Standard Life Private Equity Trust — Increasing its investment level

As at end-October 2021, the estimated NAVPS amounted to 613.0p, which translates into a one-year total return of 36.7%, compared to 35.4% recorded by the FTSE All-Share Index (official benchmark) and 25.6% posted by the LPX Europe NAV index, which we use as a broad PE market reference. However, we note that all SLPET’s portfolio holdings were last valued at 30 June 2021 (except for new investments completed after that date) and its NAV has been adjusted for subsequent FX movements and dividend payments.

The last reported actual NAV (dated 30 June 2021) of 630.6p implies a 36.9% one-year total return and 11.7% TR in Q3FY21 (SLPET’s financial year ended on 30 September 2021). The robust three-month performance was primarily driven by an increase in the valuation of existing underlying holdings, representing a c 8.2% return, including positive foreign exchange effects, contributing 0.6% to the improvement. It was further assisted by healthy revaluations of exited underlying investments, with the £45.4m distributions received in Q321 resulting in a £31.3m net realised gain, or 3.2x acquisition cost multiple. We also note that the average valuation uplift on exit in the quarter reached 29.3%.

Strong NAV expansion, coupled with favourable public market dynamics, resulted in SLPET’s impressive one-year share price total return of 61.1% as at end-October 2021. As the share price rally continued in November, the current discount to NAV amounts to 15.2%, which is narrower than the one-year and three-year averages of 19.9% and 21.7%, respectively.

We continue to compare SLPET’s performance with a peer group including PE funds-of-funds, putting more emphasis on mid- to long-term performance, which not only better aligns with a PE investment horizon, but also limits the impact of different asset valuation dates and, consequently, FX changes. We note that the entire SLPET portfolio and the majority of its peers’ holdings were revalued as at end-June 2021 and adjusted for subsequent FX movements. Based on the last reported figures, SLPET’s three-year NAV TR of 62% ranks it in the middle of the peer group, although sitting below the group average of 70.9%. Its five-year NAV return is at the lower end of the peer range, but still represents a very robust return of c 100%, significantly ahead of the LPX Europe NAV Index over the period (79.2% NAV TR in sterling terms), which we consider a good indicator of the broad European PE market. The company has also outperformed the index in the ten-year period, posting a total return of 236.4% (vs 180.2%), which ranks fourth within the peer group, sitting slightly below the average return of 249.4%.

We note that SLPET’s exposure to co-investments (11%) is currently below peer average of 28%, according to our calculations. As these are not subject to a two-layer fee structure, further growth of SLPET’s co-investments portfolio could further enhance the company’s performance.

SLPET’s shares are trading at a 15.2% discount to NAVPS, which is narrower than the peer group average of 18.4%, with limited deviations among the group. The company’s dividend yield reached 2.6%, which is slightly below the average of the other two dividend paying peers of 2.8% (the average of the whole group is 1.4%).

SLPET’s investment activity has accelerated recently, as new commitments in H221 amounted to c £211m, according to our calculations, which represents a more than twofold increase on the H121 total of £88.4m. This consists of £112m primary investments, £46m secondaries and £53m co-investments. This brought SLPET’s outstanding commitments as at end-FY21 to £559.5m, which slightly decreased in October 2021 to £544.7m (of which £42.2m commitments were considered by the investment manager as unlikely to be drawn), as the company completed new investments amounting to another £24m in that month.

In June 2021, SLPET made two US$35m primary commitments to Permira Growth Opportunities II and Excellere Capital Fund IV, with the former targeting smaller, technology growth companies, while the latter focuses on founder-led, lower mid-market companies in North America from business services, healthcare and industrial sectors. In the same month, the company announced a €30m primary investment in Nordic Capital Evolution Fund I, which operates mainly in northern Europe, selecting non-cyclical growth opportunities within the healthcare, technology & payments and financial services sectors.

In July 2021, SLPET committed US$31.5m to Advent Global Technology II fund, focused on smaller technological companies and co-investments in larger deals alongside other Advent-managed funds. We note that the targeted fund volume amounts to US$3bn just two years after the first Advent Global Technology fund collected US$2bn, which confirms the strong market sentiment towards IT businesses. The healthcare sector targeted by Archimed MED III fund, to which SLPET made a €15m commitment in July, continues to attract investor interest. We note that the fund was well oversubscribed, as it closed the fund-raising process within two months at €650m hard cap (versus the original target of €500m).

In October 2021, the first month of SLPET’s FY22, the company committed another €20m to Capiton VI fund, participating in a final close of a fund launched in 2020. It has already invested in CEDES, a sensor producer, MiP Pharma Group, an international manufacturer and distributor of generic pharmaceuticals with particular emphasis on anti-infectives, and Wundex, a German medical and physiotherapy company.

In H221, SLPET was also active in the secondaries market, as it sold interests in Equistone Partners Europe Fund III and Terra Firma Capital Partners III in June for a combined total of €1.3m. It was followed by a US$62.5m investment in Structured Solutions IV Primary Holdings with initial funding of US$38.4m paid at the end of the month. The transaction’s goal was to provide necessary diversification through the acquisition of a stake in a balanced portfolio of recent vintage large-cap buyout funds in Europe and North America. Finally, in October 2021, SLPET sold its interest in Equistone Partners Europe Fund VI for €18.2m while there was still €14.2m in outstanding commitments prior to the date of sale.

In H221, SLPET conducted a number of co-investments amounting to c £53m, which constitutes c 25% of all new commitments/investments (including secondaries) made in the period. This brings it closer to reaching the mid-term target of a c 20% share of co-investments in portfolio NAV. We estimate that the end-FY21 exposure could have reached 11%, which is slightly above management’s expectation of 8–10%. Having said that, we note that our estimate is based on the end-June 2021 valuation of portfolio holdings.

In June 2021, SLPET made a €4.9m co-investment in KD Pharma, the largest Omega-3 pharma producer worldwide, with 11 offices in eight countries and a portfolio consisting of more than 1,000 pharmaceutical and nutrition products. In July, SLPET completed three co-investments worth €10m each. These include Wundex (see above) and Questel, a software publisher and service provider for intellectual property, trademark law and innovation sectors as well as an undisclosed consumer health business. The following month, SLPET made a €10.5m commitment to Eurazeo Payment Luxembourg Fund SCSp, a single asset vehicle holding an investment in the global integrated payment provider Planet. It was followed by a US$10m coinvestment in Insightsoftware, a leading ‘office of the CFO’ software provider. Finally, in September 2021, SLPET made a €7.9m co-investment in Riskalyze, a US provider of risk tolerance software for financial advisors.

We note that the company has continued momentum into FY22, starting the financial year with a £4.2m co-investment in SportPursuit, a flash sale e-commerce business selling clearance stock from leading sports and outdoor brands, and €7.5m in SuanFarma, a manufacturer, CDMO and distributor of active pharmaceutical and nutraceutical ingredients, in October 2021.