Latest manager commentary
An update from investment manager, Alan Gauld
15 December 2021
SLPET has announced its estimated NAV for 30 November 2021, with 96.8% of the portfolio valuations, excluding new investments dated 30 September 2021. This is an update on the previous estimate NAV announcement of 31 October 2021, where 100% of underlying portfolio valuations were dated 30 June 2021.
At November SLPET's estimated NAV was 665.3 pence per share (estimated net assets £1,022.9m), representing a 8.5% per share increase from the estimated NAV at 31 October 2021 of 613.0 pence per share (estimated net assets £942.5m). The 52.3 pence increase in NAV per share reflected gains arising primarily from a 8.0% uplift in the valuation of investments as at 30 September 2021, in addition to a 0.8% appreciation in the euro versus sterling during November.
We view this as another strong underlying quarterly uplift, continuing the trend that we have seen in every quarter since the pandemic-related decline in March 2020. Furthermore, it means that SLPET has exceeded £1bn in net assets for the first time in its 20 year history, a significant milestone.
|Year ending||30 Nov 21|
|FTSE All-Share Index||17.4%||-10.3%||11.0%||-1.5%||13.4%|
Past performance is not a guide to future results.
Similar to recent quarters, the valuation movement in the period was underpinned by a number of underlying portfolio company exits, at premium valuations. For example, the average valuation uplift upon exit during the last three months was 17.5%. 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 last twelve months, the portfolio has grown 47.4% in constant currency (41.7% including FX movements). This is the highest annual growth that the Company has seen in its 20 year history. As Manager, we are delighted by the recent performance by SLPET and look forward to providing further detail in the Company’s 2021 annual report, which will be released in January 2022.
The high level of exit activity has persisted from the second half of 2020 into 2021. This has resulted in distributions of £59.1m in the quarter to 30 September (quarter ended 30 June 2021 - £45.4m). We have seen numerous realisations in the portfolio over the past 3 months, including companies such as Calypso (a provider of software applications to banks and other financial institutions), Culligan (a leading water treatment solutions company) and Laird (a UK electronics and connectivity solutions provider).
SLPET funded £64.6m of drawdowns (quarter ended 30 June 2021 - £30.2m) during the quarter to 30 September. In addition, the Company also funded £28.1m in secondary acquisitions (quarter ended 30 June 2021 - £7.2m). Furthermore, the private equity funds that SLPET invests into also run credit facilities to help finance new investments in the interim before drawing the capital from investors. We estimate that the Company had around £58.7m held on underlying fund credit facilities at 30 September 2021 (30 September 2020: £46.9m), and we expect that this will all be drawn over the next 12 months.
In the 2 months following quarter end (to November 2021), there have been distributions and secondary sales proceeds totalling £49.2m and drawdowns of £46.8m, continuing the trend seen in the quarter to 30 September 2021.
SLPET has been active on the investment front during 2021. In the 12 months to 30 September 2021, SLPET had committed £175.7.m to eight new primary funds. 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 private equity firms with whom the Manager has a long-term relationship.
SLPET has been especially active on the co-investment side, completing ten transactions totalling £76.9m in the 12 months to 30 September 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.
This strong co-investment activity has continued post-September, with £40.3m committed to a further 6 co-investments, namely:
- Sport Pursuit (£4.2m) - Flash sale e-commerce business which sells clearance stock from leading sports and outdoor brands, alongside sponsor bd-capital Partners.
- SuanFarma (€7.5m) - Manufacturer, CDMO and distributor of active pharmaceutical and nutraceutical ingredients, alongside sponsor ArchiMed SaS.
- Bengal Co-Invest SCSp ($11.5m) - a vehicle which invests in a portfolio of well-known beverage brands, including Tropicana and Naked. The co-investment was made alongside sponsor PAI Partners
- CDL Nuclear Technologies ($7.0m) - Provider of turnkey cardiac PET / PET-CT imaging technology solutions and radioisotope delivery to independent cardiology practices and hospitals in the US. The co-investment was made alongside sponsor Excellere Partners.
- European Camping Group (€8.0m) - European leader in the premium outdoor accommodation market alongside sponsor PAI Partners.
- NGE (€10.5m) - Leading independent player in the construction and public works sector in France, alongside sponsor Montefiore Investment.
As such, co-investment now equates to 12.2% of portfolio NAV at 30 November 20211 and is likely to continue to grow as a proportion of the portfolio as we look ahead. As we have noted in the past, co-investment brings the benefit of greater portfolio management and cash control, as well as lower underlying investment costs. The latter point means that co-investment has the potential to act an additional tailwind to the Company’s performance in the years ahead.
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. In September it completed a £45.1m secondary in a large, diversified portfolio of funds (Structured Solutions IV).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 months ahead.
The Company had cash and cash equivalents of £24.7m at 30 November 2021. In addition, the Company at that date had 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 £569.8m of outstanding commitments at 30 November 2021. The Manager believes that around £48.2m of the Company’s existing outstanding commitments are unlikely to be drawn. The current level of outstanding commitments translate into an overcommitment ratio of 33.7%2, at the lower end of the long-term target range of 30-75%. We anticipate that the overcommitment ratio may further increase in the coming months due to new investment activity and expected 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.
1Valuations based on a cash roll forward from the last available valuation date or initial funding paid.
2 Calculated as: (Outstanding commitment - undrawn debt facility and cash balance) / Portfolio NAV