excited to continue to work with PPET's management team and begin working with the wider team at Patria. I believe this transaction will prove to be in the best interests of PPET shareholders, with a re-energised management team backed by a supportive, private markets-specialist in Patria. We have included further information on Patria and its capabilities in the interim accounts.
Share Price and Investment Performance
During the Period, PPET's share price total return was 22.9% and the share price discount to NAV at 31 March 2024 narrowed to 31.8% (30 September 2023: 43.2%), with the discount ranging between 26.8% and 45.4%. The share price total return outperformed the total return from the FTSE All-Share Index, PPET's comparator index, of 6.9%. PPET's share price total return has now outperformed the FTSE All-Share Index over 1, 3, 5 and 10 years, and since the inception of the Company in 2001.
As mentioned earlier, the Board announced a buyback programme in January 2024. As at 31 March 2024, PPET had bought back 385,491 of its ordinary shares into treasury, equating to an aggregate investment of
Turning to the performance of PPET's investment portfolio, PPET has delivered resilient NAV performance during the Period, with a NAV per share total return of 2.0% and net assets at
PPET's underlying portfolio of private companies consists of businesses that are often amongst the market leaders in resilient, less cyclical sub-sectors and, importantly, the vast majority are growing, profitable and cash generative. For example, the top 50 portfolio companies by value in PPET, which equate to 38.2% of NAV, experienced average earning growth over the last twelve-months ('LTM') of 22.4% at 31 March 2024.
Further detail on the performance of the underlying portfolio of investments during the period can be found in the Investment Manager's Review.
Commitments, Investments and Distributions
PPET continues to employ a consistent, long-term approach to new investment activity and capture exposure to the latest vintages of private equity investments, whilst also being prudent and considering the current market conditions. During the Period, PPET made new commitments totalling
Direct investments have continued to grow as a proportion of the portfolio, reaching a portfolio of 30 separate underlying companies and 22% of portfolio NAV (30 September 2023: 26 separate underlying companies and 19% of portfolio NAV). Direct investments often do not attract any underlying fees (whereas private equity funds do) and therefore they have the potential to act as a tailwind to PPET's performance.
PPET overcommits to funds to ensure the most efficient use of its resources, optimise returns and to obtain exposure to the best managers in the mid-market, an approach employed since inception. Outstanding commitments at the Period-end amounted to
PPET received
Liquidity and Bank Facility
From a balance sheet point of view, PPET remains in a comfortable position, with cash and cash equivalents of
Whilst the Company has been more reliant upon its credit facility during the last six months, this was a conscious move to further fund and expand its direct investment book. The direct investment portfolio was introduced in 2019, is still maturing and to date has required upfront cash investment. As it reaches a more mature state, it will become a generator of cash as exits are realised. The Manager believes there will be a number of exits from the direct investment portfolio over the next 12-24 months, which will provide PPET with the opportunity to reduce amounts drawn on the RCF should it be deemed appropriate to do so.
The RCF matures in December 2025, and the Board continues to monitor the size and terms of PPET's debt facility.
Dividends
PPET has paid an enhanced quarterly dividend since 2016, and the Board remains committed to maintaining the value of the dividend in real terms. The dividend is effectively a regular return of capital to shareholders at NAV and I am acutely aware that this is an important feature of PPET for many of its shareholders.
PPET intends to make a total dividend for the year to 30 September 2024 of
Other Corporate Changes
As I mentioned earlier, PPET changed its name at the end of April. At that time, our company secretarial contract was novated from abrdn Holdings Limited to GPMS Corporate Secretary Limited, an indirect subsidiary of Patria. We also, temporarily, changed registered office to that of our legal advisers, Dickson Minto, at 16 Charlotte Square,
Industry Activity
The Board monitors industry activity and, in particular, has closely followed the debate on cost disclosures. The Board fully supports changes to the current regulatory regime and believes that PPET is penalised by current regulation. The inclusion of costs embedded in our underlying investee funds in the overall PPET costs is misleading to investors. PPET's costs appear to be prohibitively high which has led to some platforms, most notably the Fidelity platform, blocking new investors into PPET shares. The Board has sought to engage with Fidelity on its rationale for the blocking and no answers have been forthcoming which is extremely disappointing. The Board takes this very seriously and is engaged with the wider investment trust industry to continue to put pressure on the government and regulators to address the situation. However, in light of the forthcoming
The Board is also aware of industry concerns around valuation, and the expected FCA Valuation Review. The Board engages with the Manager on valuation processes and procedures regularly. The Board believes the rigorous valuation processes employed by the Manager, and scrutinised by the Board, ensures that the PPET published NAV figure is accurate and reflective of the fair value of the underlying portfolio.
Outlook
Market conditions remain challenging with continued levels of uncertainty and risk. That said, the Board and the Manager remain optimistic about the remainder of the year given the improving signs of sentiment, especially the value creation activities of Funds to generate both deal opportunities and distributions. It is evident that Funds are having to think more clearly about margin expansion to help drive more exits and to create the value-add necessary to access the estimated
As mentioned, PPET's investment objective has been consistent over the last two decades, being centred on partnering with a carefully selected group of leading private equity managers, principally in the European midmarket. I do not foresee a material change to that going forward, albeit I expect PPET's focus within the mid-market will continue to evolve more towards the lower end, i.e. companies with an enterprise value at entry of between
It also remains my expectation that direct investments will continue to grow as a proportion of the PPET portfolio, even with the expectation of liquidity coming from that part of the portfolio over the coming year. This increase in exposure should further capture the benefits of their underlying lower costs compared to Funds. Furthermore, the secondary market in private equity is becoming larger and more strategically important with every passing year, and I expect PPET's Manager to continue be active there, both on the buy and sell-side.
Lastly, the Board will continue to monitor the evolution of the PPET share price and, in the event of further sizeable distributions from the portfolio, may look to extend the current buyback programme. As mentioned, I am encouraged by the Manager's transition to Patria, and the value that it can potentially bring to PPET. The Board and I are looking forward to actively working with both the Manager and the broader Patria team to drive further value for PPET shareholders.
Alan Devine
Chair,
21 June 2024
INTERIM MANAGEMENT REPORT AND DIRECTORS' RESPONSIBILITY STATEMENT
PRINCIPAL RISKS & UNCERTAINITIES
The Board has an ongoing process for identifying, evaluating and managing the principal risks, emerging risks and uncertainties of the Company.
The principal risks faced by the Company relate to the Company's investment activities and are set out in the Strategic Report contained within the Annual Report for the year ended 30 September 2023 (the "2023 Annual Report").
They comprise the following risk categories:
• Market
• Over-commitment
• Investment selection
• Climate
• Liquidity
• Credit
• Operational
The Board continues to closely monitor the political and economic uncertainties which could affect the global economy and financial markets, particularly ongoing interest rate risk in both
These factors are addressed in the risk categories set out above and further details on how they are managed and mitigated are provided in the 2023 Annual Report. The Board will continue to assess these risks on an ongoing basis.
In all other respects, the Company's principal risks, emerging risks and uncertainties have not changed materially since the date of the 2023 Annual Report.
GOING CONCERN
In accordance with the Financial Reporting Council's Guidance on Risk Management, Internal Control and Related Financial and Business Reporting, the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern as a basis for preparing the financial statements.
The Board has taken into account; the
Having reviewed these matters, the Directors believe that the Company has adequate financial resources to continue its operational existence for the foreseeable future and for at least 12 months from the date of this Half-Yearly Report. Accordingly, they continue to adopt the going concern basis in preparing the Half-Yearly Report.
RELATED PARTY TRANSACTIONS
As noted in the Chair's Statement, the change of control of the Manager, subsequent to 31 March 2024, has resulted in changes to the Company's related party transactions. Details of the Company's parent undertaking and related party transactions are set out in note 13 to the Financial Statements.
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors are responsible for preparing the Half-Yearly Report, in accordance with applicable laws and regulations. The Directors confirm that, to the best of their knowledge:
• The condensed set of financial statements has been prepared in accordance with Financial Reporting Standard 104 (Interim Financial Reporting) and gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;
• The Interim Management Report, together with the Chair's Statement and Investment Manager's Report, includes a fair review of the information required by DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and
• The financial statements include a fair review of the information required by DTR 4.28R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the financial year and that have materially affected the financial position or performance of the Company during that period, and any changes in the related party transactions described in the last Annual Report that could do so.
The Half-Yearly Financial Report was approved by the Board and the above Directors' Responsibility Statement was signed on its behalf by the Chair.
For Patria Private Equity Trust plc
Alan Devine
Chair
21 June 2024
INVESTMENT STRATEGY
PPET's investment objective is to achieve long-term total returns through holding a diversified portfolio of private equity funds and direct investments into private companies alongside private equity managers ('co-investments'), a majority of which will have a European focus.
INVESTMENT POLICY
The Company: (i) commits to private equity funds on a primary basis; (ii) acquires private equity fund interests in the secondary market; and (iii) makes direct investments into private companies via co-investments and single-asset secondaries. Its policy is to maintain a broadly diversified portfolio by country, industry sector, maturity and number of underlying investments.
The objective is for the portfolio to comprise around 50 'active' private equity fund investments; this excludes funds that have recently been raised, but have not yet started investing, and funds that are close to or being wound up. The Company may also invest up to 25% of its assets in direct investments into private companies, via co-investments and single asset secondaries alongside private equity managers.
The Company may also hold direct private equity investments or quoted securities as a result of distributions in specie from its portfolio of fund investments. The Company's policy is normally to dispose of such assets where they are held on an unrestricted basis.
To maximise the proportion of invested assets, the Company follows an over-commitment strategy by making commitments which exceed its uninvested capital. In making such commitments, the Manager, together with the Board, will take into account the uninvested capital, the value and timing of expected and projected cashflows to and from the portfolio and, from time to time, may use borrowings to meet drawdowns. The Board has agreed that the over-commitment ratio should sit within the range of 30% to 75% over the long-term.
The Company's maximum borrowing capacity, defined in its articles of association, is an amount equal to the aggregate of the amount paid up on the issued share capital of the Company and the amount standing to the credit of the reserves of the Company. However, it is expected that borrowings would not normally exceed 30% of the Company's net assets at the time of drawdown.
The Company's non-sterling currency exposure is principally to the euro and US dollar. The Company does not seek to hedge this exposure into sterling, although any borrowings in euros and other currencies in which the Company is invested would have such a hedging effect.
Cash held pending investment is invested in short-dated government bonds, money-market instruments, bank deposits or other similar investments. Cash held pending investment may also be invested in other listed investment companies or trusts. The Company will not invest more than 15% of its total assets in such listed equities.
The investment limits described above are all measured at the time of investment.
PORTFOLIO CONSTRUCTION AND APPROACH
Investments made by PPET are typically with or alongside private equity firms with whom the Manager has an established relationship of more than ten years.
As at 31 March 2024, PPET directly held 83 separate fund investments (30 September 2023: 80) comprising primary and secondary fund interests, as well as 30 separate direct investments (30 September 2023: 26).
Through its portfolio of directly held investments, the Company indirectly has exposure to a diverse range of underlying portfolio companies, as well as additional underlying fund of fund and co-investment interests. At 31 March 2024, PPET's underlying portfolio included exposure to 714 separate underlying portfolio companies (30 September 2023: 720).
PPET predominantly invests in European mid-market companies. Around 74% (30 September 2023: 75%) of the total value of underlying portfolio company exposure1 is invested in European domiciled operating companies and the Board expects this to remain the case over the longer term, with a weighting towards
However, PPET also selectively seeks exposure to North American mid-market companies, as a means to access emerging growth or investment trends that cannot be fully captured by investing in
PPET has a well-balanced portfolio in terms of non-cyclical and cyclical exposure. Currently the largest single sector exposure, Information Technology, represents 22% of the total value of underlying portfolio company exposure1 (30 September 2023: 22%) and it is expected that no single sector will be more than 30% of the portfolio over the longer term. Over time, the Manager anticipates a continuation of the recent shift toward sectors that are experiencing long-term growth (such as Technology and Healthcare) at the expense of more cyclical sectors, such as Industrial and Consumer Discretionary.
Environmental, Social and Governance ('ESG') is a strategic priority for the Board and the Manager. PPET aims to be an active, long-term responsible investor and ESG is a fundamental component of PPET's investment process. Further detail on the Manager's approach to ESG can be found in the Annual Report to 30 September 2023.
1 Excludes underlying fund and co-investments indirectly held through the Company portfolio.
INTRODUCTION TO THE MANAGER - HOW WE INVEST
In order to achieve the investment objective, maintain a balanced portfolio and take advantage of opportunities as they arise, PPET invests in three types of private equity investment:
1. Primary Funds
PPET commits to investing in a new private equity fund. The committed capital will generally be drawn over a three- to five year period as investments in underlying private companies are made. Proceeds are then returned to PPET when the underlying companies are sold, typically over a four- to five-year holding period.
Primary investment has been the core focus of PPET's investment objective since its inception in 2001. Primary investments can provide PPET with:
• consistent exposure to leading private equity managers;
• underlying portfolio diversification;
• a steady, predictable cash flow profile; and
• help drive PPET's dealflow in secondaries and direct investments.
2. Fund Secondaries
PPET acquires a single fund interest or a portfolio of fund interests from another investor, with the prior approval of the private equity managers of the target funds. PPET pays the seller a cash amount for the interests and takes on any outstanding commitments to the target funds.
Typically this would occur at a point where the target fund (or funds) has already invested the majority of its capital and so the Manager is able to evaluate the quality of the underlying portfolio of companies prior to investment. The price paid in this type of transaction will reflect the age profile of the funds, the quality of the managers and the quality of the underlying portfolios, therefore can often be at a premium or discount to NAV. Fund secondaries allow the Manager to gain exposure to funds of new or existing managers a later stage in a fund's life.
Secondaries typically have a shorter investment duration than a primary investment. Fund secondaries are opportunistic in nature and their availability is dependent on multiple market and deal-specific factors.
3. Direct Investments
PPET makes direct investments into private companies alongside other private equity managers, either through a co-investment or a single asset secondary transaction. Co-investment was introduced to the investment objective in 2019.
PPET's strategy is to only directly invest alongside private equity managers with which Patria Private Equity has made a primary fund investment. The Manager is seeking to build a diversified portfolio of around 30 to 35 direct investments in order to mitigate concentration risk.
INVESTMENT MANAGER'S REVIEW
Performance
The Manager is delighted by PPET's strong performance during the period, in what remains a challenging market. The key driver of that performance has been underlying earnings growth and, in that respect, it is worth reiterating that the vast majority of PPET's underlying portfolio of private companies are growing, profitable and, importantly, cash generative. Many of these businesses are niche market leaders providing mission critical services and in less cyclical sectors such as Technology, Healthcare, Consumer Staples and Business Services.
The NAV Total Return ('NAV TR') for the six months ended 31 March 2024 was 2.0% versus 6.9% for the FTSE All-Share Index. The valuation of the portfolio at 31 March 2024 increased 4.4% over the period on a constant currency basis, partially offset by a 1.9% decrease attributable to FX on the portfolio, principally due to the appreciation of pound sterling compared to US dollar and the Euro. The increase in value of the portfolio on a per share basis was 20.3p. This was principally made up of unrealised and realised gains and income of 36p, partially offset by FX, dividends and costs associated with management fee, administrative and financing of 30.5p.
The unrealised gains in the period are attributable to the strong performance of the underlying portfolio, which continues to perform well operationally. Looking at the top 50 underlying portfolio companies, which are the main value drivers and equate to 38.2% of the portfolio, the average revenue and EBITDA growth was 12.4% and 22.4% respectively in the twelve months to 31 March 2024. That has helped drive the resilient valuation performance in the portfolio. Focusing on the same cohort of top companies, the median valuation multiple was14.4x EBITDA at 31 March 2024, compared with 14.0x at 30 September 2023. We are especially pleased about progress in PPET's co-investment portfolio, which has seen a constant currency valuation uplift of 8.9% during the six months to 31 March 2024.
Realised gains were derived from full or partial sales of underlying portfolio companies during the six-month period, which were at an average uplift of 27.3% to the unrealised value two quarters prior (31 March 2023: 15.1%). The headline realised return from the portfolio exits equated to 2.3 times cost, which we consider a strong performance in what was a challenging backdrop for private equity managers to conduct successful exit processes.
NAV Performance
|
Pence per share |
NAV as at 1 October 2023 |
777.7 |
Net realised gains and income from portfolio |
+22.7 |
Net unrealised gains at constant FX on portfolio |
+13.4 |
Net unrealised FX losses on portfolio |
-15.7 |
Dividends paid |
-8.0 |
Management fee, administration and finance costs |
-6.8 |
Accretion from share buy-back scheme |
+0.7 |
Net income for other assets |
1.0 |
NAV as at 31 March 2024 |
784.9 |
Top companies |
% of portfolio |
Median valuation multiple |
Media leverage multiple |
Average LTM Revenue growth |
Average LTM EBITDA growth |
10 |
13.6% |
14.7x |
4.2x |
14.9% |
23.4% |
30 |
28.9% |
14.9x |
4.8x |
12.5% |
20.2% |
50 |
38.2% |
14.4x |
3.9x |
12.4% |
22.4% |
Drawdowns
|
Amount - £million |
EDG (Co-investment) |
7.0 |
IK Partnership II |
6.3 |
IK IX Luxco 15 S.a.r.l. (Co-investment) |
5.2 |
Procemsa (Co-investment) |
4.5 |
Altor V |
4.4 |
Nordic Capital Evolution Fund |
4.2 |
One Peak Co-invest III LP (Co-investment) |
4.2 |
Chanelle Pharma (Co-investment) |
3.4 |
IK IX |
2.9 |
Advent X |
2.9 |
Other |
41.9 |
Fund drawdowns have fallen materially compared to prior year due to the lower level of private equity M&A activity in recent months. Drawdowns during the period were mainly used to fund new investments, with notably large drawdowns relating to the following underlying portfolio companies:
· Valoria Capital (IK Partnership Fund II) - French independent financial advisor with over
· Medica Group (IK Fund IX) -
· Arterex (Investindustrial Growth III) - Medical device contract manufacturing platform;
· Autocirc (Nordic Evolution Fund I) - Recycled automotive spare parts;
· FLSmidth (Altor Fund V) - Services and equipment for mining and cement industries.
Private equity funds usually have credit facilities to finance new investments initially before drawing the capital from investors. We estimate that PPET had around
Distributions
|
Amount - £million |
IK VIII |
12.9 |
Investindustrial Growth |
6.0 |
Advent International Global Private Equity VIII |
5.3 |
CVC VII |
5.0 |
Exponent III |
4.1 |
Other |
27.7 |
|
|
Exit activity continues to be driven by market appetite for high quality private companies in resilient sectors, which often have the potential to expand inorganically through add-on acquisitions. These resilient businesses continue to attract interest from both trade and financial buyers.
Initial Public Offering ('IPO') activity in the portfolio remained relatively low, albeit there was at least some activity during the period, following no activity in 2023. Douglas (a beauty products retailer) and RENK Group (a manufacturer of gearboxes) both successfully listed on the Frankfurt Stock Exchange during the early part of 2024.
The largest distributions during the period related to the following underlying portfolio companies, with the relevant funds stated in brackets:
· Nomios (IK Fund VIII) - a European provider of cybersecurity and secure networking services;
· Aspia (IK Fund VIII) - a provider of accounting, payroll and skilled advisory services in
· Messer Industries (CVC VII) - a leading European supplier of industrial gases used across multiple industries;
· Procemsa (Investindustrial Growth Fund I) - pharmaceutical CDMO provider of food supplements and vitamins;
· Meadow Foods (Exponent Fund III) -
Commitments
PPET made new commitments totalling
The value of outstanding commitments in excess of liquid resources as a percentage of portfolio value (referred to as the 'over-commitment ratio') was 35.9% at 31 March 2024 (31 March 2023: 37.6%). This is broadly in line with the figure twelve months prior and is at the lower end of our long-term target range of 30%-75%. We estimate that
Outstanding Commitments
As at |
Outstanding Commitments |
Outstanding commitments in excess of undrawn loan facility and case resources as a % of portfolio NAV (£million) |
30 September 2020 |
30.9% |
471.4 |
30 September 2021 |
32.5% |
557.1 |
30 September 2022 |
42.8% |
678.9 |
30 September 2023 |
35.2% |
652.0 |
31 March 2024 |
35.9% |
663.8 |
Outstanding Commitment Movement between 1 October 2023 and 31 March 2024
|
£million |
Outstanding commitments as at 1 October 2023 |
652.0 |
Fund investment drawdowns |
-59.3 |
Co-investment and secondary funding |
-27.7 |
New commitments |
+108.2 |
Recallable distributions |
+3.1 |
Foreign exchange impact |
-12.5 |
Outstanding commitments as at 31 March 2024 |
663.8 |
Balance Sheet and Liquidity
The balance sheet remains in a strong position with cash and cash equivalents at 31 March 2024 of
As discussed earlier by the Chair, PPET has drawn more of its credit facility during the last six months. This decision was taken by the Manager in order for PPET to further expand its direct investment book, during a period of lower distributions from fund investments. We believe that there will be a number of exits from the direct investment portfolio over the next 12-24 months, which would result in the reduction of amounts drawn on the RCF should it be deemed appropriate to do so.
Investment Activity
Primary Funds
Investment |
|
£m |
Description |
IK Fund X |
|
26.1 |
Focused primarily on lower middle market businesses in Northern Continental Europe across Business Services, Consumer/Food, Healthcare and Industrials. |
Bowmark Fund VII |
|
25.0 |
Focused on mid-market businesses in the |
Altor Climate Transition Fund I |
|
12.8 |
Focused on investments across |
Case study - Primary Funds - Bowmark Capital
Bowmark is a leading lower mid-market private equity firm in the
Investment: Bowmark Capital Partners VII
Fund size:
PPET comment:
Commitment year: 2024
Geographic focus:
Target company size: Mid-market
Sectors: Data and Insight, Managed IT Services, Software and Tech-Enabled Business Services
Investment strategy: Growth Buyout
Overview
• Bowmark is an established, high-quality
• Bowmark targets investments in high quality, market leading businesses with the opportunity for transformational growth, driven by structural rather than cyclical trends. These companies are typically technology or tech-enabled B2B services companies, often with disruptive business models in traditional markets, and have high recurring revenue, strong sales and earnings growth, and strong cash generation.
• Bowmark partners with high quality management teams to accelerate growth, with the aim of doubling earnings during its ownership to generate attractive, and consistent, returns.
PPET's Exposure
• PPET's commitment to Bowmark VII is its first with Bowmark, as part of the Trust's strategic evolution to target a number of high quality, lower mid-market managers.
• The Patria Private Equity team has known Bowmark for two decades and been an investor in Bowmark since 2004.
Direct investments
During the six-month period, PPET invested and committed
The level of deployment into new direct investments has increased in the period to 31 March 2024 compared to prior year. This has been due to the Manager seeing a greater number of high-quality direct investment leads compared to prior year.
As a reminder, co-investments (which comprise the majority of the direct investment portfolio, along with single-asset secondaries) were introduced to PPET's investment objective in 2019 and bring a number of advantages, most notably greater control over portfolio construction and lower associated costs (and therefore higher return potential). Over the longer term the Manager expects direct investments to equate to around 25-30% of the portfolio.
At 31 March 2024 there were 30 direct investments in PPET's portfolio, equating to 22% of portfolio NAV. The direct investment portfolio is slowly maturing, with an average investment age of 2.1 years at 31 March 2024, and we are delighted with its performance so far, with only one investment held below cost and several direct investments ahead of their initial investment case. We believe that there are a number of candidates for exit over the next 12-24 months, which will return material cash back to PPET.
Investment |
|
£m |
Description |
European Digital Group |
|
8.9 |
Business services provider focused on digital transformation. Investment alongside Latour Capital. See case study. |
Procemsa |
|
7.3 |
Italian-headquartered vitamins and food supplements Contact Development and Manufacturing Organisation ('CDMO'). Investment alongside Investindustrial. |
Goodlife |
|
5.2 |
Manufacturer of frozen snacks in |
Follow-on investment into Visma |
|
4.7 |
Provider of cloud-based, mission critical business software. Investment alongside Hg. |
Channelle Pharma |
|
4.3 |
Manufacturer of generic animal and human health products headquartered in |
Follow-on investment into an undisclosed company |
|
4.2 |
European-headquartered technology business in the healthcare sector, the details of which are undisclosed due to confidentiality restrictions. |
Follow-on investment into an undisclosed company |
|
0.8 |
US-headquartered consumer business, the details of which remain undisclosed due to confidentiality restrictions. |
Case Study - Co-investment - European Digital Group
EDG (European Digital Group) is an integrated B2B services provider in the digital transformation and digital marketing segments based in
Lead Manager: Latour Capital/Montefiore
PPET's investment:
Investment year: 2024
Geographic focus:
Size at entry: Mid-market (<
Sector: Business services
Company Overview
• EDG is the largest French digitally native, integrated Business Services provider in the digital transformation and digital marketing segments.
• EDG helps businesses transform digitally. It is an end to end, one stop shop for its clients with 5 complementary business units: Data and AI, Technology and Cybersecurity, Performance Marketing, Digital Content and Growth Enablers.
• 95% of the firm's revenue is generated in
• The platform has had an impressive M&A journey to date completing 23 acquisitions, which all benefit from cost and cross sell synergies once integrated into the wider EDG platform, enhancing growth at a subsidiary level.
• The group is led by a well-respected, serial entrepreneur and the team comprises 1,500 staff. All subsidiary managers are investors in EDG and incentivised at their subsidiary level.
The Opportunity
• Operates in a resilient, highly fragmented market where growth is driven by continuing digitalisation of companies and the continued shortage of tech talent.
• Differentiated market positioning as a digital native local specialist with an end to end offering and clear value proposition at competitive pricing, particularly for the small and mid-sized enterprise, an area underserved by global players.
• Impressive growth since inception, materially outperforming the market with acquired businesses growing well above historic rates due to the benefits of being part of the group.
• Diversified business model which leverages a 'snowball effect' as it scales to deliver strong synergies which has been supplemented by M&A with over 20 acquisitions to date.
• Clear value creation plan with multiple levers including further initiatives to drive organic growth in each business unit as well as through synergies, M&A and potential new product launches.
• Highly rated founder and management team with an entrepreneurial approach, able to unlock attractive acquisition targets and drive best in class talent retention rates in a highly competitive market.
• Attractive timing to acquire a resilient asset alongside two high quality sponsors (Latour and Montefiore) with in-depth knowledge of the business.
Fund Secondaries
PPET committed
Investment |
|
£m |
Description |
Clean Biologics |
|
8.8 |
Contract Testing Development and Manufacturing (CDTMO) business. See Case Study |
Case Study - Fund Secondaries- Clean Biologics
Clean Biologics is a leading European Contract Testing, Development and Manufacturing (CTDMO) business.
Lead Manager: ArchiMed
PPET's investment:
Investment year: 2024
Geographic focus:
Size at entry: Lower mid-market (<
Sector: Healthcare
Company Overview
• Clean Biologics is a Contract Testing Development and Manufacturing (CDTMO) business providing industry-compliant services for pharmaceutical and biopharmaceutical companies, specialising in the safety and production of biopharmaceuticals for clinical trials.
• The Group was formed following ArchiMed's acquisition of Clean Cells in 2018, a QC testing business, and the subsequent acquisitions of Biodextris and Naobios, which expanded the business' core competencies and bolstered its CDMO capabilities.
• Clean Biologics was held in ArchiMed's second fund, MED II, and, over the hold period of 5 years, it significantly outperformed its original business plan. During this time, the business tripled its revenue and EBITDA. Through engagement with their MedTalent network and discussions with trade buyers, ArchiMed identified a number of further value creation opportunities for the business and elected to roll the business into a continuation vehicle.
The Opportunity
• Clearly defined strategy focused around changing the organisational structure of the business. Through engagement with a number of trade buyers, ArchiMed concluded that exit optionality and value would be maximised by splitting Clean Biologics into two distinct businesses focused on drug quality control testing and CDMO services, respectively.
• Large market (c.
• Clean Biologics is a scarce asset with Clean Cells being one of the few reaming independent QC testing providers having differentiated scientific capabilities (in traditional as well as Next Generation Sequencing based QC testing services) and Biodextris having differentiated expertise in production of niche therapeutic proteins.
• Attractive investment timing, benefiting from recent capex and improving market sentiment/forward pipeline visibility. The investment coincided with early shoots of recovery in global biopharma spending on clinical trials, after a challenging period, with the companies positioned to benefit from the historical investment in significant capacity expansion (3-4x) of facilities.
• Opportunity to back ArchiMed, a high conviction manager, on a transaction in their sector sweet spot where they have significant experience, track record of returns and strong trade buyer relationships.
Portfolio Construction
The underlying portfolio consists of 714 private companies (30 September 2023: 720), largely within the European midmarket and spread across different countries, sectors and vintages. At 31 March 2024, 12 (30 September 2023: 12) companies equated to more than 1% of portfolio NAV based on underlying portfolio company exposure, with the largest single exposure being PPET's investment in Action, equating to 2.0%.
Geographic Exposure1
The portfolio is well diversified, which means that there isn't a reliance on one private equity manager, company, geographic region, sector or vintage to drive performance. At 31 March 2024, 74% of underlying private companies were headquartered in
Geography of the Underlying Portfolio as at 31 March 2024
|
Exposure % |
|
24 |
Nordics |
15 |
|
15 |
|
13 |
|
12 |
Benelux |
7 |
|
4 |
|
3 |
|
2 |
Other ex- |
2 |
1 Based on the latest available information from underlying managers. Figures represent percentage of total value of underlying portfolio company exposure. Geographic exposure is defined as the geographic region where underlying portfolio companies are headquartered.
Sector Exposure1
At 31 March 2024, Technology and Healthcare represented a combined 41% of the underlying portfolio company exposure 30 September 2023: 41%. When combined with Consumer Staples, these more stable, less cyclical sectors equate to over half of PPET's underlying portfolio at 51% (30 September 2023: 51%). It is worth noting that PPET generally invests in Technology businesses that are profitable and Business-to-Business ('B2B') focused and therefore has relatively low exposure to higher growth, unprofitable technology businesses where the consumer is the customer.
The other half of the portfolio is exposed to more cyclical sectors, notably Industrials, Consumer Discretionary and Financials. That said, there are sub-sectors within these areas that provide growth opportunities, such as Fintech, Business Services and industrial sub-sectors related to the 'green transition'. These businesses often have a valuable product or an essential service offering with a strong digital component. Some examples within our top 20 underlying portfolio companies by value include European Camping Group, CFC Underwriting (cyber security insurance MGA), Trioplast (sustainable manufacturer of polyethylene film) and Planet (provider of payments solutions for hospitality and retail).
|
% Exposure as at |
|
Sector |
|
31 March 2024 |
Information Technology |
|
22 |
Healthcare |
|
19 |
Industrial |
|
19 |
Consumer discretionary |
|
14 |
Consumer staples |
|
10 |
Financials |
|
9 |
Materials |
|
4 |
Energy |
|
1 |
Utilities |
|
1 |
Telecommunication services |
|
1 |
1 Based on the latest available information from underlying managers. Figures represent percentage of total value of underlying portfolio company exposure.
Maturity Analysis1,2
The Manager does not try to time the market with respect to PPET, instead aiming for consistent exposure across recent vintage years. Therefore, there is an even split of portfolio companies at the underlying level that are approaching maturity (held for more than four years) and companies typically still in the value creation phase (held for less than 4 years). With 50% being in vintages of four years or more 30 September 2023: 49%, this should underpin exit activity and distributions once private equity market activity increases again.
Holding Period |
% |
1 year |
9 |
2 years |
18 |
3 years |
23 |
4 years |
12 |
5 years |
13 |
>5 years |
25 |
1 Based on the latest available information from underlying managers. Figures represent percentage of total value of underlying portfolio company exposure.
2 The holding period is the length of time that an underlying portfolio company has been held since its initial investment date by the Company.
Outlook
The acquisition by Patria has brought renewed energy and certainty to PPET's investment management team, but importantly will not result in any change in PPET's investment strategy. Therefore, our focus remains principally on the European mid-market, and we continue to partner with a small group of leading private equity managers, that we believe are differentiated, specialist and can bring significant value to the businesses they invest in.
In line with the current strategic plan, we will continue to look to increase the proportion of direct investments in the PPET portfolio, alongside our core managers, which will reduce the underlying fees PPET pays and should provide a further enhancement in performance. The secondary market remains highly relevant to our approach, both from a buying and selling perspective. We are currently seeing better pricing for high quality assets in the secondary market and we may look to opportunistically realise some older, non-core positions to provide additional firepower for new investments.
Private equity market sentiment appears to have improved in 2024 compared to 2023, but we haven't yet seen this translate into a material pick-up in signed transactions and, importantly, exits. We have seen some notable deals being announced in the European market over 2024 (e.g. Alter Domus, Audiotonix, Dorna, Eres Group) and several more rumoured. Furthermore, we have seen European PE-backed IPOs return in the form of Douglas, Renk and Galderma, in addition to the listing of CVC, a leading private equity firm, in
The existing portfolio continues to perform resiliently and remains well positioned for a pick-up in activity levels. Any uptick should result in an increase in distributions to PPET and should be a tailwind to NAV growth, given PE assets tend to trade at an uplift to their last bottom-up valuation.
That said, we continue to believe that PPET's balance sheet is in a good place and can withstand a prolonged period of lower activity should financial markets remain subdued.
Alan Gauld,
Lead Investment Manager
For Patria Capital Partners LLP
21 June 2024
TEN LARGEST INVESTMENTS
at 31 March 2024
1 |
|
CVC Capital Partners |
|
Undertakes medium and large sized buyout transactions across a range of industries and geographies |
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Fund Size: €16.4bn |
|
CVC Capital Partners VII |
31/03/24 |
30/09/23 |
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Value (£'000) |
42,531 |
44,945 |
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Cost (£'000) |
24,598 |
24,898 |
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3.4% of NAV (30 September 2023: 3.8%) |
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|
Commitment (€'000) |
35,000 |
35,000 |
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Amount Funded |
100.1% |
97.2% |
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|
Income (£'000)* |
2 |
1,945 |
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2 |
|
Nordic Capital |
|
Invests in medium- to large-sized buyout deals in |
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Fund size: €4.3bn |
|
Nordic Capital Fund IX |
31/03/24 |
30/09/23 |
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|
|
Value (£'000) |
38,565 |
37,762 |
|||||||||||
|
|
Cost (£'000) |
23,403 |
23,403 |
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3.1% of NAV (30 September 2023: 3.2%) |
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|
Commitment (€'000) |
30,000 |
30,000 |
||||||||||
|
|
Amount Funded |
106.8% |
100.0% |
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|
Income (£'000)* |
- |
- |
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3 |
|
Altor |
|
Focuses on investing in and developing medium-sized companies with a Nordic origin that offer potential for value creation through revenue growth, margin expansion, improved capital management and strategic re-positioning. |
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Fund Size: €2.1bn |
|
Altor Fund IV |
31/03/24 |
30/09/23 |
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|
|
Value (£'000) |
37,476 |
34,954 |
|||||||||||
|
|
Cost (£'000) |
30,405 |
29,206 |
|||||||||||
3.0% of NAV (30 September 2023: 2.9%) |
|
|
Commitment (€'000) |
55,000 |
55,000 |
||||||||||
|
|
Amount Funded |
78.7% |
76.0% |
|||||||||||
|
|
Income (£'000)* |
300 |
- |
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4 |
|
Structured Solutions IV Primary Holdings |
|
A diversified secondary transaction comprising large cap buyout funds in |
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Fund Size: $125m |
|
Structured Solutions IV Primary Holdings |
31/03/24 |
30/09/23 |
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|
Value (£'000) |
35,908 |
36,687 |
|||||||||||
|
|
Cost (£'000) |
30,760 |
31,066 |
|||||||||||
2.9% of NAV (30 September 2023: 3.1%) |
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|
Commitment (€'000) |
62,500 |
62,500 |
||||||||||
|
|
Amount Funded |
72.6% |
72.0% |
|||||||||||
|
|
Income (£'000)* |
- |
886 |
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5 |
|
Bridgepoint |
|
A leading mid-market focused private equity firm targeting buyout investments in European companies with strong market positions and earnings growth potential across six core sectors. |
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Fund Size: €5.8bn Website: www.bridgepoint.eu |
|
Bridgepoint Europe VI |
31/03/24 |
30/09/23 |
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|
|
Value (£'000) |
34,873 |
34,488 |
|||||||||||
|
|
Cost (£'000) |
23,614 |
23,707 |
|||||||||||
2.8% of NAV (30 September 2023: 2.9%) |
|
|
Commitment ( |