Latest manager commentary
An update from investment manager, Alan Gauld
22 April 2021
Portfolio valuations at December continued their strong recovery from the coronavirus-related declines seen at March 2020. The portfolio value increased 13.3% on a constant currency basis during the quarter to 31 December (11.7% including FX movements). This was largely driven by resilient performance in underlying portfolio company earnings and a number of exits in the portfolio. Combined with the June and September quarters, the portfolio has now grown 36.8% in the nine months to 31 December 2020, a strong performance given the context of the global pandemic.
Discrete performance (%)
|FTSE All-Share Index||(9.8)||19.2||(9.5)||13.1||16.8|
Past performance is not a guide to future results.
The strong exit activity seen in the previous quarter has continued and increased during the December quarter and into 2021. Due to the demand for quality private equity-backed assets, we have seen strong IPO activity across the trust’s portfolio, with a number of underlying investments successfully listing on the public market in recent months. These include Moonpig (UK-based online gifting business, 1.2% of portfolio value1) and Dr Martens (leading consumer footwear brand, 1.1% of portfolio value1). In addition, the Swedish payments business Trustly (0.8% of portfolio value1) recently announced its plans to IPO later this year.
As well as exit activity in the public market, we have also seen a number of sale agreements announced over the past months, including portfolio companies such as Questel (IK VIII), Elsan (CVC V), Surfaces (Astorg VI) and Colisee (IK VIII). Taken together, distributions received for the first 6 months of the financial year were £92.7m, including £47.0m received from the portfolio during the latest quarter to 31 March 2021. 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.
The Company made a number of new investments during the first 6 months of FY21. Firstly, SLPET made new primary commitments into Triton Smaller Mid-Cap II (€25.0m), PAI Mid-Market I (€25.0m) and IK Small Cap III (€25.0m). These are fund strategies focused on the European lower mid-market alongside existing core managers with whom we have a long-term relationship. In terms of secondaries, the Company completed a transaction in April, acquiring original commitments of €3.0 million and €8.0 million 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.
SLPET has been active on the co-investment side, completing three transactions so far in FY21. It made a €9.9m co-investment into North American Science Associates, Inc. (NAMSA), a clinical research organisation specialised in providing services to medical device companies. The co-investment was made alongside ArchiMed, NAMSA’s lead investor. The Company also made a €9.0m co-investment into Funecap, a vertically integrated funeral services and crematoria provider headquartered in France. The co-investment was made alongside sponsor Latour Capital. Finally, it completed a €8.5m co-investment through the Nordic Capital WH1 Beta vehicle, into a company in the technology space which cannot yet be named (due to confidentiality restrictions).
The underlying portfolio has remained resilient during the global pandemic and has performed strongly. It consists of 456 private companies as at 30 September 2020, largely within the European mid-market and spread across different countries, sectors and vintages. At 30 September 2020, only 7 companies equated to more than 1% of the portfolio1, with the largest single underlying company exposure being 3.5% (Action). We have conducted a detailed analysis of the top 100 companies by value (equating to 57.2% of portfolio value1 at September 2020). Assessment of the companies is based on guidance from the private equity managers in addition to analysis conducted by Aberdeen Standard Investments:
|Category||% of Portfolio value1||Limited impact||Moderate impact||High impact|
|Top 10 companies||13.7%||90.0%||10.0%||0.0%|
|Top 50 companies||39.7%||74.0%||26.0%||0.0%|
|Top 100 companies||57.2%||72.0%||26.0%||2.0%|
- Limited impact – minimal short-term negative impact, neutral impact or even improving business trends and tailwinds;
- Moderate impact – some temporary trading and profitability impact in 2020 and possibly into 2021, however the investment thesis remains and the business is not expected to have covenant or liquidity issues;
- High impact – business disrupted materially and will likely face covenant or liquidity issues in 2020.
The findings from the analysis are reassuring and illustrate why we have confidence in the portfolio’s ability to weather continued uncertainty. 98 of the top 100 companies are expected to see only a limited or a moderate / temporary impact (which equates to c. 57% of SLPET portfolio value1). None of the top 10 companies by value are expected to see high or permanent impact from the crisis.
At 31 March 2021, the Company had cash and cash equivalents of £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.
SLPET actively runs an over-commitment strategy and has done so since its inception in 2001. The Company had total outstanding commitments of £463.9m as at 31 March 2021, with an overcommitment ratio of 25.1%2 , below the long-term target range of 30-75%. The Manager believes that around £46.6 million of the Company’s outstanding commitments are unlikely to be drawn. We feel that c. £262.5m of resources covering c. £417.3m of net outstanding commitments is prudent, given that the majority of cash calls from private equity funds are typically spread over 3-5 years.
SLPET has so far weathered the global pandemic and we are encouraged by the strong performance of the Company’s underlying portfolio in recent months. We are pleased with recent new investment activity, particularly around co-investments. The Company’s balance sheet is robust and, with investment pipeline further building, we feel that SLPET is well positioned to take advantage of opportunities across the remainder of 2021 and beyond.
1 At 30 September 2020, gross portfolio value before fees, expense and carried interest
2 Based on estimated NAV as at 31 March 2021
Companies selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.
- The value of investments and the income from them can fall and investors may get back less than the amount invested.
- Past performance is not a guide to future results.
- Investment in the Company may not be appropriate for investors who plan to withdraw their money within 5 years.
- The Company may borrow to finance further investment (gearing). The use of gearing is likely to lead to volatility in the Net Asset Value (NAV) meaning that any movement in the value of the company’s assets will result in a magnified movement in the NAV.
- The Company may accumulate investment positions which represent more than normal trading volumes which may make it difficult to realise investments and may lead to volatility in the market price of the Company’s shares.
- The Company may charge expenses to capital which may erode the capital value of the investment.
- There is no guarantee that the market price of the Company’s shares will fully reflect their underlying Net Asset Value.
- As with all stock exchange investments the value of the Company’s shares purchased will immediately fall by the difference between the buying and selling prices, the bid-offer spread. If trading volumes fall, the bid-offer spread can widen.
- Yields are estimated figures and may fluctuate, there are no guarantees that future dividends will match or exceed historic dividends and certain investors may be subject to further tax on dividends.
- Certain trusts treat the generation of income as a higher priority than capital growth; such trusts may deduct part or all of their management charge from capital. This will increase the amount of income available but at the expense of capital growth.
- Investing globally can bring additional returns and diversify risk. However, currency exchange rate fluctuations may have a positive or negative impact on the value of your investment.
- Specialist trusts which invest in small markets or sectors of industry are likely to be more volatile than more diversified trusts.
- The Company’s investments may include unquoted and/or private equity investments which are not publicly traded or freely marketable and may therefore prove difficult to redeem. In addition, the potential volatility of investments in unquoted securities may increase the risk to the value of the investment.
Other important information:
Issued by Aberdeen Asset Managers Limited which is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Registered Office: 10 Queen’s Terrace, Aberdeen AB10 1XL. Registered in Scotland No. 108419. An investment trust should be considered only as part of a balanced portfolio. Under no circumstances should this information be considered as an offer or solicitation to deal in investments. You should obtain specific professional advice before making any investment decision.