Patria Private Equity Trust (PPET) invests in a diversified portfolio of private equity (PE) funds and direct investments into private companies (through co-investments and single-asset secondaries). It partners with around 10–15 leading PE managers and provides exposure to over 700 underlying portfolio companies. PE has established itself as an important asset class for investors as it provides access to actively managed, attractive companies not accessible through public markets.
PPET offers a quarterly dividend, which has grown in value every year since 2010, and the manager charges a flat management fee of 95bp with no performance fee on top, which is unlike most PE investment trusts.
1. One of PPET’s core strengths is its long-term relationships with high-conviction general partners.
PPET pursues a concentrated, high-conviction strategy of partnering with a small group of top-tier European general partners (GPs), with a strong emphasis on sector expertise, an important advantage in the increasingly competitive PE space. Its core GPs include names such as Advent International, Altor, Hg, IK, Nordic Capital, PAI, Archimed, Triton and Vitruvian, with which PPET has long-term relationships, often spanning more than a decade. This strategy has proved successful, as PPET’s annualised NAV total return of 15.1% to end-March 2024 over the last 10 years was ahead of both the MSCI Europe Small Cap index and the UK All-Share index, and broadly in line with its close PE peers.
2. PPET offers quality exposure to the PE mid-market.
PPET focuses mainly on the European upper mid-market (defined as companies with enterprise values (EVs) between €0.5bn and €1.0bn) and lower mid-market (EVs of €100–500m). It also selectively invests in adjacent and complementary PE strategies in Europe and North America, most notably large/mega buyouts (EVs of more than €1.0bn), focused primarily on mid-market core managers that ‘graduated’ to the large market, as well as mid-sized growth equity.
The PE mid-market offers several potential advantages: many of the acquired companies have not been owned by PE before and are low-hanging fruit in terms of value creation; portfolio exits are less dependent on the IPO market (with more trade sale and sponsor-to-sponsor opportunities); and deals are less reliant on funding via syndicated loans (which was muted during the recent market downturn) and often involve less leverage than large/mega buyouts.
3. PPET’s portfolio has a high share of less cyclical sectors.
The trust’s portfolio is skewed towards sectors with typically lower cyclicality. These include IT companies, mostly profitable B2B businesses, such as Access Group (a provider of ERP and payroll solutions); healthcare companies, with little exposure to higher-risk biotech, such as NAMSA (a contract research organisation for preclinical and clinical device companies); and consumer staples, such as the Spanish food distributor Uvesco.
PPET highlights that while the remaining part of its portfolio (consisting of sectors such as industrials, consumer discretionary and financials) is more cyclical, it includes sub-sectors that offer a combination of good growth opportunities and a valuable product or essential service with a strong digital component. These include environmental B2B services business ACT, provider of funeral services Funecap, specialist insurance broker CFC and payments company Planet. Over the coming years, PPET’s manager expects a further portfolio shift towards sectors benefiting from structural, long-term drivers (such as IT and healthcare), at the expense of more cyclical sectors.
4. PPET has been growing its direct investments portfolio in recent years.
The strong long-term relationships with its top GPs support PPET’s deal flow in terms of co-investments and single-asset secondaries. Co-investments offer greater flexibility in terms of capital deployment (as they are done on a case-by-case basis and capital is deployed faster), leading to higher capital efficiency and easier balance sheet management. Moreover, unlike limited partner positions, GPs normally do not charge fees on co-investments, translating into a one-layer fee structure and therefore the potential for higher returns than funds. We believe PPET’s results in terms of the value appreciation of its co-investment portfolio have been encouraging so far.
Published 16 October 2024.
