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Petershill: quoted private equity fund must show and tell

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Alternative asset manager Petershill Partners does things differently. The Goldman Sachs-managed fund updated shareholders on activity in its $5bn portfolio on Tuesday. The scant details demonstrated a reluctance to publish information investors usually take for granted. That will blunt appetite for the business, which buys stakes in private equity firms.

At first sight, Petershill’s first quarter as a listed business might appear a roaring success. It acquired shareholdings in five new managers worth $458m in the final quarter of 2021, easily surpassing its annual investment target of $300m. It thinks the new stakes will boost earnings 9 per cent next year. Investors do not share that optimism. Shares have fallen a third in value since coming to the London market in September.

Lex graphic with three charts showing European alternative asset managers; Return on equity, 2023 estimate (%) versus forward price to earnings ratio. Petershill has underperformed since listing; share prices (rebased). Top five shareholders; % of total.

The investment premise is that Petershill can make use of Goldman Sachs’ network to buy stakes cheaply. It targets an acquisition multiple of 11 times, a substantial discount to listed manager multiples, typically at mid-double digits of earnings. Shareholders have to take the company’s word it achieves that.

Unlike other listed private equity firms, Petershill buys minority stakes in private asset managers with fees generating the bulk of revenues. In theory, that is less risky for public market investors than buying shares in single-name managers such as Sweden’s EQT or the UK’s Bridgepoint.

David McCann at Numis thinks the business model deserves a valuation akin to traditional equity funds. He estimates the shares are trading at a 20 per cent discount to the current net asset value. That is the bottom of the range among listed private equity groups.

Opacity is a deterrent to bargain hunters though. There is little disclosure around the 75 per cent shareholding controlled by Goldman Sachs Asset Management. Clarity on whether any of those shares will be sold when lockups end in March is required. Until then, do not expect the discount to narrow.

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