PE1 - Pengana Private Equity Trust

[System]

The Pengana Private Equity Trust will provide investors with exposure to a diversified portfolio of private equity with a select allocation to private credit and opportunistic investments.

Grosvenor Capital Management, L.P. (GCM) is the investment manager of the Trust.

In seeking to achieve the Trust's investment objective, GCM will construct a customised portfolio consisting of investments in Private Investment Funds made on a Primary basis (i.e., an interest in a newly established Private Investment Fund offered by the operator of the Private Investment Fund) or on a Secondary basis (i.e., an interest in an existing Private Investment Fund purchased from an existing third party investor in the Private Investment Fund), as well as Co-investments and direct investments.

The Trust may invest either directly or indirectly through investments in one or more GCM Funds, or vehicles managed by third-party investment managers.

It is anticipated that PE1 will list on the ASX during April 2019.

https://www.pengana.com/pe1/

 

[Dona Ferentes]

This ASX listed fund is trying to get a 2 for 1 offer, at $1.37 a share, up and running. I suspect, even with bells and whistles and loyalty bonus shares, it will not raise anything like it's hoped for target. Covid-19 isn't helping. Market Cap is about $200 mill, they raised $168m @$1.25 at float a year ago, but have always stated they could handle 500+.

But then, with only 30% of early capital deployed, it's a bit awkward to take fees of 1+% for managing cash.

A competitor in the space, a Geneva based manager that counts Hostplus as an investor reckons the current volatility works in their favour, patient capital and all that.

David Arcauz, managing partner at $11 billion global private equity manager Flextone Partners, says private equity investors have a crucial buffer that other investors don't enjoy.

"They have the luxury of time to work with the assets," he says. "The Darwinism in our industry is pretty slow."

The coronavirus outbreak could well throw up bargains for PE firms. The co-founder of US giant Blackstone, Stephen Schwarzman, certainly thinks so. "From an economic perspective, the virus has created dislocation in the market and fear among the people, and once that starts one has to find the impact of negative consequences," he said this week. "It creates a substantial opportunity to buy assets and give credit."

Any moderation in asset prices would be welcomed by Arcauz, who says there's been a "scary" shift in risk-taking in the industry in recent years.

It's not just rising valuations that worry him. The wall of money entering the sector in search of yield has also seen PE managers executive big raisings that have, in the case of the smaller managers he works with, tripled their fund sizes. That can't help but create what Arcauz describes as "strategic drift" when a manager used to buying companies worth $200 million is suddenly buying companies worth $1 billion.

.

 

[Dona Ferentes]

PE1 called off the 2 new for every 1 @ $1.37 raise today, and what do you get, a 10% lift. Back to being boring and sub-optimal (for Pengana)

 

[Dona Ferentes]

Launching a 1 for 3 entitlement offer set at $1.2481, which is the net asset value (NAV) per unit of $1.2606 as at the end of May 2020 less the upcoming distribution of 1.25 cents per unit.

On 10 June, PE1 closed on the ASX with a unit price of $1.545.

 

[Dona Ferentes]

To my surprise

The PE1 pro-rata non-renounceable rights issue closed on 6 July 2020 with demand exceeding the $68 million offer amount, subject to final settlement of proceeds. Significantly, the unit price of the Trust traded at a premium to its net asset value per unit throughout the offer period. This ... further indicates the support PE1 enjoys from both existing and new investors.

(hold; topped up)

 

[Dona Ferentes]

On 14 Sept 2021, when the SP was $1.30 after tracking along under that level for quite a while, and consistently below the NTA that is announced on a monthly basis

The Board of Pengana Capital Group Limited (ASX: PCG) wishes to advise that, commencing immediately, it intends from time to time to make on market purchases of units in the Pengana Private Equity Trust (ASX: PE1). PCG considers the Units to be a particularly attractive investment, reflecting the Board’s confidence in the prospects for strong returns in PE1’s underlying portfolio.

.... and now it is close to $1.70 . (And at 30 Nov the announced NAV was $1.55). The board has rescinded the on market purchase ... <and the wording was clumsy>.

More interesting was the commentary, with the fund returning returning+9.3% in November with over half of the positive performance being generated by private equity valuation increases (including from co-investments, secondaries, and primary funds), and the remaining gains coming from the fall in the AUD:USD exchange rate.

It's a Private Equity LIC, focusing on the deepest market in the world, the USA , through the private equity and alternative asset management firm, Grosvenor Capital Management. The claim is there is access to early stage companies that generally available only to the institutional private equity investor, a venture capital firm or a big family office . Exposure comes at a cost, a 2 and 20 outfit. Some may balk at this. They talk about recent investments in the monthly update , buying into various and diverse opportunities at the early stage and mostly pre-IPO. In fact, there seems to be a determined policy to exit at IPO, for as much as they can as some early dollars are coaught in escrow, usually for a year or 2.

There is an AFR article on the recent plays, including Nubank, a Brasilian fintech (growing at 2 million customers a month). Grosvenor
manages $US70 billion on behalf of institutional clients, and saw the chance to to get some exposure to Australia. But it was also attracted by the fact that decades-old US regulations prevented the creation of listed vehicles that invested in private equity. As such, the Australian market has provided something of a test case for Grosvenor, which is the manager of PE1.

Deploying capital in the private equity market obviously takes longer than in public equity markets, and [Pengana CEO] Pillemer says PE1 is starting to flourish now that 80 per cent of its capital is deployed.

Buffett enjoys a good win but Aussie LIC shows better timing

The ASX-listed LIC Pengana Private Equity Trust is grabbing small slices of some of the hottest tech companies in the world, before they go public.

www.afr.com

There are some wrinkles with PE1 that LIC investors do not typically deal with.

One is that monthly updates can be somewhat meaningless, as private companies tend to provide investors with a valuation every quarter, and these are typically only reset when a capital raising round takes place. This means there is a lag before the gains from some of PE1’s investments can be recognised.

The other issue is that the fees PE1 pays for the management of the LIC are higher than in other LICs – the private equity industry’s traditional two-and-20 fee model (2 per cent management fee, 20 per cent performance fee) also extends to PE1, although Pillemer says co-investments (where Grosvenor is brought into a deal by another PE firm or investor) tend to come with lower fees, often more like 1-and-10.

 

[Dona Ferentes]

a 1-for-5 Entitlement Offer is .... available to all eligible unitholders in PE1. Closes 31 March

Unitholders are also invited to subscribe for additional new units in PE1 under a shortfall facility that may become available if the rights issue is not fully subscribed by other unitholders.

The offer price will be set at $1.54, which is the net asset value (NAV) per unit of $1.5348 as at the end of February 2022 (rounded to comply with ASX requirements).

“What is happening in Russia has exacerbated the volatility in markets. This bodes well for private equity firms. We have the capital available to take advantage of opportunities as they arise.” “You need to be able to move fast in the market to secure the opportunities you are presented with,” CEO Russel Pillemer said. “If you are not ready to deploy capital quickly you miss out on those deals... "

 

[Dona Ferentes]

doing the rounds

This morning the Australian Financial Review published an article regarding PE1’s potential interest in acquiring the four Cordish Dixon private equity funds (“CD Funds”) by way of trust schemes.

In response to this article, we issued a release to the ASX this morning clarifying our position.​

The essence of this release is that late last year we identified a potential opportunity to acquire the CD Funds in a (stock-for-stock) deal that has the potential to provide material upside to PE1 unitholders. We made an approach to the Responsible Entity of the CD Funds who initially welcomed our interest. However, after submitting two proposals, they rejected both and did not engage any further. ​

We are therefore no longer involved in such discussions. However, we continue to believe the proposal has significant upside potential for PE1 unitholders, and would also provide compelling value to the CDS unitholders. We therefore remain open to re-engaging should the opportunity arise.​

Importantly, we note that we would only contemplate making proposals that have significant upside for PE1 unitholders, including meaningful accretion in net asset value (NAV) per unit.​

 

[Dona Ferentes]

PE1 has no direct exposure to SVB, and any indirect exposure is likely to be immaterial.

A key reason for this outcome is that PE1 does not make venture capital investments, focusing instead on middle market investments.

With exposure to over 550 underlying companies PE1 may have some indirect underlying exposure to SVB. However, it is our belief that any indirect exposure to SVB coming from PE1’s portfolio investments, regardless of the ultimate level of recovery on uninsured deposits, is immaterial to the NAV of PE1.

 

[Dona Ferentes]

market cap is now $450M, and closing on the stated aim of 500.

Cash now is at 11 per cent, and there has been a steady flow of investments into PE with the occasional maturity redemption cash-off-table events.

.
And trading close to NTA...1.62 v 1.64

 

[Dona Ferentes]

i don't understand the price action.

the SP is now close to the stated NTA... a dividend of 3c declared and now -ex didn't seem to affect trade, but every so often there are runs and dumps.