Pantheon International PLC (PIN) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to the Pantheon International Plc interim results investor presentation. [Operator Instructions] The company may not be in a position to answer every question received during the meeting itself. However, the company review all questions submitted today, and we'll publish those responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll. And I'm sure the company will be most grateful for your participation. It gives me great pleasure to hand over to partner, Helen Steers. Good afternoon.

Good afternoon, everybody, and thank you very much for dialing in. I am going to speak to you today about Pantheon International Plc or PIP, for short, which is a specialist private equity investment vehicle. I'm going to talk a little bit about the manager and managers PIP and has done so since its inception in 1987. I'm going to talk about the portfolio. I'm going to talk about our financial results, which were the interim results to 30th of November. And then going to talk a little bit about investment activity and the private equity market, finishing up with the balance sheet. A little bit of information about our approach to ESG, and then I will wrap it all up. And please do send your questions in going along, we'll be delighted to answer your questions. My name is Helen Steers. I'm the lead manager for PIP, I'm a partner at Pantheon. I've been at Pantheon now for 19 years, and I'm an investment partner. I sit on our International Investment Committee, which approves all of our transactions across the world. And I also sit on our co-investment committee, which approves all the co-investments, which are the direct investments we make in companies alongside our co-managers.  So just talking a little bit about Pantheon. Pantheon is a specialist private markets investor. It was founded in 1982 in London, so has more than 40 years' experience in private markets started out as a pure private equity investor and then moved into private infrastructure and private credit. And more recently, as you can see here, into private real estate. The company is actually a substantial player in private markets. We have almost $90 billion under management and under advisory, around 450 staff across the world, including 143 investment professionals. And they are based in offices across the world, as you can see at the top, our major investment offices are London, which is still a headquarters of Pantheon, New York, Chicago and San Francisco. And then in Asia, our activities are really focused on Hong Kong.  You can see at the bottom here that most of our clients actually are institutional clients. We've got almost 1,000 institutional investors. And we manage capital both in fund of funds, but also in separately managed accounts. And PIP is one of our most important clients for Pantheon. It was established in 1987. It was originally floated on the market with GBP 12 million in assets under management, and it has grown since then to around GBP 2.4 billion under management. So considerable growth over the last 35 years. I just want to draw attention to the platform of Pantheon here on this page because it's really important for PIP our relationships go back decades, and we have deep relationships with private equity managers across the world. And these private equity managers are quite difficult to access. The funds are often invitation only, and it's extremely difficult to access the direct investment opportunities that we are fortunate enough to be invited into by these private equity managers.  We have a very large database of relationships, the general partners, private equity managers, but also of the underlying private companies. And that's exceptionally important for us in terms of evaluating new deals because this information is proprietary and cannot be accessed through sort of commercial databases. And just one last comment on this page. Pantheon is a very big supporter of environmental, social and governance guidelines and policies and monitoring practices. We were one of the early signatures to the UN PRI in 2007. And in fact, we were the second private equity signatory. And since then, we've been on various advisory committees, steering groups to enable these practices to be embedded into our due diligence and also into our monitoring. And I will talk about ESG again a little bit later.  But now let's talk about PIP and to give you a snapshot of where PIP is today. So PIP basically makes the private public. So it provides a very high-quality portfolio of private companies in a diversified manner and in a liquid manner for underlying investors. Now over the years, PIP has evolved and developed to the point where now it is no longer just an investor in funds. It has more than half of the portfolio, which is actually invested directly into private companies. And you can see that on the left-hand side of this chart. So 54% of PIPs portfolio is now invested direct into private companies, partly through co-investments, which is where we go into a new investment, a new company investment at the same time as one of our favorite private equity managers, but also through secondaries, where increasingly, we are doing secondaries in individual companies and not just in funds. And then we continue with the primary part of our portfolio, which is where we invest in funds, at applying pool as that fund is established. The advantage of doing more direct investments directly into the underlying assets is that we have more control over the shape of the portfolio. So we're enabled to steer it much more into the sectors and the sub sectors that we favor into the stages and into the geographies.  So just to talk about the stages, PIP is mostly a buyout portfolio. And you can see that very clearly from the second pie chart. So around 70% of the net asset value is invested in more mature companies at the buyout stage. Then we have another 7%, which is invested in special situations. I just want to draw attention to the fact that we just have 3% in venture capital. This is the most volatile end of the entire private equity spectrum. And although it's an interesting area to have a foothold in, we view it as being quite volatile and therefore, would always want to manage our exposure to that part of the spectrum.  PIP is a global vehicle and always has been. And you can see here the geographic allocation of the portfolio. So more than -- actually around 55% of the portfolio is invested in the U.S.A., which is the deepest, most sophisticated market in the world with a lot of specialist managers. So this is an area of the market that we favor. And as I mentioned earlier, we have 3 investment offices in the U.S.A., in New York, Chicago and San Francisco. Within Europe, we are weighted towards Northern Europe. And in particular, we find the Nordic markets very interesting. So the slightly overweight there and also in the DACH region, so Germany, Austria and Switzerland. We have just over 6.5% invested in the U.K. in U.K. private companies. And then you can see that there's also a slice in Asia and in companies which are global, which really don't fit into any one of those sort of regional buckets.  In terms of sector exposure, we've moved the portfolio quite considerably over the last few years. If you look at the composition of PIP 10 years ago, the largest sector would have been consumer and within consumer that would have been a tilt towards consumer discretionary. That is no longer the case. And you can see here that we have over half of the portfolio, which is invested in what we view as the most defensive sectors, which are information technology and health care. Within Information Technology, we favor software, mostly enterprise software, which is catering to small and midsize enterprises. A lot of this is mission-critical, really, what I would call IT infrastructure for businesses. So it's things like accounting packages, payroll, HR software sort of cybersecurity type packages as well. So this is the sort of thing which is very visible and very predictable revenues and earnings, importantly.  On the health care side, we're invested in health care services, in devices and in pharma as well. Within consumer, there's a tilt towards consumer staples and consumer services. So within consumer services, for example, we're an investor in a number of different education type businesses, which again tend to be quite defensive in more difficult times. The industrial sector, interestingly is not what you would think of as being heavy industrials. There, we are invested in areas such as sort of business services and consulting services, which fall into the GICS code for Industrials. So overall, we're happy with the way that the portfolio is positioned. And I'll explain a little bit later, we view this as a good way to be positioned in the current climate.  So just moving on to the next slide. I talked earlier about the way that we've been actively managing the portfolio over the last few years. And you can see here that on the left-hand side, we've been slowly moving more towards direct. So 10 years ago, this was a fully fund – fund portfolio with more blind pool risk nowadays, it's 54% directs and 46% funds. That has an impact on concentration. So it's decreased diversification. So over the last 10 years, we've moved from having 80% of the portfolio invested in around 1,000 companies to now 571 companies accounting for 80% of our total NAV. We actually think this is really positive for shareholders because it enables a little bit more concentration while still offering very much adequate diversification. So no one single company can have a negative effect on the entire portfolio.  We've also managed the portfolio very proactively to bring down its average life. And this is important because in private equity, the average holding period for a company in a portfolio is around 5 years, so between 4 and 6 years. So if you can hold the average age of the entire portfolio at around 5 years, this is the peak sort of cash generation point of the portfolio. So we actively managed to keep the portfolio at that around about that 5-year level. And I would just say that in terms of our direction of travel, as you can see, we've been moving more to direct, that's probably further to go in that direction. So just moving on to the next slide, please. I mentioned I was going to talk about results. So these are the results for the half year, which was ended in 30th of November 2022. The valuations here are based predominantly on Q3, on September 30. These were the most recent valuations that we had from the underlying managers. As we get into Q4, valuations will start coming through for Q4, the Q4 marks probably later on in March and in April, but these results are based on Q3 on September. And you can see that over the half year, we produced a NAV per share growth of around 4%. And given what is going on in the wider macroeconomic environment and in public markets, we were pleased with that level of NAV growth.  And I'll go into the drivers of that NAV per share growth in a subsequent slide. Clearly, we were not pleased about the direction of the share price and looking at the level of the discount, which has widened actually over the last few days in the wake of the SVB crisis, we view this as being very, very disappointing indeed and are trying our best to dig into the reasons behind this. But as you'll be aware, there is a sector-wide discount being applied to private equity. We think that, that is partly due to concern about valuations. And as I will explain over the next few pages, slides, I hope I'll be able to allay or any concerns you might have about valuation. And I think it's also due to a certain sort of misunderstanding about what private equity is and how it's positioned in this particular climate. And I think one of the first things I'd like to say here is that private equity is not venture capital. It's part of the spectrum and PIP only has a 3% exposure to venture.  And I think that's particularly important as we talk about things like the SVB Silicon Valley Bank, the crisis failure, which has impacted the venture part of the spectrum, and therefore, has a very negligible effect on what we're doing at PIP. So I think there's a certain amount of confusion about what private equity is and does. I also think that people sort of misunderstand how private equity is positioned in more difficult times. And actually, we've done quite a bit of research to say that actually private equity outperforms public markets during difficult times. And that's partly because of the amount of control that private equity managers have of the companies in their portfolio. There are direct relationships. Private equity managers are very much focused these days on operational improvements to our companies, to hands-on operational expertise. And as I'll explain with some examples later. We view this as a real sort of in a super active equity, it's real sort of value creation within the portfolio, and we think this should be valued much more highly by markets. So those are perhaps some of the reasons why there is a sector-wide discount for private equity and some of the reasons why we at Pantheon believe that it is unjustified.  So just moving to the next page here and talking about the breakdown in valuation movements over the period. You'll see on the right-hand side, what we've done is we've broken down the valuation movements by stage of investment. You can see here that bench capital was the poorest performing part of the spectrum. And that's probably no surprise given what's gone on over the last sort of 12 months. But again, that's just 3% of the portfolio. Growth a small negative movement there, around 4%, that's only 21% of our portfolio. And the bulk of the portfolio is in the buyout stage, which performed in a relatively stable manner. Special situations is composed of sort of 2 main things: some energy investments, which actually performed very well in the period, but this is a legacy part of the portfolio. We've not been making any new investments in energy over the last few years. And then the other part of that would be turnaround type investments, which have also been performing well in this particular period.  On the left-hand side, you can see the NAV per share movement over the period, and they will see that there was a positive contribution from foreign exchange over the period. Now as I mentioned earlier, PIP is a global vehicle. So it has exposure to the U.S. And in fact, on a look-through basis, it's about 78% U.S. dollar denominated because some of the European and the Asian funds are also dollar-denominated. But I think one of the key takeaways here is that having a diversified strategy, so investing in different stages, different geographies, is certainly a good thing, particularly in more difficult times. So moving on to the next slide. So this is an update on the NAV per share progress since the half year end. So this is the performance as of 31st of January. You'll see here that, again, over the longer period of time now, still a positive performance, the valuations here are still very much based on September. There's a small amount around about 10% of the portfolio, which is public, and these are companies which have gone public during our holding period, and those we do mark to market during the period. So that portion of the portfolio is mark-to-market -- you can see here also on the left-hand side, the longer-term returns. So satisfying to see that the NAV per share has held up well over all the different time periods. And since inception, has produced an over 12% net return. And all these numbers are all net of fees and costs. So you can see the very good performance and an outperformance on a NAV basis versus the FTSE Asia and the MSCI. Again, the share price has been disappointing over the period, and we are very aware of this and doing everything we can to help with narrowing the discount.  So just moving to the next slide. I talked about the valuations and the fact that we have confidence in the valuations, but there are concerns out there in the market about private equity valuations. One of the way in which we get comfort about our valuations is we look at the cash that we receive for every company that we sell. And if we look at that cash versus the last full valuation that was done of the company. And on average, you can see that we've been getting pretty substantial uplifts upon exit. In the last 6 months, that weighted average uplift upon exit was 33%, which given the environment that we were in, we view as being impressive.  And then over the long term, you can see that there's been a pretty consistent level of uplift. And in fact, over the 10 years, the average uplift has been 31%. So this seems to suggest that actually our managers are conservatively valuing the companies in the portfolio and providing this pop of value upon exit. And it's probably worthwhile saying here that the private equity managers are not paid in terms of the unrealized value in their portfolios. They are paid. They get the big payoffs in terms of performance fees when they exit a company and actually as part of a broader exit program, exiting the whole of their portfolio. You can see that in terms of cost multiple, where we're getting good cost multiples on exit over 3x during the period. The distribution rate was lower. It was around 10% in the period, and this was on a level with what we saw actually probably around sort of 12, 13 years ago. So it's a lower distribution rate and more. On average, our annualized distribution rate is normally around sort of 23%, it has been over the last few years.  So going on to the next slide, please. So we look through the portfolio and the underlying performance of the portfolio companies. And this is a snapshot of our buyout portfolio, looking at the revenue growth over the last few time periods and the EBITDA growth. And what's interesting to see here in the black bars is that the revenue growth and the EBITDA growth of the buyout portfolio has outperformed pretty substantially the MSCI world. Now this is partly due to the sectors that the PIP portfolio is invested in. I mentioned at the beginning that we are in resilient defensive sectors, often asset-light areas with very good visibility on revenue and earnings, but it's also partly due to this sort of operational hands-on expertise at the private equity managers apply to their portfolio companies. So they really work the companies in the portfolio hard. And the result of that is better revenue and earnings growth than in the MSCI world.  So just moving on to the next slide. So thinking about the private equity environment and what are we excited about at the moment on the next couple of slides, I will talk about some of the deals that we've done in the last 6 months. So on the left-hand side, you can see some of the sort of deal things that we're pursuing on the right-hand side of some of the companies and some of the private equity partners that we work with. So in terms of the themes, the deal themes, we actually look for complexity. Complexity is good in our world because it often means that you will get off-market deals or deals with more attractive pricing. Sometimes these can be off-market transactions as well.  We also like buy and build opportunities where you buy a platform company and then you perform a consolidation of what can be quite a fragmented market, and I'll mention one of those on the next slide as well. And then we also like opportunities where we can supply follow-on financing to some interesting and exciting companies than they already be in the portfolio. So those are just some of the sort of the deal things that we like at the moment. I won't go into all the companies on the right-hand side. And in fact, probably what I'll do is I'll just highlight some of those on the next couple of slides. But you can also see the -- sorry, actually, no, I'm just thinking -- actually, I will go into a couple of those because it may be interesting actually to hear some of the deal dynamics there. So if I just pick out a couple of those.  So the first thing I'm going to talk about is Smile Doctors, which is quite an exciting business. It's a U.S.-based business. It invests in orthodontics clinics. And these clinics, 95% of them are run by practitioners, so orthodontics or clinicians or dentists. It's a highly fragmented market. This is the market leader in the U.S. It runs 350 clinics in 27 different states, and it's embarked on a big consolidation of the market. So we're very excited about this company. It's actually, again, in a defensive sector, people need their tea fixed in all different economic environments. Maybe just sort of moving on to off-market transactions. We did an exciting deal actually in the period called 101 Nutrition. 101 Nutrition is another U.S. business. It's a mid-market deal. We invested in this company alongside one of our long-standing mid-market buyout managers called Altamonte. And this is a company which is involved in waste recycling, specifically food waste, dairy waste.  And just to give you an image of what they do, they would work, for example, with large dairy plants in the U.S.A., which make things like sort of yogurts or milk products, cheese products. Whenever a plant needs to change, say, from robot Black Bruno, they would have to flush out the systems or the VAT from the and the tubing and everything else of piping. And there's a lot of food waste, a lot of milk waste, which is normally just sort of dumped. This company will recuperate that food waste, that dairy waste solidify it and then it actually gets incorporated into feedstock for cattle. So that's -- it's part of sort of the circular economy and helps to save money, which is obviously a good thing in any environment, but also contributes to sustainability and cutting down on waste.  And then another company I'll talk about here, which is another buy and build opportunity is Access Group. This is a U.K. company. It's in the enterprise software field. It supplies enterprise software for small businesses that need accounting software, payroll, software, HR software in the U.K. It has been profitable for the last 15 years. It actually doubled in size between 2020 and 2022. And we invested in this business as a core investment alongside one of our very long-standing partners, HG Capital, which is a U.K.-based software specialist. So those are just a few examples of the deals we've done in the last 6 months. And hopefully, you can see some of the trends that we're talking about here.  So moving on to the next slide, please. So I mentioned distribution and core rates. You can see here that distribution rates do fluctuate over time was around about a 10% distribution rate at the moment. Core rates also vary and here was around about a 20% core rate, which is on the lower side. This really all speaks to the fact that deal activity in the private equity market has been somewhat muted over the last 6 to 9 months, and we keep a very close eye on what is going on in the end markets. Despite the more muted activity, you can see that net cash flow into the PIP portfolio has been positive, and it was positive in the period. We generated net cash flow of around GBP 34 million during the period.  Next slide, please. This then translates into a solid position in terms of the balance sheet for PIP. So you can see here that we've got healthy cash balances of just under GBP 50 million. This was actually as of 31st of January, so after the half year end. We also have a fully undrawn GBP 500 million facility, banking facility, which is denominated in dollars and euros to match our undrawn commitments. So if you take the available financing, plus 10% of our portfolio, and as I've mentioned, we've never had a distribution rate that's gone below 10%. Then we've got 94% coverage of our undrawn commitments. So this is a statistic that we follow on a very regular basis, and it has hovered around this level for some considerable period of time. So it is a conservatively managed prudently managed balance sheet. And that's really what gives us the confidence to carry on investing in this environment. And as you're probably aware, this is an environment where there is dislocation and change happening, this is often where we see the best investment opportunities.  So just moving on to the next slide. I said at the beginning, I wanted to talk about ESG. It's very important to Pantheon. It's very important to PIP -- we integrate sort of leading-edge ESG criteria and standards and processes into both our due diligence, but also into our monitoring. And we take this extremely seriously. We've just hired actually a new global head of ESG who joined the company last summer and who is helping us to implement even more stringent ESG types of promises. We utilize artificial intelligence actually to help us survey the portfolio to make sure that we understand what is going on from an ESG perspective. So this artificial intelligence tool scans the world's media, both social media and print media to find any mentions of companies in PIPs portfolio and their subsidiaries. And if there are any potential ESG incidents that are detected, we can follow up with us with the manager is concerned. Also, every manager has given a rating and ESG rating and every company that we go into on a co-investment side or on the secondary side is also given an ESG rating. And those ratings are updated on a regular basis. So we feel that we have a very good handle indeed on what is going on in the portfolio.  And then talking about governance, moving on to the next slide. We're proud of the fact that we've got a very high-quality and completely independent board, which holds the manager to account. That Board is composed of 5 directors, led by John Singer, who became Chair last October when Salary Magners retired from the Board, having reached the limit of his term on the Board. The Board is currently looking for 2 new nonexecutive directors who will have complementary skills and experience to the people who are already on the board. But we are proud of the fact that we've got a good set of background and experience here. We have people that are not only privately veterans like John Singer and John Burgess, but also corporate finance and M&A expertise in the form of David Melvin, Mary Ann Sieghart, who is a very well-known broadcaster journalists and marketing expert and then Dame Sue Owen, who is a retired civil servant and very well versed in government and in regulation.  The Board members of the board all hold shares in PIP, some of them actually hold quite a large number of shares, so over 3 million as of February 2023. And I should mention at this point as well, and it is disclosed in the annual report and the interim report to that members of Pantheon team also hold a large number of shares. And in fact, although we can't report or compliance reasons on the entire shareholding throughout the whole of Pantheon, I can say that 18 partners at Pantheon hold more than 2 million shares as of February 2023. So there is alignment and the risk in the game from the manager as well as from the Board.  So just moving on to the next slide, please. So just really in conclusion here and talking about why we think that PIP is a great vehicle to provide access to the private equity asset class. PIP has been around 35 years. It's produced consistent outperformance over the public markets over that period of time. And through a number of different macroeconomic scenarios. So we've been through COVID, we've been through the GFC. We've been through the dot-com boom and bust. We were even there during the first Asian crisis. So we have been around and we do have the scars on the back, and we're used to managing a private equity portfolio through both good times and through bad times. Part of the way that we do that is through very active management of PIPs portfolio. So we do create this portfolio. We are directing the portfolio into investments that we think will be well positioned in this particular economic environment. So through sector and subsector level, also through geographies and through stages.  And it's well diversified and diversification is your friend in this particular period. We back active managers, specialist managers and managers who have considerable amounts of operating expertise. And these managers have lived through difficult periods before. They can respond very quickly to changing market conditions and they can apply the weight of their portfolio management teams and our operating advisers to help improve performance in the underlying portfolio companies. PIP has a strong and prudently managed balance sheet and the ability not only to meet our undrawn commitments, but also to keep investing in what we think will actually be a very interesting environment. We have a long-established approach to ESG being one of the leaders in the sector for private equity, and we have a fully independent board, which keeps us on our toes. So we believe that actually PIP is extremely well positioned to navigate the period that we're in at the moment and that we'll probably be in for the next few months as well with a 35-year history and a lot of resource that's been applied to the company.  So just summarizing here, this is a picture of PIP over the last 35 years. You can see since 1987, 12.2% annualized NAV growth, and that's net of fees and costs. So strong long-term performance, significant outperformance of the NAV over the public markets, and you can see that as well on this slide. It's an actively managed portfolio. It is diversified but not over diversified and we think the latest moves into more directs will help in that respect. We believe there is evidence of embedded value, the uplift upon exits that continue to come, we think are proof of that. It's a large vehicle, it's liquid and cost-effective for investors. And finally, it is managed in a highly responsible fashion. So with that, maybe I'll stop there and see if there's any questions.

That's great. Helen, thank you very much indeed for your presentation and for updating investors. [Operator Instructions] I'd just like to remind you that a 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. Firstly, let me just say thank you to everybody for your engagement this afternoon. There is an overwhelming number of questions. Helen, that perhaps we can just give a little bit of time to go through. The first one, reads as follows is, what's the company's exposure to Chinese assets?

That's a good question. So we have -- I did actually look at some of our exposure a little bit earlier, we have 2.3% in China. So it's a very small part of the portfolio. It has been larger than that in the past, but it's probably come down somewhat. So 2.3% in China.

That's great. How has PIP managed to perform so resiliently over the first half despite perhaps the wider economic environment?

Yes, that's a great question. I think it's all down to a couple of factors. First of all, it's the selection of the industrial subsectors that we're in. I've mentioned some of these. But we started positioning the portfolio towards longer-term investment theme some time ago, probably 5 or 6 years ago before the COVID crisis, really looking at themes such as digitization and automation, which we felt were multiyear sectoral themes that would not be going away anytime soon. And I think that with COVID and now with the emphasis on more efficiency in almost every underlying industry sector, there's even more impetus to digitize and automate. And many of the companies that we invest in are enabling the digitalization and automation of the economy. So they're doing well in this environment.  They also have pricing power because if you think about, if you've got an accounting software package, that's probably the last thing you're going to turn off in the small and medium-sized business. So that there is pricing power there. There's often very deep competitive moats. It's quite difficult to switch from some of these products. So we believe that the selection of the assets within the sort of micro sectors has been really quite astute. And that's what's helped us to get through this particular period. The other thing is the hands-on management that is applied to these companies by the managers. So our managers generally have control of the businesses or significant influence and they're able to make changes. So they can augment management. They can add people to boards of directors. They can invest in certain areas, which they think the company is lacking, and they can help companies perform things like that add-on acquisitions. So we've seen a lot of hands on sort of execution capability from our managers over the last 6 months as well.

Thanks for that. Let's turn to the next question, if I may. Over half of PIPs portfolio is now invested directly into companies -- why does this benefit to shareholders?

So I think it benefits top shareholders in a couple of ways. First of all, as I mentioned right at the beginning, actually, we've got much more control over where the capital is actually going. We get a huge deal flow in terms of co-investments and the single asset secondaries. We get, for example, on co-investments, we probably get around 250 deals a year, which are coming from principally from us to favorite managers. And we do maybe 30 to 35 deals a year. So we're highly selective. And we only invest in those companies that really pass our own rigorous due diligence criteria. But those managers have already gone through, though these deals have already gone through a quality filter applied by the manager. So in a sense, you've got kind of a double quality from today, you've got the manager's quality filter and then you got ours. And we think that gives a lot more control over what is actually going into the portfolio.  And then secondly, we know more about those companies in terms of transparency and reporting, we know a lot more, and therefore, we can supply more information to our investors and our shareholders. So we think that both of those things will help the first one in increasing performance. And then the second one actually in helping with better control of the information and reporting, including ESG, I should add.

Very much indeed, Helen. Turning to the next question, how do you see the outlook for it for the rest of this financial year?

Yes. So we're cautiously optimistic. Our underwriting standards are extremely high. So as I mentioned earlier, we're very selective about the deals that we do. As you can imagine, Pantheon is a big investor in private equity. It's a reference investor, we get shown a lot of deals, a lot of investment opportunities. And our selection criteria have not changed. And we're probably being even more selective and even more, I would say, diligent with the sorts of work that we're doing prior to investment and also during monitoring. However, if you look at what's happened to the private equity market in prior macroeconomic difficult periods or during recessions, private equity actually outperforms even more in difficult periods.  And if you think about it, it makes sense because this is the most hands-on type of equity. The managers really do control the businesses. They can help add value, they hold those companies. They don't have to sell them. It is not the right time to sell them, and they can prepare them for the right buyer at the right time. So I think that's absolutely key. So we actually see good opportunities at the moment in periods like this, you do get dislocation, you get disruption, you get inefficient pricing. And therefore, we can take on to – take the opportunity to transform some of those dislocations and disruptions into what we believe are very interesting investment opportunities.

Question around higher interest rates really and what impact have you seen there across companies within your portfolio?

Yes, it's a good question. Our portfolio is tilted more towards small and mid-market buyouts. This is really a key tenet actually of our investment philosophy. We believe that small and mid-market buyouts tend to be -- it's a less efficient part of the market. The pricing on the way in is generally not as high as in the mega buyouts. There's less dry powder in that part of the market and generally less leverage is applied as well. So these companies tend to have lower levels of leverage than the mega buyouts that you read about in the papers. The managers are also quite cautious in this part of the market and tend not to over-leverage the businesses. These are generally growth businesses, as you can see from the revenue and the EBITDA growth that we've produced in the buyout portfolio, and therefore, they don't want to saddle the companies with too much debt. They've also been quite astute in the way that they have prepared the companies for what they could see to be more difficult times.  And therefore, a large part of the debt in the underlying portfolio companies is fixed and not floating. And many of the managers have also put in place things like interest rate swaps. So the company is well prepared. Yes, there may be increases in interest costs, but we have factored this into our modeling as well. So when we do a new investment on the co-investment side, we are looking at the potential for higher interest rates again in the future and making sure that those business models are resilient and can cope with potentially higher interest costs. Sorry, that's a long way around for saying that we do believe the portfolio is well prepared. We are positioned in the more conservative part of the market. And clearly, the growth part of the portfolio has very little debt on it whatsoever. So we believe that we're as well prepared as we could be for higher interest rates in the future.

That's great. At the lower distribution rates make it harder for PIP to meet its undrawn commitments and make new investments?

Yes. So it's a complex vehicle PIP. We do need to manage the cash steeply in the portfolio. So lower distribution rates but also lower core rates, just means that we need to manage the balance sheet well. And you can see there that, that's exactly what we have been doing. There's still very good coverage of our undrawn commitments. And we will deploy capital in tune with our available cash. So as you're aware, as we sell the investments, we then recycle that capital into new deals. The good news is we're still seeing good exits. I probably have said at the beginning that the majority of our exits are to trade buyers, strategic buyers.  Over 50% of our deals get exited in that way. The second biggest exit route is to larger private equity funds to some of those mega funds I talked about earlier, some of the deals are exited in that way. And there's only a very few exits, which go the way and in fact, in the period, only 4% of exits were through IPO and even to the year-end May 31, which was during a period when IPO markets were pretty strong. We only have 7% of exits through IPO. So we're not tied to the IPO market in terms of exits and the distributions are still coming through and they will get recycled into new deals.

That's great. And Lisa -- I have a question from Lisa and I think you've just covered that at the same time. So thanks for that, Helen. Let us turn to a question from Simon. Thank you, Simon, for your question. Hi, can you please give your definition of the growth segment in your portfolio, a size, stage and debt?

Yes. So as I mentioned, generally, these businesses don't have debt. They're usually high-growth businesses, so in excess of sort of 20% per annum, they are -- that they're producing revenues. They're often also producing earnings. But often, they will be closer to sort of earnings neutral because they are investing back into the growth of those businesses. So I want to be clear, these are not venture businesses. These are growth businesses. So in terms of the shareholding, these will be normally minority positions, but with significant influence from the private equity manager. So generally, they will be in the high-growth areas of information technology or health care. But there won't be any commercial risk there or any product unlike in the venture capital sector where you could have both product and commercial risk.

That's great. very much indeed. Turning to a question from Martin. Thank you, Martin. With such a strong shift to direct investments, does that put you into competition with the GPs?

Well... That's a good question actually. No, it doesn't. And I'm very pleased with somebody else that question actually because philosophically, this is really important for us. We never want to compete with our GPs with our private equity managers. So we are partners to our private equity managers. We're very happy to co-invest alongside them. So we will approach the managers for the co-investment when they're doing a bigger deal when they need to lay off some of the capital and they don't want to bring in a competitor. So we're very pleased to do that. But we will not be a stand-alone independent direct investor. So our general partners will never find us in an auction sitting opposite the table, sitting around the table with them. So we're very clear on that fact. We are partners to the private equity managers, and we will never be competitors.

Just a question really around FX and the question is, do you hedge your exposure?

No, we don't. And over time, sometimes the U.S. dollar, pound rate is stronger, sometimes it's weaker. And over time, we've done the analysis, and it balances out over a longer period of time. The reason we don't hedge is because it's extremely difficult to do so in private equity because in order to hedge, you really need to know the quantum of the amount that you're hedging and also the timing of that. And in private equity is extremely difficult to have really either of those.  What does happen at the underlying portfolio level sometimes is that if a manager has agreed the sale of a business and say it's a U.K. or sets a European business, and it's going to be -- but it's got a euro buyer. They will hedge that amount that they think they're going to receive in 6 months because it is a fine deal. It just has to close. So short-term hedging like that is done at the underlying sort of portfolio company level. But at the broader PIP level, it's extremely difficult to do. And I don't think really any of our peers in the market do the either for the same reason.

Next question. Can you talk a bit more about what a special situation is? Maybe just a little bit of color, any depth you can cover?

Yes, special situation, it actually covers a lot of sort of small sectors, some of which we don't really invest in any longer. So it's -- some of that will be the energy, the legacy energy investments, about 3% -- probably 3% is energy. We have some of these turnarounds and distressed managers in that segment. And also in the past, we have had mezzanine managers. So it's a bit of a mixed group of strategies that doesn't really fit into your growth or venture. And just to give an example of distressed, we're not buying assets that are distressed. But what -- because again, we find that quite a volatile part of the market. But often, we will be buying assets that are being purchased from a distressed parent. So we're seeing quite a bit of that at the moment. So where there is a distressed corporate parent that has a subsidiary or a division that they can sell, which is not stressed, they might be looking for a buyer in order to generate liquidity for the corporate. So that's the type of special situation I'm thinking of here.

Just if you could just -- one question that's just come in is around the coverage ratio and really how has the undrawn coverage ratio calculated.

Yes. So the undrawn commitments are all of our undrawn commitments up to 13 years old. So these -- this is everything. So these are all the commitments that we have made to the underlying funds without exception. So that's probably somewhat of an overestimate, I would say, of undrawn commitments because, as you know, in a private equity fund normally has a 10-year life. The first 5 years typically will be the investment period, and that's where you generally see the big calls on the investor's capital. The following 5 years will be the period of disinvestment as the deals are sold and then at the 10-year mark, normally, what happens is the manager is finalizing really the liquidation of the portfolio. It may ask for a 1- or 2-year extension to liquidate. But practically, at that point, no new investments are being made, not even any follow-on investments. And even in terms of management fees or costs, there's very little sort of associated. So you could actually cut the undrawn commitments after 10 years. We don't do that. We're more prudent, conservative. We go through all the way through to 13 years. But practically, at that point in those last few years of the commitments, there's really very little that is going to be drawn down.  We talk about that versus then the amount of capital we have to cover those commitments. So we've got the undrawn facility, GBP 500 million, denomination dollars. We've got the cash on the balance sheet. And then as I mentioned earlier, we haven't seen -- we've never seen a distribution rate of less than 10%. And I mentioned also we've got about 10% of the portfolio, which is actually in public stock. So we think taking 10% of the portfolio, plus the financing and then applying that ratio with the undrawn commitments is the right way to think about it.

The final question, I think, was we got Tom, I know you've got scheduled meetings for the rest of the day, but we have a question from Nan. I think you've touched on it in part, but maybe we could finish up with the question, how much of the portfolio is currently publicly listed? And what is the exit criteria for these?

So it's about 10% of the portfolio, and I should be clear here that we haven't invested in public stock. So these are companies that were private that have then been taken public by the manager. So our view on holding public stock is that we don't want to do that for the long term. We're a private equity company. But you need to exit those public positions usually over a period of time. And generally, what we do is we will exit at the same time as the private equity manager. They will know the company best. Often they'll have been on the board of the company. And therefore, they will know the right time to exit the public stock. So we would generally sort of hitch our wagon to the private fee manager, and we will exit at the same time as the manager of those public stock. Bear in mind also that some of those public stocks might be subject to lockup so if the company has gone public, there might be a period of lockup for sort of 6 or 9 months. And in any case, it would not be liquid for that period of time. But essentially, our underlying philosophy is to exit those public positions.

That's great. Helen, thank you very much indeed for your generosity through the Q&A session. Thank you to everybody for your questions this afternoon and any other questions that we haven't got through will make available to the company post the conclusion of today's meeting. And Helen, I know investor feedback will be important to you and to the rest of the company and before I redirect investors to give you their thoughts and expectations. I wondered if I may just ask you for a few closing comments.

Yes, of course. Well, first of all, it's been great to speak to everybody today. As you can probably gather from my sort of enthusiastic tones. We do believe that private equity is a really interesting asset class, in particular in more difficult times. And that's because of the model of private equity, which is extremely hands-on -- and I think that having extremely hands-on managers in this particular period is a very good thing is also to do with alignment of interest in private equity. So the private equity manager is aligned with the investors and the private equity managers also in line with the company management so that if the company does well, the underlying portfolio company does well, then everybody does well. And because the private equity managers can pull all sorts of levers to help the businesses and to increase their performance. We believe that this is actually exactly the right sort of asset class that one should own in more difficult economic times.  And of course, we think the PIP is the right vehicle to hold those types of private investments in. It's a global portfolio well diversified by sector, by subsector, by stage and by managers. So we're not dependent on any one private equity manager. We've got a range of different managers in there. So we believe that this is actually an extremely good way to hold private investments in a public vehicle and to take advantage of the expansion actually of private capital markets as public markets are shrinking in terms of the number of opportunities.

That's great. Helen, thank you once again for updating investors. Ladies and gentlemen, can I buy ask you not to close the session as sure we're now automatically redirect you for the opportunity to provide feedback in order the company can really better understand your views and expectations. Just want to take a few moments to complete, but I'm sure we'll be warmly welcomed by the company. On part of the management team of Pantheon International Plc, I'd like to thank you for attending today's presentation. That now concludes today's session. I may wish you a very good afternoon.