Princess Private Equity Holding (PEY) recorded a particularly high level of investment activity in FY18 (to 31 December), following on from a record year of realisations in FY17. The fund focuses on profitable companies with: a consistent track record of EBITDA growth (an average of 11.5% for 2018 across the whole portfolio); meaningful growth potential, supported by strong competitive positions in growing end markets; and clear scope for manager Partners Group’s industry value creation (IVC) team to add value through operational and governance improvements. PEY’s NAV total return for FY18 was 6.8%, a c 10pp outperformance of global listed equity markets, and although the share price total return for the year was negative as a result of the sharp sell-off in public markets in Q418, it has rebounded by more than 10% year to date (to 1 March). PEY has a high distribution policy and currently offers a dividend yield of 6.0%.
PEY invests mainly in direct private equity deals sourced by its investment adviser, Partners Group, as well as making co-investments and holding senior and subordinated debt. It aims to hold a diversified portfolio, principally made up of 50– 80 private equity stakes. Partners Group focuses on medium-sized businesses with strong competitive positions in attractive market niches. Through its IVC team, it seeks to add value to investee companies. PEY has a legacy portfolio of third-party funds (13% of NAV) that are largely in the process of returning capital.
After a sharp sell-off in listed asset markets in late 2018, the early part of this year has seen something of a rebound. This has benefited the share prices of listed private equity funds, with the value of their assets largely having held up well during the volatility. Macroeconomic uncertainty remains, with global growth slowing amid a tightening of monetary conditions; however, a focus on quality companies with structural end-market demand could continue to benefit patient investors.
At 1 March 2019, PEY’s shares traded at a 15.2% discount to NAV. This was somewhat wider than the one- and three-year averages of 10.9% and 12.1%, respectively, but is broadly in line with the five-year average and substantially lower than the 12-month widest point of 24.5% reached in late December 2018. PEY’s tendency to trade at a narrower discount than some of its peers may be attributable to its policy of paying out a high distribution of 5–8% of NAV each year. The shares currently yield 6.0%.