Pantheon International PLC (PIN) Earnings Call Transcript & Summary

Good morning, and welcome to the Pantheon International PLC Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question received during today's meeting. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. These will be available via your Investor Meet company dashboard. Before we begin, we would like to submit the following poll. And if you would give that your kind attention, I'm sure the company will be most grateful. And I'd now like to hand over to investment partner and lead manager from Pantheon International Plc, Helen Steers. Good morning.

Good morning. Good morning, everybody, and welcome to this webinar on Pantheon International Plc. As Mark has mentioned, my name is Helen Steers, Investment Partner and Lead Manager of Pantheon International. I took over management of the Trust actually in March 2020, which was an interesting time for markets. But in fact, I've been with Pantheon, I was the Manager of Pantheon International Plc for 18 years. So I've lived through a few of these market cycles, and I will be discussing some of that over the next half an hour or so. In fact, over the course of this webinar, I'll be discussing the private equity market opportunity. I'll be comparing private equity with public markets. I'll describe how to access investment opportunities in private equity and I'll provide an update on Pantheon International Plc's performance and prospects. But before we dig into that, I'd like to say a few words about Pantheon, which is the manager of Pantheon International Plc. So Pantheon is a leading global private markets investor. It was founded in 1982 in London. It's still headquartered in London but now has offices right across the globe. The major investment offices are in New York, Chicago and San Francisco, London and then out in Asia, in Hong Kong, Seoul and Tokyo. Pantheon overall manages around $88 billion, and this is through our private markets, so private equity, private infrastructure and private debt. And a majority of that capital actually comes from institutional investors, so pension funds, insurance companies, endowments and foundations, many of whom have been investing with Pantheon since 1982, so for 40 years. We have around 450 members of staff in these various offices around the world, including 121 investment professionals, and those investment professionals tend to be specialized in private equity, infrastructure and private debt. The majority are actually dedicated to private equity. We cover thousands of private equity managers and funds right across the world. We have built up a proprietary database over the years, which covers not just the funds but also the underlying companies, private companies. And as I'll describe a little bit later, this gives us a significant competitive advantage in terms of evaluating new private opportunities. We are a leader in ESG. We were a signatory to the PRI, way back in 2007. So have been advocating strong ESG, strong ESG principles and policies and practices for many years now. And of course, are a leader as well in terms of looking at things like climate. So without any more ado, I will go forward and talk about the private equity opportunity. So just really digging out the differences between private equity and public markets, and really to put it in sort of the most straightforward terms, private equity managers essentially acquire controlling or influential stakes in private companies through privately negotiated transactions, and they usually invest alongside company management teams. Alignment of interest is incredibly important in private equity to make sure that the ultimate investors, private equity managers and the company manager are all working towards the same goal. Now that same goal is to do with creating value and creating value over the long term. And a private equity fund, private equity manager, will usually hold a private company for between 4 and 7 years, sometimes longer, but typically, it's between 4 and 7 years. And during that time, they will actively manage the business, and they will put in place a value creation plan, which will see that company then exited in a realization process sometime later on, where the private equity merger will control the exit, and they'll essentially choose the timing but also the type of buyer that is going to buy the business. They target net returns overall typically of around 2x and 20% IRR. And overall, if you're looking at net returns, private equity should be generating between 300 and 500 basis points over the relevant public market indices over the long term. So that's a description of private equity. I'm sure everybody on this call is an expert in public equity investments. So I'm not going to go through the right-hand side of the chart. But maybe just to pick out some of the major differences between private and public equity. So private equity. The clue is in the name. The information is private. It takes a great deal of due diligence to dig out the -- all the details, the information on these private companies. And private equity managers can use that private information, essentially inside information, to make good investment decisions and then to manage the company effectively. And that's another big difference between public and private equity. In private equity, there is this control element, and there is this hands-on operational element, which is generally hard to find on the public equity side. And then another difference is in the time frame, private equity managers hold the deals for much longer. And then in the exit process, where private equity managers are actually not under any pressure to sell their businesses, they control the moment of exit. So a few differences between public and private equity. Now it may surprise you as well to know that all sorts of successful companies can be private equity backed. So private equity is really all around us. And despite the fact that you can read some bad news in the press from time to time, the majority of private equity-backed businesses are working towards this overall goal of value creation, and some of the most successful companies in the world actually started as private equity-backed businesses. And just to give you a bit of a flavor here. So at one time or another in Pantheon International's portfolio, we have had companies as varied as, Farrow & Ball, purveyors of fancy wallpaper and paint, all the way through to Big Bus, which you see around London streets. McGraw Hill on the education side or Darktrace, which actually started out as a private company before it went public. So a few familiar names there on the page. Private equity can also vary according to the investment stage and the maturity of the business, which is being backed. And private equity is a term that covers everything from venture capital all the way through to growth capital and then to buyouts. And buyouts themselves can be small, medium or large size. And we have some of each of these different categories, including special situations in the Pantheon International portfolio. And now let's turn to private equity markets and look at the size and the development of private markets. So private markets include private equity, private infrastructure and private debt. And what you can see on this slide is, it's actually the growth of the business. So over the last 10 years, private markets have grown from assets under management of just under $3 trillion to now or actually in June of last year, just under $10 trillion. So private markets have tripled in size. Now of course, financial assets, in general, have grown immensely over the last 10 years. But private markets have grown their slice, their share of the overall pie. And you can see that in the top chart here that private markets 10 years ago accounted for about 3% of overall financial assets, whereas in June last year, private assets now accounted for just over 5%. So bigger, a bigger share. Then if we turn more specifically to private equity, you can see that assets under management have been growing strongly over the 10-year period from 2010 to 2020. There was a compound annual growth rate of around 9%. But in fact, this growth rate is expected to increase pretty markedly over the next 5 years, so close to 14% compound annual growth rate, taking private equity assets to around $11 trillion by 2026. Why is this? Well, investors of all kinds are attracted to private markets and specifically to private equity by the outperformance over public equities over the long term, which is what I mentioned earlier on. As well as the diversification benefits and the access to niche sectors and niche companies, which are sometimes harder to find in public markets. So that's really on the sort of supply side of the capital coming into private equity. Now let's look at the demand side for capital. So what's been happening in terms of the amount of money going into private equity-backed companies over the last 10 years. What you can see from this chart that in fact, the number of U.S. and European private equity-backed companies has been increasing pretty substantially over the last 10 years and factored a rate of about 12% per annum. So there's been a bigger demand for private capital by small companies. And at the same time, you can see that the number of listed companies has been pretty stagnant, if not declining in certain years. This is quite a well-documented phenomenon, actually goes back about 20 years. The number of public companies has been shrinking, which means that the public companies which are left on stock exchanges tend to be larger, slower growing and quite a bit older than private companies. Companies are actually staying private for longer and sometimes don't even IPO at all. So they may choose to exit private equity management, choose to exit through a sale to a strategic buyer or to another private equity fund. And in fact, in only about 10% of cases in the market do private companies actually go out with an IPO. Private equity is often seen as preferable to public ownership. And that's quite interesting and there's been quite a lot that's been written on this in terms of sort of academic paper. A lot of that is really to do with the fact that private equity managers bring not only capital to these privately backed companies, but also considerable amounts of expertise, and that's often what the company management are looking for, not just the dollars or the euros and the pounds, but also the expertise. So what do private equity managers do? Well, this is really the key. And as I mentioned, it's not just about the capital. Private equity managers are focused on growing the value of their portfolio companies. And over the long term, despite what you may read in the press sometimes, the sort of the number of quick flips in private equity is actually relatively small and value has to be built over a long period of time. How do the managers do that? Well, a lot of it is through operational value add. So assisting the companies with growing their sales, helping them with areas such as supply chain and procurement management, clearly a very crucial skill over the last couple of years with what we've seen going on with COVID, helping on the financial structuring side of things and making sure that working capital is optimized and having the right capital structure in place. They also help on the management side. So frequently, a company which is then bought out by private equity will see its management team expanded under previous ownership, which might have been a family or a founder or an entrepreneur. The company may not have invested in this management team and typically a private equity manager will help recruit the right people. They will strengthen key areas, key functions such as finance, reporting and they will help recruit the right people to the Board of Directors who can help steer the company in the right direction. These days, as well, it's all about tech enablement. And we saw this very much come to the fore during COVID, where a lot of companies had to pivot overnight to have a digital offering, and private equity managers were very hands on with their businesses to help them develop new go-to-market strategies using digital channels. They also help companies with the use of artificial intelligence and big data to optimize their operations. And then finally, private equity is really about growth and it's accelerating the growth of the underlying portfolio companies. And this can be both organic growth but also inorganic growth through acquisition. So some of the organic growth parts might involve investing in R&D and new product development in order to expand the company's reach into adjacent product lines. It could also be geographic expansion into new areas or it could simply be building capacity in order to meet a growing need from the market. In terms of inorganic growth, this is really about buy and build, and you'll hear me talk a bit about that in this presentation. Private equity managers will often buy a platform company and then they will make add-on acquisitions of smaller and less well-financed companies in order to consolidate a fragmented end market. And that's quite an interesting area for value creation. But let's now talk about what private equity is doing at the moment and the types of sectors that private equity-backed companies typically invest in. Now you'll see from a later slide in my presentation that Pantheon International Plc or PIP for short, invests quite a lot directly into information technology. But this is not the sort of the short end of IT. It tends to be companies which have been around for a long time, are profit-generating and often in very well-developed end markets. About 87% of our information technology companies are actually EBITDA positive. So information technology is a big sector for us. But we like to think of technology as a horizontal as well as a vertical. And the truth of the matter is that many other sectors around us are being disrupted by technology. And private equity is very well placed to find disrupted areas, dislocated areas in other sectors apart from pure information technology and use technology to create competitive advantages for the companies that they invest in. So what we put on this page is some examples of sort of niche subsectors where private equity is investing at the moment and pretty actively, together with some of our portfolio companies from the portfolio of Pantheon International, which are in each of these different subsectors, but which are using information technology to gain advantages and gain a better positioning in their end markets. So I've talked about some of the advantages of private equity and some of those include also the return advantages that investors are seeking by investing in private equity. And it's all very well for larger institutional investors to invest in private equity because they can invest in typical fund structures, which are typically 10 to 15 years long. These large institutional investors can tie up their capital for that period of time, often they don't need liquidity. They can invest high minimum amounts, which required -- some of these private equity funds require minimums of $20 million or $25 million. So those are very large minimum amounts. And big investors don't have a problem with diversifying because they can invest in multiple funds even if the -- those thresholds are relatively high. Bigger investors can also deal with all the complexity of private equity. They can deal with the fact that the capital has to be flown down over a period of time. And this makes for quite a complicated series of calls on their capital. Similarly, distribution has come back in a piecemeal fashion and dealing with all that often takes a whole separate department in an institutional investor. But what about smaller investors? So smaller institutions or individual investors, how do they get access to private equity? Well, we believe that actually the list of private equity sector actually offers a very good solution to investors who are looking to invest in private equity over the long term, and PIP is an example of a list of private equity vehicle and investment trust that can give access to private equity globally to smaller investors. So let's now turn to Pantheon International, so that I can give you an overview of what Pantheon International, PIP for short, offers to investors. So PIP was actually founded in 1987. It was IPO-ed on the London market in 1987 with around GBP 12 million under management. So it has grown considerably over the last 35 years to now being in excess of GBP 2.5 billion. So 35 years of growth and providing access to exciting private equity backed companies right across the world. But where is PIP today? Well, there's been quite a lot of developments over the last 35 years. PIP started out as a secondary vehicle, but now invest in secondaries, co-investments and primaries. And just maybe to give a definition of those, a primary is where PIP will invest directly in a private equity fund when it's first being established, will become usually a founding investor in one of those funds. And then that money will get -- capital will get called over time. The investment will go into the underlying portfolio companies. And then again, over time, the money will get returned to PIP and be reinvested. The second area is co-investment. So this is where PIP will invest directly into a company alongside one of its private equity fund managers. And a co-investment is very attractive because you can actually select the assets individually. So you can select the sector, you can select the type of company and you can select which managers you want to invest alongside. Those are the advantages from an economic standpoint because when you invest directly in the company, alongside the manager, you usually don't have to pay any fees, including performance fees. So there's a very big economic benefit there. And then finally, secondary, a secondary, as the name suggests, is an investment through the secondary market where PIP will invest in a previously owned private equity fund or company. And in fact, what PIP has been doing over the last few years is investing much more in what we call secondary directs or manager-led secondaries, which are all to do with investing in individual companies as opposed to funds on secondary market. So now on a look-through basis, PIP is no longer a fund of funds as it was in the early days. It's now around 45% invested directly in companies, and the other 55% is invested in hard to access private equity funds. If we now look at the stage of investment and remember earlier, I talked about all the different stages that the private equity could invest in, and PIP has a slice right across all these different stages. But you can see that the major area of investment for PIP is actually small and midsized buyouts. That's 39% of the portfolio. We like this part of the private equity spectrum because often companies are being owned for the first time by private equity. There's a lot of what we would call low-hanging fruit in terms of helping to grow those businesses, helping to improve them, helping to improve the management teams and then working towards an exit. And in terms of exit routes, when you're investing in a small and mid-market sized business, all the exit routes are open. And in fact, our major exit route is selling to corporate buyers, those strategic buyers, companies that will come in and buy our growth-orientated businesses. The second biggest exit route for us is actually selling to much larger private equity funds. And you all have probably seen in the press that there is quite a bit of dry powder around in private equity and a lot of that is concentrated in these mega buyout funds managed by some of the big names that you will have heard of. So that's the second biggest exit route for us. And then IPOs are actually the smallest exit route. So in our last financial year, PIP only exited about 7% of its companies through IPO. So we're not reliant on strong IPO market to realize the investments in our businesses, that's quite a key point. You'll see as well, we've got a relatively small allocation to venture capital. It's only 4%. This is actually quite a volatile part of the spectrum and whereas the difference between first quartile and third quartile in a buyout fund and buyout spectrum can be around 2,000 basis points. With venture capital, it's considerably more than that. It's quite volatile, and you want to be invested with the very best venture capital managers in the world. Unfortunately, because PIP has been around for a long time, it has access to these top venture capital managers. And you'll see some of the names of the managers that we've invested in, in the names that we disclosed in our annual report. Regionally, PIP is a global vehicle, a bit more than 50% in the U.S., which is the largest, deepest, most sophisticated private equity market in the world. And then the second biggest area is Europe. And within that is Northern Europe with an over allocation to areas such as the Nordic or Scandinavia region. On a look-through basis, about 75% of the portfolio is U.S. dollar denominated. So clearly, in this current environment, there's been a bit of a tailwind from foreign exchange. We only have around 3% exposure to sterling. And then finally on this page, in terms of sectors, we have a large slice in information technology, as I mentioned earlier. But this is not sort of the short end of technology. These are proven companies and the types of technology businesses we're investing in, develop enterprise software, it's IT infrastructure. And it's, as I mentioned, almost 90% profit generating. So it's not the sort of speculative volatile type of IT that you may see in other places. Second largest sector for us is healthcare. Healthcare is also benefiting from long-term secular trends, aging demographics, for example, and demand for better healthcare right across the world. And we believe that those sorts of secular trends are here to stay. In information technology, secular trend that we're investing behind is digitalization and the move to remote working. Consumer is our third largest sector, but it's not really consumer discretionary. It's much more consumer staples and consumer services. So again, in this environment, we think that's a resilient area to be investing in. So if you look through our portfolio, we believe that we've got the vast majority of the portfolio investors in the most resilient sectors and subsectors around. And just moving to the next slide. I've talked quite a bit about the makeup of PIP, but let's look at the results. So here on this page, you can see the latest results that we published for our full year that was ended 31st of May 2022. We were very pleased with the results. We showed record NAV per share growth of 31% in the year and that came on top of NAV per share growth in the previous year of 19%. So over the last 2 financial years, we've increased NAV per share by around 50%, which is -- we're very proud of. We also generated a record level of cash, of cash flow and distributions in the portfolio, which has put us in an extremely good position in terms of our balance sheet and the amount of capital we have available to reinvest. You'll see here the results over 1, 3, 5 and 10 years, but also since inception because as I mentioned, PIP has been around since 1987. So that's a 35-year track record. And these NAV per share numbers are, of course, net of all fees. And if you compare returns over the long term with public markets, you'll see that we've been able to beat the FTSE and the MSCI World over the long term by 300 to 400 basis points, net of all fees that we are targeting. Just moving on to the next slide. I've talked quite a bit about growth and here is really the proof of the pudding. PIP provides a growth portfolio. And here, you can see the level of revenue and EBITDA growth that we have posted over the last 10 years. Last year was a particularly strong year. We saw revenue growth of 25% in the year in the underlying buyout portfolio and we saw EBITDA growth of around 25% as well. Now those were particularly strong years, but you'll see that over the past 10 years, the average revenue growth in the buyout portfolio has been 15% and the average EBITDA growth has been 16%. So this is very definitely a growth portfolio and providing growth ahead of public markets. But maybe enough of talking sort of in generalities about the portfolio. I thought it would be interesting to share a couple of stories from the portfolio. And both of these are relatively recent investments. So Satlink is a company that we invested in directly just a few months ago now, a really interesting business that's really in a niche. And I think this illustrates the type of very specific niche sectors that private equity can identify and then can find attractive opportunities within. So what does Satlink do? It's manufactures and distributes smart buoys. These smart buoys sit in the ocean and they detect where shoals of fish are swimming. Not only that, they can detect the size of the shoal or the school of fish. They can detect the species of the fish and they can detect the size of the fish. Why is this important? Well, fishing vessels use this information to be able to locate the types of fish that they're trying to catch, and it saves a great deal of energy because this means that fishing vessels can go directly to where the fishing -- the fish shoals are located. It cuts down on bycatch because it means fishing vessels only fish the type of fish that they're authorized and supposed to be fishing for, and they don't capture small fish, which form part of the bycatch. So this is actually in sort of the sustainable investment sector. And there's a regulatory angle as well because the information that's communicated to the fishing vessels via satellite communications is also communicated to fishers' management -- fisheries management centers on land which regulate the fishing vessels. So there's a strong regulatory angle here. We invested in this business directly, as I mentioned, alongside one of our German, small mid-market buyout managers. But this is actually a Spanish business with a global market, and that's really a huge global market to go after here. And apart from the fishing products, there are also other sort of oceanographic type applications for the technology. So a really exciting business that we've got very, very high hopes for. And we're confident that in 5- or 6-years' time, once this business has had time to grow and the private equity manager has added value to this business and grown it substantially, this could be a really interesting target for all sorts of corporate buyers in these sectors. Now maybe turning from fish to hair. A bit of a big leap there and a company that you might have heard of, whereas you probably haven't heard of Satlink, we're invested in a company called Olaplex through one of our favorite private managers, Advent International. This is a company which makes high-end hair care products, which actually work. I'm a consumer and I can tell you they do actually work. What they do is, they help people with difficult hair to be able to sort of tame that hair. And it's sort of a plastic private equity story really because the product was actually invented -- it sounds rather cliche, but it was invented in a garage in California by a husband-and-wife team who came up with this product through chemical processes and found out that it actually did work and started the business. So it was a founder owned and operated business, growing extremely strongly, with the products mostly distributed through hair salons. Advent International, one of our favorite buyout managers invested in the business in November 2019, so just prior to the onset of COVID. And if you think about it, this could have been one of those companies that might have suffered really badly from COVID, because overnight, hair salons were closed down, and the company lost access to its customer base. In fact, what happened was that the manager here basically deployed its resources to get the company to go digital very, very quickly, actually overnight, so that these products could be sold online not just through big distributors such as Amazon, but through online hair and beauty websites. So this actually helped the company grow a huge amount. In 2020, Olaplex actually became the #1 hair care brand at Sephora, which is a big European beauty and hair care retailer. And the company saw such strong revenue and EBITDA growth that it was actually able to go to IPO in September 2021. But Advent has only held this company for 2 years. And as I mentioned earlier, this is probably a 5-year journey for the business. So there's still a lot of value that's going to be created in Olaplex. And I think sort of watch this space for new product developments and new areas for the company to move into. It's not just about new investments. I mentioned the fact that we've had extremely strong distributions in the year, and I've put here a couple of our distributions just to talk about 2 other types of companies that we invested in. So our largest distribution last year, our largest ever single company exit actually was a company called EUSA Pharma, where we co-invested in this business back in 2017 alongside one of our health care managers, a group called Essex Woodlands Healthcare. It's actually a U.S. manager, but this is a U.K.-based company, based in Luton, actually more places. And it provides specialist pharma products, which go to treat rare cancers. That's an oncology products business. The company grew very strongly over the period of ownership. It expanded its product line, invested heavily in research and development. It made a number of acquisitions as well. So it grew organically but also inorganically, and it attracted the attention of numerous strategic buyers. And in the end, it was sold to a big strategic buyer Recordati in December 2021. And we received the proceeds actually just before our year-end, around GBP 50 million which came back to Pantheon International, which was around 5x our invested cost. So it was a very strong result for us. And then just as a contrast, another business, again, actually U.K.-based company, we invested through ECI Partners in a company called Travel Chapter, which is an online platform, which enables you to book your self-catering holidays. This company also had a very strong growth during COVID, made a lot of bolt-on acquisitions and has actually just been sold. It's sold in December 2021 to another private equity manager, Intermediate Capital Group or ICG. So another strong exit for the business. So all those exits and the cash that's been generated resulted in a lot of cash coming back to PIP. And actually at the year end, we had extremely strong cash balances, which enabled us to keep on investing in this environment. And in this more uncertain environment, this is actually where we believe private equity is very well placed to take advantage of dislocation and disruption in the market. As of 31st of August, and we just actually produced our newsletter and our latest net asset value at 31st of August last week. We had very healthy cash balances of over GBP 120 million plus a completely unused multicurrency facility, which is now a GBP 500 million facility. So we've got strong available financing plus a large portfolio, which spins out cash. And as a result, we've got more than 100% coverage of our undrawn commitments. So a strong balance sheet, which gives us the confidence to capitalize on new emerging opportunities. So I'll talk quite a bit about the financial side of PIP and some of the portfolio companies, the shape of the portfolio. I didn't want to leave you without talking about 2 very important subjects, 1 of which is ESG, the other 1 is corporate governance. On ESG, Pantheon, the manager has really been a leader in terms of integrating sound ESG practices into our due diligence and into our monitoring practices. We've been a leader. We sit on various steering committees around the world to really encourage the whole of the private equity community and market and universe to adopt strong ESG practices. This has resulted in what we think is very good reporting on ESG for PIP. And you can see some examples of that in our latest annual report. And then turning to corporate governance. I've sort of talked a little bit about corporate governance at the underlying portfolio company where it's important to have alignment between investors, private equity manager and the management teams of the portfolio companies. But of course, corporate governance is extremely important at the PIP or Pantheon International level as well. And I'm proud to say that we've got an extremely accomplished Board led by Sir Laurie Magnus with some private equity veterans on the Board plus a diverse set of other skills. Very strong alignment of interests with the Board. The Board all own shares in Pantheon International. They own 2.6 million as of 31st of May, which is our year-end. And then 1 director actually topped up to the tune of another 2 million shares after the annual results were announced in August. So a real commitment there. The Board is completely independent. So there is nobody from the manager that sits on Board. And the Board holds us to account. It's a very, a very important oversight role that they play in terms of our strategy and our operations. So maybe just to summarize and I think there'll be time for some questions. We believe that, first of all, private equity is a really interesting asset class to hold. It provides outperformance over public markets over the long term. It also provides an element of diversification. It gives access to very fast growing, interesting and exciting businesses in niche sectors, which are sometimes underrepresented on public markets. It's important to get access to private equity on a global basis and to be well diversified. And of course, PIP, with its structure, is able to do this. So it can provide investors with a very high-quality portfolio of private companies, well diversified, covering different geographies, different underlying sectors and different stages of investment. We believe that the managers that we invest alongside and his funds we invest in are able to respond very quickly to changing market conditions. And actually, in these sorts of disruptive times, private equity, this is really when private equity can deliver because it's able to move capital into areas which are maybe being neglected by other forms of investment. PIP itself is well placed to take advantage of these investment opportunities. It's got a very strong conservatively managed balance sheet and strong coverage ratios. It's able to meet its undrawn commitments. And in terms of its governance and its approach to ESG, we believe that PIP is able to deliver on these accounts as well. It's an actively managed portfolio. So investing directly into privately-owned companies and also into funds, but an actively managed portfolio where we can steer the capital into the areas that we think are particularly attractive at any one point. And important to note that we have a truly independent Board which has skin in the game because they have a lot of capital at work as well in PIP and they hold us to account. And maybe the last point, but probably not the least, is that Pip has been around for 35 years and has navigated numerous cycles. So whether that was the Asian crisis way back in the day; or the dot-com boom and bust; the GFC financial crisis in 2008, 2009; COVID, 2 years ago; and now these latest sort of market conditions. And that has enabled us to deliver a very strong track record over 35 years. You can see here on the chart, the annualized growth in net asset value since 1987. That's the sort of the dark yellow kind of mustard part of the graph. You can also see the paler lemon color, which is the share price, and you can see the outperformance here over the FTSE and over the MSCI World over that period. We believe that PIP is very well positioned for long-term performance. The NAV has continued growing despite what you've seen in markets and that's due to the strength of the underlying portfolio companies. Unfortunately, the share price has not kept pace. And over the last 35 years, you can see that in general, the share price and the NAV tends to be well correlated. There are moments of dislocation, and you saw that in 2008, 2009, for example. You saw that in COVID. And you can see it now where there's a bit of a -- well, it's quite a large sort of mismatch between the growth of the NAV and the growth of the share price, which has given us here a larger discount. So really just leaving you with a thought here. Private equity, well positioned to create value into the future. And PIP is, we believe, a very well-managed, actively managed and good access point to global private equity. And with that, very happy to take questions.

[Operator Instructions] While Helen takes a few moments to review those questions submitted already, I'd like to remind you the recording of this presentation along with a copy of the slides and the published Q&A can be accessed via your Investor Meet company dashboard. Helen, if I may, I'll just bring up your camera for the Q&A. Thank you very much, indeed. Well, look, if I may, we did receive a number of pre-submitted questions and we have received quite a considerable number of questions throughout today's meeting. So firstly, thank you to everybody for your engagement. And perhaps I can start with the first one and there are a number of questions around share buybacks, in particular, around, I guess, if I focus in on it, just looking at here. The Board has target -- what Board -- does the Board have targets for outcomes from these share buybacks? Would you really increase the frequency and perhaps the amount to achieve these aims?

That's a great question, and thanks to everybody who submitted their questions actually this morning. So on share buybacks, the Board is very clear that we can buy back PIP shares for investment purposes. So at any point in time, we are really weighing up the opportunities that we have in our investment pipeline versus the value that can be created by buying back our own shares. In the last financial year, we bought back about GBP 10 million worth of shares. And actually, since the end of the financial year, we bought back in excess of another GBP 10 million of shares. So I think since we started the sort of current period of share buyback since 2021, we bought back about 1.5% actually of our issued share capital. So we are conducting buybacks. I think it's a strong signal from the Board, actually, that we believe in the value of the portfolio, that we believe that this NAV that I've shown and talked about in this presentation is strong. You can look at things like the uplift on exit. When we exit a portfolio company, we look at the cash proceeds. We compare that with the last full valuation. And in the last full financial year, we actually had an uplift upon exit of 42%. So that was pretty strong. But the average over the last 10 years has been about just over 30%, 31% uplift on exit. So in general, we believe actually that our portfolio is quite conservatively valued and therefore have a lot of confidence in the NAV that we're publishing. And I think these buybacks are signaling that confidence to the market.

If I may just turn to the next question, if I may. Can you lock in the U.S. dollar strength of the portfolio valuation by maybe a dollar-sterling option?

Well, that's a great question. The short answer is, it's extremely difficult to hedge in private equity. The reason for that is that it's very difficult to project ahead of time cash flows. So the cash distributions and the calls that you're going to have to make over the next period. So the timing is difficult and the quantum of those calls and distributions, very difficult indeed to predict. And that means hedging is hard and it's expensive. And over a long period of time, we believe that it's probably just better to hold the underlying companies. And I mentioned we are 75% U.S. dollar denominated. That has been helpful. It's certainly quite a long period of time now. But hedging is quite difficult. Actually, our underlying managers tend not to hedge either. So probably no hedging to be seen. I don't think really any of our peers hedge either.

Turning to the next question, which just so happens to be, I guess, relating to the slide in front of us, but the discount remains an issue. Why not introduce a dividend of a fixed percentage, 4% of NAV to attract income investors?

Well, I wish that will be the silver bullet to curing this current problem with the discount. But if we paid a dividend, unfortunately, because PIP is capital growth orientated, it will be an artificial dividend. We don't generate much investment income. The NAV growth is through capital growth. It's not through investment income, so it would be a sort of artificially constructed dividend. We get strong signals from some of our investors that actually they really don't want a dividend. They're investing in PIP for the capital growth and don't like some of the tax consequences as well that come with a dividend. So I think it's one of those cases where it's quite hard to please all of the people, all of the time. And actually, separately, we have done quite a bit of research on looking at whether a dividend makes any difference at all to the rating. And in fact, there does not seem to be any correlation between paying a dividend at a level of discount. And actually, sort of going to the previous question about buybacks, again, looking at correlation between doing buybacks and the rating, that doesn't seem to be too much correlation there either.

Great. Kind of a broader question, but I think a lot's going on for you as a manager in the world right now. But how do you see the outlook at the moment considering the current macroeconomic environment?

Well, actually, as I've referred to a couple of times during this presentation, we think actually this is where private equity can shine because the capital is nimble. It's flexible, can really go to interesting investment opportunities where there is inefficiency. So as we all know, in these types of environments, markets take fright, frankly. And a lot of companies, a lot of investment opportunities tend to be sort of tarred with the same brush. Private equity can really pick through these opportunities and find mispricing situations, inefficiencies in the market. And the companies actually that are benefiting from long-term secular trends that we think will continue whatever the climate and whatever the weather, I referred to digitalization, automation, the use of artificial intelligence. This is a theme which runs right for our portfolio, not just in the Information Technology segment. I've also referred to healthcare, aging demographics, which will be there whatever is going on in the world. We've got companies in the portfolio that manufacture medical devices such as components that go into artificial hips. These are must-have components. Things like sort of the ceramic coating that goes on the top of a hip joint. And the sad fact of the matter is, the world -- the developed world is getting older. The prevalence of knee and hip replacements is getting larger. And whatever is going on in the world and whatever the economic climate, there is demand for those types of products and services. Another example would be radiology services, MRI, CT scans. We've got a company in the portfolio that provides radiology services and is consolidating what's a fragmented market in the United States. So just giving a few examples there of areas which we think will continue to be profitable, interesting areas despite what's going on in the world today.

Just turning to a question from Julian. Interesting one. With 80 billion of other funds, can you explain how you decide what opportunities which you want to go fund the portfolio?

That's a great question. And it's the right question to ask actually because we do get a huge pipeline of opportunities right across Pantheon. We do have a lot of other clients that sometimes we're investing in quite different things. So we've got investors, for example, that only invest in Asia. We've got investors that only invest in mid-market companies in the U.S. We've got a European client that only invests in healthcare. So there are some very specific portfolios that we manage. PIP basically invests in all of the co-investment opportunities that we're offered, provided that it meets the strategic goals of the Trust. The strategy of the trust is laid down every year by Board. We recommend the strategy to the Board, but the Board actually approves the investment strategy. So on areas such as co-investment, PIP has a lot of capacity and a lot of appetite for investment and is able to build a very well-diversified portfolio from the co-investment opportunities offered to it by Pantheon. With secondaries, PIP has steered its portfolio much more towards these single-asset, single-company secondaries. And that's been a growing area where PIP has really taken the lead, actually amongst Pantheon clients. And then on the fund portfolio, that's quite interesting because clearly right across the world, Pantheon has the opportunity to invest in a very wide range and large number of private equity funds. PIP is already well diversified. So it does not need to invest on the primary side into 100 private equity funds. So PIP has a number, around about 30 funds, very hard to access, invitation-only funds, which complement its co-investment and secondary portfolio. So sorry, a long answer to Julian's question, but PIP has the opportunity to invest in all the different opportunities that Pantheon can offer it. But because of the investment strategy that it's choose to adopt, we'll not invest in everything what the Pantheon across the world. But we'll invest in the opportunities that meets PIP's individual investment strategy. So I hope that helps shed a bit of light it. It's a good question, quite a lengthy one.

I'm just really mindful of time as we come up to 11:00. And for every question you seem to answer, Helen, you're getting another 2 or 3. So what we'll do is perhaps finish on this final question and what we'll do is make all the questions available that are being submitted by investors. And of course, you have the opportunity to just provide responses, and we'll publish those to everybody on today's call. So maybe we can finish with a question from Julian. So thank you, Julian, and I see a number of questions. But how much were the larger buyout funds in which PIP is invested to be impacted by the move towards normalization of interest rates? So a lot of questions around that topic.

Yes. And that's another really interesting question. But I don't have a crystal ball. I wish I knew where interest rates are going to be heading in a year. And I'm sure a lot of the -- a lot of my colleagues in the industry would feel the same way. The larger buyout funds generally do use more leverage in the structures. So they are often investing in much larger businesses, with much larger levels of earnings and they do tend to leverage these companies a little bit more. On the other hand, these much larger businesses are really quite resilient and are able to take larger levels of sort of interest expense. What I would say is that private equity managers have become over the last sort of 20 years, have become a lot more hands on, and that includes not just the operational side of things, which I talked about a lot, but also on the capital structuring side. And just before COVID, we noted that a lot of managers were restructuring, refinancing their businesses basically to take advantage of the amount of liquidity that was out there in the market at that time and actually, which continued, in fact, during COVID, with the amount of liquidity that was available. So we found that our private equity managers took good advantage of liquid credit conditions. They put in place quite resilient capital structures. And so far, we've not really seen too much distress in that part of the market. I would say that, of course, we are much more biased towards small and mid-market buyouts, which tend to be less highly leveraged. So there is a bit of a difference in our portfolio there. But the answer to the question, I suppose is, we haven't seen much distress today. The new deals that we're seeing come through, private equity managers are stress testing their models. They're not only allowing for the impact of higher interest rates down the road, but also higher inflation and any sort of supply chain issues they can see down the road as well. So we -- as I mentioned a few times, we're quite confident about the net asset value of our own portfolio. We can see good value in general in the market. And although we don't have a huge exposure to that part of the market, we believe that the managers have been pretty sensible in the way that they've structured the debt.

Helen, thank you once again for your time this morning, and thank you for the responses to those questions. Helen, I know investor feedback will be particularly important to you and to the company, and I'll shortly redirect everybody on the call to their thoughts and expectations. But before doing so, I wanted, if I may, just ask you for a few closing comments, after which, I will redirect investors to give you their feedback.

Great. Thanks, Mark. And I'll keep it relatively brief because I think the presentation has been quite comprehensive. I mean in essence, we believe that private equity is a really interesting asset class to hold over the longer term. We think that it provides some significant benefits over public equities. We've talked about the outperformance over the long term. But this sort of super active management of the portfolio companies, we believe, is particularly important in more difficult times. So the fact that private equity managers roll up their sleeves, really get involved with their businesses. And I gave an example of what happened in COVID. We've got so many other examples of what private equity managers do to help their companies through difficult periods. And that's the advantage of private equity. You can do these sorts of things away from the public gaze. You can create this longer-term value, which then we think results in good outperformance of the public markets. And PIP has been around for 35 years. So we've got some -- we've got the tale to tell for that, and you can see the amount of value that we've created for shareholders over the past 35 years.

That's great, Helen. Thank you very much indeed for updating investors this morning. I'll please ask investors not to close this session as we'll now automatically redirect you to the opportunity to provide your feedback in order the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team at Pantheon International Plc, I would like to thank you for attending today's presentation. May I wish you all a very pleasant morning.