Listed private equity trust PE1 announces 26.7% return for FY22

The Pengana Private Equity Trust (ASX: PE1) has reported that it is ahead of its investment schedule, and is branching out into some private debt investments.

Pengana CEO, Russel Pillemer, said PE1 has built out its capital more than one year ahead of schedule. “We started the financial year with 68% of capital deployed across private markets investments, and rapidly built out our investments across all verticals, reaching 90% invested by the end of January 2022.”

Market conditions also provided PE1 with good opportunities for private debt exposure. “The third quarter began with a worsening global outlook and presented the Trust with a unique opportunity to offer structured solutions to high quality, growth-oriented companies that require continued financing. 

“Such deals have the potential to be conservatively structured, and to include strong downside protection and significant upside participation. In order to take advantage of these opportunities, PE1 undertook an entitlement offer raising $58 million. 

“This highly flexible pool of capital is envisaged to be tactically deployed into discrete pockets of near-term opportunity with the potential to enhance PE1’s overall returns.”

The PE1 portfolio is now exposed to over 400 underlying companies and expects this to reach more than 500 as existing commitments are called. 

The Trust generated a net return of 26.7% for the year to 30 June 2022. Since inception in 2019 it has delivered a 13.4% net return per annum.

During the financial year, PE1 resolved to target a cash distribution yield equal to 4% of the NAV, paid semi-annually: PE1’s distribution has increased with the rising NAV, delivering a total of 6.36 cents per unit paid out over the financial year (up from 5.00 cents per unit the prior year).

Investment returns were driven primarily by co-investments and direct investments initiated in prior years across a disparate range of industries including:

• A fully realised co-investment in Alion Science and Technology, a leading provider of high-end research and development capabilities to the US government, generating a 2.48x multiple on invested capital and a 34.5% gross IRR,
• Spice World, the largest US supplier of fresh and processed garlic, benefitting from increased at-home food consumption and several capex projects focused on labour efficiency and lowering costs. A debt recapitalisation resulted in total since inception distributions equal to 52% of invested capital,
• A dividend recapitalisation in RELAM, the US’ largest railroad maintenance-of-way equipment leasing company, resulting in the receipt of 78% of invested capital in just over a year,
• An investment in both the private equity and convertible security of Rivian, a pure-play electric vehicle company, the latter of which entitled us to additional IPO shares – these were sold shortly after the initial purchase resulting in a substantial profit on the shares after holding them for only a few days,
• PSA International, a leading global port group, acquiring 100% of the shares in BDP, an asset-light and outsourced global logistics solution provider and 2018 co-investment,
• BlueTriton, a leading North American provider of several longstanding bottled water brands, successfully executing a number of key revenue growth and operational initiatives. The resulting dividend recapitalisation led to a distribution of 71% of invested capital in less than a year,
• A capital raising by Bolt, a leading rideshare provider in Europe and Africa, at a significant premium following strong results from its strategy of offering discounted prices to gain and maintain its leading market share, and
• PE1’s largest position in Gainwell Technologies, a leading health and human services program provider of technology and analytics solutions in the US, generating strong early returns following the establishment of key standalone platforms, strong operational performance, and the strategic acquisition of Medicaid and managed-care-market capabilities.
• The year also saw outsized gains from the buildout of secondary deals completed at the end of the previous financial year, most notably Project Rambler, which gave PE1 exposure to 35 underlying funds and approximately 100 underlying portfolio companies at a significant discount. Performance was driven by significant accretive distribution activity coupled with modest write-ups in the portfolio.

Mr Pillemer said private equity faces some headwinds due to the current global downturn. However, the same headwinds are creating investment opportunities to buy companies at more attractive valuations. “The Trust has already reduced the valuations of a number of high-growth companies during April 2022, and has recognised further declines of some assets as part of the year-end audit process.

“Recent history has shown that while private equity has outperformed listed equity across all stages of the economic cycle, this effect is magnified during and immediately following recessionary periods.

“Historically, private equity firms with capital to deploy are able to buy distressed and/or undervalued assets at attractive prices.”