Private equity seemed to have turned a corner in 2024, ending a dearth of deal-making. Those green shoots of recovery continued in private markets at the start of the year before wider volatility in the financial system took hold. However, investment trusts, such as Pantheon International, are still nursing seriously wide discounts.
The FTSE 250 trust, known as Pip, is one of the biggest in the sector. As of November 2024, 55 per cent of its portfolio was invested directly in companies, with the remaining 45 per cent invested in funds. Most of its holdings are exposed to buyouts, while almost a fifth of its net asset value, or NAV, is exposed to growth-stage businesses.
The fund is geographically diverse, with over half of the portfolio exposed to the United States. Information technology and healthcare companies account for more than 50 per cent.
Pip has had to navigate a difficult few years for private equity. After a bumper 2021 for deal-making, investments and exits declined in the following years. Although both recovered somewhat in 2024, fundraising levels dropped as the year progressed.
Bain, the consultancy group, said in March that the slowdown in fundraising “isn’t surprising”. It pointed to large draw-downs of capital that fuelled the deal-making frenzy of 2021, which was followed by a dramatic fall-off in exits after interest rates rose sharply and deals declined. A subsequent slowdown in distributions prompted investors to row back on new allocations.
Pip has not emerged from this period unscathed. Its discount to net asset value has widened significantly since 2022, dropping from about 15 per cent to a discount of 45 per cent.
The fund took decisive action in 2023 with a strategy it described as “putting shareholders first”, which included a new capital allocation policy. Pip launched a one-off share buyback programme of up to £200 million, and set a tiered buyback regime that kicks in when the fund’s shares are trading at varying discounts to its NAV. The fund still, however, does not pay a dividend.
There is evidence that the policy has helped to narrow the discount. In May 2024 the fund said that its share buybacks had resulted in an uplift to the March NAV of about 4.7 per cent, having invested £197 million in buybacks over the previous 12 months, including a £150 million tender in October.
In March Pip said that it had invested £15.5 million in share buybacks in the nine months to February 28, 2025. The board announced that it had allocated a further £35 million to buybacks under its capital allocation policy to be deployed by the end of May, bringing the total buyback allocation for the financial year to date to £50 million.
“We acknowledge that buybacks will not solve all problems on its own, but we believe they are a useful tool in the toolbox,” Deutsche Numis analysts said in January.
Pip has sought improvements elsewhere. It appointed three private equity stalwarts, Tim Farazmand, Candida Morley and Tony Morgan, as non-executive directors at the start of 2025.
The trust will also unveil a new strategic marketing plan before its annual shareholder meeting, which is usually in October, aimed at attracting new investors “by leading on transparency, education and sector initiatives”. Pip wants to target individual investors as well as wealth managers and independent financial advisers.
It will take more than an expanded board and a new website, however, to narrow Pip’s perennial discount.
Charlotte Morris, a Pip fund co-manager, acknowledges the impact of the US tariff negotiations. “At the beginning of this year it felt like they really were green shoots,” she said. “That has been set back by what’s happened over the last few weeks.”
The fund has good exposure, however, to US domestic businesses that are not heavily reliant on external supply chains. Its dominant healthcare and technology sectors are less cyclical than others, according to Morris.
The portfolio also has little exposure to hardware within the technology sector and consumer retail, and none to automotives, which have been badly hit by the US tariff policy.
While it is likely to take an improvement in broader markets to help narrow the discount, this presents a compelling entry point into an investment trust that makes significant returns on capital to investors.
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Why Proactive measures to address discount, capital allocation policy and resilient sectors
