Latest manager commentary
An update from investment manager, Alan Gauld
29 September 2021
During the quarter to 30 June, SLPET’s portfolio value increased 12.2% on a constant currency basis (12.9% including FX movements). This resulted in NAV of 630.6p (31 March: 568.4p) and net assets of £969.5m at 30 June (31 March: £873.9m). We view this as an exceptionally strong quarter, continuing the trend that we have seen since the pandemic-related decline in March 2020.
|Year ending||30 June 21||30 June 20||30 June 19||30 June 18||30 June 17|
|FTSE All-Share Index||21.5%||-13.0%||0.6%||9.0%||18.1%|
Past performance is not a guide to future results.
The quarterly valuation movement was driven by a number of underlying portfolio company exits, at premium valuations. For example, the average valuation uplift upon exit during the quarter was 29.3%. In addition, the value of the unrealised portfolio also increased, due to the resilient trading performance of the underlying companies and a general increase in valuation multiples (due to an uplift in listed market comparables in the quarter).
This means that, in the first nine months of FY21, the portfolio grew 37.0% in constant currency (31.3% including FX movements). Furthermore, in the last twelve months, the portfolio has grown 48.2% in constant currency (41.7% including FX movements), a strong performance in the context of the global pandemic.
The high level of exit activity has persisted from the second half of 2020 into 2021. This has resulted in distributions of £45.4m in the quarter to 30 June (quarter ended 31 March 2021 - £47.5m). We have seen numerous realisations in the portfolio over the past 3 months, including companies such as Itiviti (a provider of electronic trading solutions to financial institutions), Oikos (a leading provider of pre-fabricated housing) and iad (Europe’s leading digital real estate broker).
Taken together, distributions received for the first 9 months of the financial year were £138.5m. This strong exit activity is continuing the trend seen in the last financial year, when the £140.7m of distributions received in the year to 30 September was the second highest annual total for SLPET since its inception in 2001.
SLPET funded £30.2m of drawdowns (quarter ended 31 March 2021 - £18.5m) and paid £7.2m for secondary purchases (quarter ended 31 March 2021 – £nil) into the portfolio during the quarter to 30 June. The amount that SLPET has held on underlying fund credit facilities is calculated in March and September. At 31 March 2021 that figure was £66.2m. SLPET’s underlying funds have been active in making new investments so far in 2021 and so we expect the pace of drawdowns to continue to increase in the coming months.
SLPET has been active on the investment front during 2021. In the 9 months to 30 June 2021, SLPET had committed £140.3m to six new primary funds. Furthermore, SLPET has committed to another two funds following period end (to 31 August 2021) increasing the YTD total to £175.7m. The focus has been on primary funds that can provide exposure to the lower-mid market buyout, growth and/or deep sector specialism. SLPET has increased its lower mid-market exposure by making commitments into Triton Smaller Mid-Cap II (€25m), PAI Mid-Market I (€25m), IK Small Cap III (€25m) and Nordic Capital Evolution Fund I (€30m). It increased its growth exposure by committing to Permira Growth Opportunities 2 ($35m) and Advent Technology Fund II ($31.5m). The latter two funds also provided specialist exposure to the Technology sector, whereas the most recent commitments to ArchiMed III (€15m) and Excellere IV ($35m) bring a Healthcare sector focus. All of these commitments were alongside core managers with whom the Manager has a long-term relationship.
SLPET has been especially active on the co-investment side, completing four transactions totalling £28.3m in the 9 months to 30 June 2021. Furthermore, SLPET made another five co-investments totalling £41.9m following period end (to 31 August 2021). The activity to date is outlined below:
- North American Science Associates, Inc. (€9.9m invested) - Clinical research organisation specialised in providing services to medical device companies. The co-investment was made alongside ArchiMed, NAMSA’s lead investor.
- Funecap (€9.0m) - Vertically integrated funeral services and crematoria provider headquartered in France. The co-investment was made alongside sponsor Latour Capital.
- Boost.ai (€8.5m) - Global leader in conversational AI for Fortune 1000 companies. The co-investment was made alongside Nordic Capital, the company’s lead partner.
- KD Pharma (€4.9m) - Specialised manufacturer of highly purified Omega-3 fatty acids used as ingredients in the pharmaceuticals and nutraceuticals industries. The co-investment was made alongside sponsor capiton AG.
- Wundex (€10.0m) - Leading German wound care management business which was made alongside sponsor capiton AG.
- Questel (€10.0m) - Global player in the IP software and services market which was made alongside sponsor IK Investment Partners.
- Eurazeo Payment Luxembourg Fund SCSp (€10.5m) - a vehicle that will invest into Planet, a global integrated payments company, alongside sponsor Eurazeo.
- Insightsoftware ($10.0m) - Leading “office of the CFO” software provider. The co-investment was made alongside sponsor Hg.
Currently undisclosed consumer health business (€10.0m) - The co-investment was made alongside sponsor ArchiMed. In terms of secondaries, the Company completed a transaction in April 2021, acquiring original commitments of €3.0m and €8.0m to Capiton IV and Capiton V, respectively. Caption is a manager focused on the DACH lower mid-market and, whilst a new relationship for SLPET, is a manager we have known for over a decade.
The pipeline is robust right now, particularly in primary funds and co-investments. Therefore we expect SLPET to be active in terms of new investments in the remainder of its financial year and into the first quarter of FY22.
The underlying portfolio has remained resolute during the global pandemic and has shown resilient trading performance. The portfolio saw average LTM revenue and EBITDA growth of 2.1% and 6.6% respectively (at 31 March 2021), despite this incorporating a full twelve months of the global pandemic and several periods of lockdown. The portfolio consists of 552 private companies, largely within the European mid-market and spread across different countries, sectors and vintages. At 30 June 2021, only 6 companies equated to or more than 1% of the portfolio, with the largest single underlying company exposure being 3.5% (Action). The top ten underlying companies at 30 June are:
|Company||Description of the business||% Portfolio value1|
|Action||Non-food discount retailer||3.5%|
|Trustly||Online payments provider||1.3%|
|R1 RCM||Revenue cycle management for hospitals and health systems||1.3%|
|Visma||Financial accounting software and services||1.1%|
|Photobox.com||Online gifting and photograph printing services||1.1%|
|Dr. Martens||Global footwear brand||1.0%|
|Calypso||Capital markets software developer||1.0%|
|Allegro||Online marketplace in Poland||0.9%|
|InfoPro Digital||B2B multi-media products and solutions||0.9%|
|Benvic||Specialty PVC-based chemicals provider||0.9%|
In terms of broader portfolio construction, SLPET remains well diversified and balanced. Information Technology (20% of the portfolio) and Healthcare (19%) remain the largest sector exposures at 30 June 2021. This is due to our preference for investment strategies in these areas and we expect that both sectors will continue to grow as a proportion of the portfolio. Industrials (17%), Consumer Discretionary (15%), Financials (11%) and Consumer Staples (11%) make up the bulk of the remaining exposure. The geographic exposure remains concentrated in Northwest Europe, with Nordics (19% of the portfolio) and UK (18%) the largest exposures at 30 June 2021. North America (15%), France (14%), Germany (12%) and Benelux (9%) make up most of the remaining exposure.
Since the emergence of global pandemic, we have conducted a quarterly Covid-19 impact analysis of the top 100 companies by value (equating to 64.1% of portfolio value2). Assessment of the companies is based on guidance from the private equity managers in addition to analysis conducted by Aberdeen Standard Investments.
We estimate that only two companies (combined <1% of NAV) of the top 100 have been materially disrupted by the global pandemic. One is a Travel & Leisure business and the other operates in the Industrial sector. None of the top 50 companies by value are expected to see high or permanent impact from Covid-19 and several have been beneficiaries.
The Company had cash and cash equivalents of £70.1m at 30 June 2021 (31 March 2021: £62.5m). The Company has an undrawn £200m syndicated revolving credit facility, provided by Citi, Societe Generale and State Street Bank International that expires in December 2024. We do anticipate that the cash balance will reduce over the coming months as the current strong pipeline converts into new investments.
SLPET actively runs an over-commitment strategy and has done so for more than 20 years. The Company had total outstanding commitments of £517.1m as at 30 June 2021 and the Manager believes that around £49.1m of the Company’s outstanding commitments are unlikely to be drawn. The current level of outstanding commitments translate into an overcommitment ratio of 27.5%3, below the long-term target range of 30-75%. We anticipate that the overcommitment ratio will increase in the coming months due to new investment activity and expected higher drawdowns.
We are delighted by SLPET’s recent strong performance, particularly given the context of the global pandemic. We are pleased with recent investment activity, particularly around co-investments. The Company’s balance sheet is in a relatively strong position and, with a healthy investment pipeline, we feel that SLPET is well positioned to take advantage of opportunities across the remainder of 2021 and beyond.1Gross underlying portfolio value before fees, expense and carried interest 2 Portfolio value as at 31 March 2021
3 Calculated as: (Outstanding commitment - undrawn debt facility and cash balance) / Portfolio NAV