Directors Q&A

“Growth is the only way to create
long-term value"

Q&A with John Burgess and John Singer
In 2021, the advantages of private equity investing remain clear. Here, two of PIP’s Directors discuss their lengthy experience in the industry, the benefits of private equity, and offer their views on PIP’s competitive strengths and outlook.

John Burgess

Appointed to the PIP Board on 23 November 2016 20+ years of private equity experience

John Singer

Appointed to the PIP Board on 23 November 2016 30+ years of private equity experience

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    John Singer
    Performance! The best PE managers are hands-on, active investors and create substantial value in their underlying portfolio companies. Therefore their investments are able to significantly outperform public markets, in a sustainable way, and over the long term.

    John Burgess
    Early access to exciting, growth-orientated businesses in industry segments that are often under-represented in public markets! With the phenomenon of shrinking public markets, and the fact that many exciting companies stay private for longer, and some never IPO at all, investing in private equity is the only way to have a piece of these attractive opportunities.

     

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    John Burgess
    When I first started in the industry, PE was a small part of investors’ portfolios and many institutions had no exposure at all. We had to explain to potential investors how a management buy-out (as they were then called) was structured and created shareholder value. It wasn’t even called “private equity”. Now, the vast majority of the world’s leading institutional investors have an allocation to PE, and this has been growing over time. In addition, individual investors have an increasing appetite for private equity, driven by the search for attractive returns in a low-yielding investment environment. The range of investors looking to invest in private equity has widened, but many are locked out of traditional PE funds which require high minimum investments and are often invitation-only. It also takes years to build a diversified portfolio of investments directly in PE funds, and for many the long fund lives and lack of liquidity are an issue. PIP offers a solution to all of these problems and can be seen as an ideal vehicle for smaller institutional and retail investors to invest part of their portfolio in PE.

    John Singer
    It is not only the investor base that has changed – private equity managers have also evolved enormously over time. In the past, capital gains depended heavily on multiple arbitrage and financial leverage, which PE managers could not control. Nowadays, the best managers create value by implementing significant operational and strategic changes in the underlying portfolio companies – boosting revenues and profits both organically and through buy-and-build strategies. PE firms help company managers improve their businesses through better procurement and supply chain management, the implementation of more effective go-to market strategies, and by investing in systems and processes. They also enhance management teams by recruiting talented people, who they often know and have worked with, into key positions, and augment the company’s Boards of Directors with individuals who can add real expertise and relevant networks for growing the business.

     

     

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    John Singer
    Private equity managers generally invest for growth – and that means innovation, job creation and a well-managed company that will be around for a long time, beyond the period of ownership of the PE firm. There is a myth out there that PE makes money solely through financial leverage, but this could not be further from the truth. Managers generally use debt in a responsible way, putting businesses on a sure footing so that they can continue to grow and prosper in the future. Growth is the only way to create long-term value, not leverage per se or short-term cash-generation or the one-off benefit of cost-cutting measures. Good PE managers understand this. Another reason why one needs to recognise and have access to the upper quartile fund managers.

    John Burgess

    The private equity industry has embraced ESG and invests responsibly, with a strong emphasis on social impact and governance. Because PE managers generally take meaningful or control equity stakes in their portfolio companies, and their economic interests are aligned with company management teams, they have much more influence over their investments than public equity managers. This means that they have a stronger hand to encourage companies to adhere to best-in-class ESG standards and create businesses that have sustainable value for both investors and society.

     

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    John Singer
    We have seen the PE industry using its close relationships with its portfolio companies to live up to its high ESG standards, supporting companies, their employees, and local communities throughout this very difficult period. Private equity managers took action early on, ensuring that their portfolio company employees were safe, moving swiftly to online working, and helping their underlying businesses by providing additional capital and expertise to get them through the crisis, positioning them well for the future. For example, when Asian supply chains were disrupted in the early stages of the pandemic, PE firms helped their manufacturing businesses find new sources of parts and materials. Also, as the whole world adjusted to remote working, they assisted their companies with moving their marketing and sales online. In addition, they actively sought ways to participate in the COVID-19 crisis relief effort, some making substantial donations, providing products and services free to healthcare systems and local communities, and in certain cases retooling their portfolio companies to manufacture items that were in short supply such as detergents, hand sanitisers and PPE.

    John Burgess
    From a performance perspective, it’s worth noting that PE came through the past year relatively unscathed. The active, hands-on management style of private equity managers and the fact that many portfolios are orientated towards the more resilient industry sectors, such as information technology, healthcare and consumer services has meant that private companies have been able to grow revenue and profits, and in some cases take advantage of the dislocation and market disruption created by the pandemic to make accretive acquisitions and expand their businesses. Going forward, I expect that PE will continue to be part of the solution – as the world emerges from the COVID-19 and global economic crises, we need strongly growing, innovative companies to create a positive economic impact.

     

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    John Burgess
    I was delighted to join the PIP Board in 2016. PIP is an ideal way to get access to some of the best private equity investments in the world, and its shares are bought and sold on the London Stock Exchange like any other quoted company. I’m excited by the fact that I can participate in the growth of some really attractive businesses, long before they go public or are sold to a larger company. Also, I am not tied in for the long term so I can rebalance my holdings at any time. I’ve had a longstanding relationship with PIP’s manager, Pantheon, and am impressed with its investment philosophy, the team and the strong partnerships they have developed over many decades working together with leading private equity managers. Those partnerships are key since new investors simply cannot get easy access to those funds. I invested in PIP through both my pension fund and my personal investment portfolio. Quite simply, I believe in it.

    John Singer
    Similarly, during my decades of being involved in running a global PE fund, I had the opportunity to work closely with Pantheon over a long period of time, and know from my own experience that the firm is a highly respected and valued sounding board for private equity managers, adding value through Advisory Boards and through its day to day interactions with leading PE houses. I have always considered the key to any organisation’s success lies with its shared culture and values. And it is these qualities within a close team that always made me want to work with Pantheon and now sit on PIP’s Board. I was also attracted by the quality and diversity of the Directors and relished the opportunity to work together.

     

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    John Burgess
    Selecting and then gaining access to the best private equity funds and co-investments is not easy – it takes a large experienced team, such as the one Pantheon has, decades of building up trusted relationships with top PE managers (who can usually choose with whom they wish to work) and the ability to evaluate them accurately in order to pick the greatest investment opportunities. The proof of the pudding is in the eating, and PIP has delivered significant outperformance over more than three decades.

    John Singer
    Producing a strong track record over multiple economic periods and cycles is a huge and rare achievement and not easily replicated. I believe that one of the reasons that Pantheon has been successful is because of its stringent due diligence process. Every co-investment and secondary deal that PIP invests in has been through a “double filter” – firstly a comprehensive evaluation of the private equity manager, and secondly a deep evaluation of the portfolio company itself. This enables PIP to sift through the literally thousands of PE fund and company opportunities in the market, focusing on selecting the very best investments. Dispersion of returns is much higher in private equity than in public markets, so it is absolutely critical to be able to identify and gain access to long-successful top quartile PE managers and co-investment opportunities.

     

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    John Singer
    PIP has evolved quite considerably over the past few years. The company simplified its dual-class capital structure in 2017 and entered into the FTSE 250 index shortly after that. There has been a substantial shift towards co-investments and single asset, manager-led secondaries over the years, which are both very attractive from a portfolio construction and cost-effectiveness standpoint. Also, the Company’s sector mix has moved towards the most resilient industry sectors, with information technology and healthcare being the largest focus. The portfolio has also been rejuvenated, with an average life now of just over five years, which means it is in a prime position to generate liquidity, which is then recycled into new opportunities.

    John Burgess
    The last year has probably been the litmus test of PIP’s strength, flexibility and success. PIP entered the crisis well prepared and this discipline has paid off. The Company has been managed prudently through the crisis and is in a strong position going forward with a well-balanced portfolio and a full pipeline of attractive investment opportunities.

     

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