abrdn Private Equity Opportunities Trust: Latest manager commentary

The last quarter has been an eventful and exciting period for the Company. Firstly, following shareholder approval at the AGM in March, it changed its name to abrdn Private Equity Opportunities (“APEO”) to align with the rebranding of the Manager. Also in March, APEO was included in the FTSE-250 index for the first time, on the back of its strong growth over the last 18 months. New investment activity has also continued at pace, particularly in relation to co-investment, which now equates to around 15% of NAV as at 31 March 2022 (5% in September 2020). Furthermore, the strong performance of the Company following the emergence of the global pandemic has continued, resulting in the NAV total return of 5.2% in the quarter to 31 December 2021.

Performance

APEO recently announced its actual NAV for the first quarter of the financial year, with 97.1% of the portfolio valuations dated 31 December 2021. The Company’s NAV increased by 4.7% to 705.2 pence per share from 673.8 pence per share at 30 September 2021. The Company’s net assets reached £1,084.2 million (30 September 2021 - £1,036.0 million) and the NAV total return (i.e. including dividends paid in the quarter) was 5.2% for the three months to 31 December 2021.
 
We view this as another exceptionally strong underlying quarterly uplift, continuing the trend that we have seen in every quarter since the pandemic-related decline in March 2020. The portfolio grew 7.7% in constant currency in the quarter to 31 December 2021 and, similar to recent quarters, the valuation movement in the period was underpinned by a number of underlying portfolio company exits, at premium valuations (typically >20% uplift on the carrying value two quarters prior). In addition, the value of the unrealised portfolio also increased, due to the resilient trading performance of the underlying companies.
 
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.

 

New investments

APEO has been especially active in the first 6 months of the financial year (to 31 March 2022), completing eight new fund commitments, nine new co-investments and one secondary. The activity to date is outlined below.

Primary Funds

Fund Commitment amount Description
Capiton VI €20.0m
European mid-market fund with a focus in Pharma, MedTech, Industrial Automation and Sustainable Consumption
Great Hill Partners VIII
$20.0m Great Hill Partners are a growth-focused private equity firm based in the United States
WindRose Health Investors VI $20.0m WindRose Health Investors are a private equity firm based in the United States, who have a focus on the healthcare sector
 PAI Europe VIII  €30.0m  Pan-European upper mid-market fund focused on Food & Consumer, Business Services, General Industrials and Healthcare
 IK Partnership Fund II  €25.0m  Pan-European mid-market fund focused on co-control and minority opportunities in Food & Consumer, Business Services, Healthcare and Financial Services.
 Hg Saturn 3   $35.0m  European buyout fund focused on software and services
 Advent International Global Private Equity X  €30.0m  Global buyout fund which focuses on attractive niches within business and financial services, healthcare, industrial, retail and technology sectors.
Undisclosed  €30.0m  Specialist healthcare fund focused on European and North American mid-market companies. 

 

Co-investments

Co-investment Commitment amount Description
SportPursuit £4.2m
Flash sale e-commerce business which sells clearance stock from leading sports and outdoor brands. The co-investment was made alongside sponsor bd-capital Partners.
SuanFarma
€7.5m Manufacturer, CDMO and distributor of active pharmaceutical and nutraceutical ingredients. The co-investment was made alongside sponsor ArchiMed SaS.
Tropicana $11.5m 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 vacation accommodation market. The co-investment was made alongside sponsor PAI Partners.
NGE €10.5m
 The leading independent player in the construction and public works sector in France. The co-investment was made alongside sponsor Montefiore Investment.
ACT €10.0m The largest specialist intermediary in the environmental certification market globally, headquartered in the Netherlands. The co-investment was made alongside sponsor Bridgepoint.
Uvesco €10.0m Leading food retail operator in the North of Spain. The co-investment was made alongside sponsor PAI.
 CFC £9.0m Tech-led insurance platform, who are a global leader and category innovator in the cyber market. The co-investment was made alongside sponsor Vitruvian Partners.

 

Secondaries

Secondary Investment amount Description
Undisclosed €6.1m
Currently undisclosed business which is a leading digital marketplace for refurbished electronic devices. The first transaction which is part of a larger secondary due to complete in 2022.  

 

We are particularly excited about the strong momentum in co-investments, which now equate to around 15% of NAV at 31 March 2022. As a reminder, co-investments were introduced to APEO’s investment objective in 2019 and bring a number of advantages, most notably greater control over portfolio construction and lower associated costs (and hence higher return potential).

Cashflows

The high level of exit activity has persisted from the second half of 2020 into 2021. This has resulted in distributions of £48.9m, excluding secondary sales, in the quarter to 31 December (quarter ended 30 September 2021 - £59.1m). We have seen numerous realisations in the portfolio over the past 3 months, including companies such as Chryso (a manufacturer of chemical products and additives used across the construction industry), Nordic Trustee (a leading provider of trustee services in the Nordic bond market) and HTL Biotechnology (a producer of specialist pharmaceutical ingredients used for numerous pharma applications).

APEO funded £85.4m of drawdowns (quarter ended 30 September 2021 - £64.6m) during the quarter to 31 December. Furthermore, the private equity funds that APEO 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 3 months following quarter end (to March 2022), there have been distributions totalling £69.8m and drawdowns of £58.2m, continuing the trend seen in the quarter to 31 December 2021.

Balance Sheet

The Company had cash and cash equivalents of £26.6m at 31 March 2022. In addition, the Company at that date had an undrawn balance of £175.6m from its £200.0m 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.

APEO actively runs an over-commitment strategy and has done so for more than 20 years. The Company had £625.0m of outstanding commitments at 31 March 2022. The Manager believes that around £46.2m of the Company’s existing outstanding commitments are unlikely to be drawn. The current level of outstanding commitments translate into an overcommitment ratio of 39.1%*, 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.

Outlook

We are delighted by APEO’s recent strong performance, particularly given the context of the global pandemic. However, we are mindful that the macroeconomic environment and financial markets have changed materially in 2022, with higher inflation, interest rates and the conflict in Ukraine creating a higher degree of uncertainty. We see a tougher quarter coming up for both the private equity industry and APEO, given how listed equity markets performed in the 3 months to 31 March 2022. Whilst the underlying APEO portfolio continues to perform well both in terms of revenue and earnings growth, we are mindful many managers use public comparators to some extent when valuing their portfolio companies and so there will be some headwinds relating to valuation.

We do take comfort in the quality of the managers we partner with in APEO, the diversification of the underlying portfolio and the Company’s strong balance sheet. More generally, the governance model of private equity, with majority control and active ownership, provides the opportunity for hands-on value creation and decisions to be taken more efficiently and effectively in response to changing market circumstances. In terms of new investment, private equity thrives on opportunities that arise during periods of market turbulence. For these reasons, we remain confident in APEO’s ability to successfully navigate a more difficult environment in 2022 and beyond.

Calculated as: (Outstanding commitment - undrawn debt facility and cash balance) / Portfolio NAV