Princess Private Equity Holding (PEY) offers investors access to the private equity and debt expertise of global manager Partners Group ($74bn AUM), as well as selected co-investments with third-party managers. It has followed a direct investment strategy since 2011, when it refocused away from third-party funds of funds, and has seen solid NAV and share price performance over most periods of five years and shorter. Partners Group’s differentiated global approach includes a highly selective process of deal sourcing (c 99% of potential investments are declined each year), and an in-house value creation team who can plan and implement initiatives to help investee companies achieve superior growth. PEY has a high dividend policy, targeting a payout of 5-8% of the opening NAV each year.
PEY aims to hold a diversified portfolio of 50-80 private equity investments, with the majority made directly by its investment adviser, Partners Group, as well as coinvestments with other managers and direct senior or subordinated debt investments. A legacy portfolio of third-party funds is chiefly in realisation mode. Partners Group seeks controlling or majority positions in mainly mid-sized marketleading companies that are attractively priced versus history and peers. Through its industry value creation (IVC) team, it seeks to add value in investee companies through operational improvements, expansion and M&A.
The global volume of private equity deals remains significantly below peak prefinancial crisis levels, but the exit environment has been robust and investment demand is strong, leading to record high levels of private equity ‘dry powder’. The resulting competition for deals has pushed EV/EBITDA multiples for typical largecap buyouts to near-record levels, but pockets of value may still be found further down the size spectrum, particularly for private equity teams that have a highly selective approach to investment and the expertise to effect operational change.
At 4 April 2018, PEY’s shares traded at a 7.0% discount to the 28 February NAV. This was wider than the one-year average of 5.9%, but much narrower than longerterm averages, arguably reflecting the impact of the refocusing in 2011 from thirdparty funds to direct investments. While discounts have generally narrowed over the past year, PEY’s current 7.0% is well below the 15.8% average for the AIC peer group, supported by a 5.5% dividend yield, among the highest in the sector.