abrdn Private Equity Opportunities Trust: Latest manager commentary

APEO released its interim results on 30th June, with the portfolio showing resilient performance in the first six months of the financial year, in spite of headwinds in the broader financial markets and the uncertain global economic backdrop. APEO’s long-term strategy of partnering with a core relationship group of top performing private equity firms, focusing on underlying businesses in the mid-market (enterprise values between £100.0 million and £1.0 billion) and targeting diversification across a range of resilient sectors continues to position the Company well. This has been reflected in continued strong trading in the underlying portfolio and robust realisation activity, helping APEO to deliver a NAV Total Return (‘NAV TR’) of 6.8% during the period, by comparison the FTSE All-Share rose by 4.7%.

The underlying portfolio continues to see numerous success stories across a range of sectors and the average earnings growth over the last twelve months to 31 March 2022 was 25%, helping to underpin valuation growth during the period. Furthermore, a number of exits at above prior carrying values helped drive an uplift in valuation during the six months to 31 March 2021. Notable exits include General Life (European fertility clinic group), Sbanken (Norwegian online bank) and Vizrt (global producer of software for live video production). Portfolio company realisations during the first six months of the financial year were at a 16.1% premium to the valuation two quarters prior.

However, the part of the portfolio that has seen valuation pressure is the publicly listed company exposures. As a reminder, APEO is not a long-term holder of listed shares but has seen strong IPO activity in the portfolio in the last 18 months, with successful listings including Moonpig (UK-based online gifting business), Dr Martens (leading consumer footwear brand) and Inpost (self-service lockers for ecommerce consumers). Listed companies equated to 12.4% of the portfolio at the beginning of the financial year and this cohort of businesses declined in aggregate by 22.1% in the six months to 31 March 2022. Therefore, listed companies now equate to 8.5% of the portfolio and therefore will be a less meaningful part of the Company’s portfolio in the second half of the
financial year.

The conflict in Ukraine and the second order effects around inflation, monetary policy and global economic growth have so far had a minimal direct impact on the Company. APEO has no Russian, Belarussian or Ukrainian headquartered businesses in its portfolio of 617 separate underlying companies. In addition, following discussion with the private equity managers in the Company’s portfolio, we estimate that revenues from these countries account for less than 1% of aggregate underlying portfolio company revenues. That said, the Manager is fully expecting an indirect impact on the portfolio to materialise in the second half of the year through the elevated inflation and interest rates, and lower global economic growth, which will impact upon the revenue growth and margins of many underlying businesses.

On the new investment side, APEO closed nine new co-investments and a new secondary investment during the period. Activity focused on businesses that have strong growth potential, market leading positions and resilient business models. The Company also committed to eight new primary funds that are led and managed by private equity firms with long established relationships with abrdn. These new fund commitments are aligned with our long-term strategy of backing private equity firms that have a mid-market orientation and have proven expertise within one or more specified sectors.

In terms of cashflows, the aforementioned exit activity has helped drive strong distributions in the period. Distributions received for the six months to 31 March 2022 were £120.6 million. This strong exit activity is continuing the trend seen in the prior financial year, when the £198.7 million of distributions received in the year to 30 September 2021 was the highest annual total for APEO since its inception in 2001. Furthermore, APEO completed the sales of two fund positions, contributing a further £15.7 million in proceeds and meaning that the Company received an aggregate total of £136.3 million in the six months to 31 March 2022.

Whilst the Manager has focused on reinvesting distributions into new investment opportunities during the period, the balance sheet remains in a strong position with £26.6 million of cash and £175.6 million remaining on its £200.0 million revolving credit facility providing APEO with ample firepower for new investments in the months and years ahead.

Further information on the performance of APEO in the first half of 2022 can be found in the Company’s interim accounts. A summary of the interim accounts is available in latest Regulatory News Service (RNS) announcements section of the website and detailed accounts shortly available in the Literature Library section.

 
Discrete performance (%)
Year ending 31 Mar 22 31 Mar 21 31 Mar 20 31 Mar 19  31 Mar 18
Share price 22.4 78.8 (24.7) 12.7  10.8
NAV 27.1 37.2 3.0 12.7  9.2
FTSE All-Share Index 13.0 26.7 (18.5) 6.4  1.2
Past performance is not a guide to future results.