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186. Bull, Bear & Beyond – Patria Private Equity Trust: executive interview
8 Plays8 days ago
In this video, we speak with Alan Gauld, senior investment director in the Patria Global Private Market solutions team and lead portfolio manager of Patria Private Equity Trust (PPET). Alan discusses why PPET is a good choice for retail investors in their asset allocation and diversification. He covers the highlights of PPET’s FY25 results, including the revenue and EBITDA performance of its underlying portfolio companies. He shares his views on the outlook for 2026 in light of the improving activity level across the European private equity (PE) market and several notable exits recently agreed across PPET’s portfolio. In this context, he also elaborates on PPET’s prospective capital allocation.
PPET invests in a diversified portfolio of PE funds and direct investments in private companies (through co-investments and single-asset secondaries). It partners with around 15 leading PE managers and provides exposure to over 600 underlying portfolio companies. PPET offers a quarterly dividend, which has grown in value every year since 2010, and the manager charges a flat management fee of 95bp with no performance fee on top, which is unlike most PE investment trusts.
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About ‘Bull, Bear & Beyond’
Bull, Bear & Beyond': features candid conversations with senior executives and from our own team of experts from across industries, exploring strategy, innovation, and the opportunities shaping their markets and 60-second pieces are a compressed summary of content designed to convey our message in a single, easily shareable hit.
About Edison:
Edison is a content-led IR business. We believe quality investment content should inform all investors, not just brokers. Our mission: engage and build bigger, better-informed investor audiences for our clients.
Edison covers 50+ investment trusts, read about them here: https://www.edisongroup.com/equities/investment-companies/
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Transcript
Introduction: Overview of Patria Private Equity Trust
00:00:07
Speaker
Hello and welcome to Edison TV. I'm Miłosz Paps, Director of Investment Trust Content at Edison and today I'm joined by Alan Gold, who is Senior Investment Director in the Patria Global Private Market Solutions team and the lead portfolio manager of Patria Private Equity Trust. Alan, great to have you back on Edison TV.
00:00:26
Speaker
Thanks for having me, Miłosz. Paltrow Private Equity Trust has recently reported its FY25 results. um Before we delve into the details so and key highlights of these results, perhaps you could reiterate the key attractions of the trust to those listeners who are less familiar with it. Specifically, maybe you can talk about why the trust may be a good chance for retail investors to in their asset allocation and diversification.
History and Strategy: Focus on Mid-Market Companies
00:00:54
Speaker
Emilos, well, taking a step back, Patriot Private Active Trust or PPED is like any listed private equity trust. You're able to access it for as little as the the price of the share.
00:01:08
Speaker
And there's daily liquidity via the stock market. So it it kind of gives a retail investors the best of both worlds inof far as they get access to private equity a strong performing asset class over the long term but relatively illiquid but in this structure it provides that liquidity that ability to trade in and out like any listed stock um if we turn to the trust specifically pantry private equity or ppet for short it's formerly known as Aberdeen private equity opportunities and and prior to that standard life private equity
00:01:49
Speaker
and It's been around for almost 25 years. and ipoed in two thousand and one and It provides, throughout that time, it's been about providing access to um some of the best opportunities in the private equity mid-market. So what we mean by mid-market is basically private companies between 100 million and a billion enterprise value
Financial Performance: Dividend Yield and Growth
00:02:15
Speaker
at entry. So we're talking about established businesses that are cash generative profitable businesses growing businesses where a private equity partner can help accelerate uh their their growth and and uh and maturity shall we say so the trust makes both fund investments and direct investments into private companies as well it partners with
00:02:40
Speaker
a small group of private equity firms leading private equity mid-market firms uh at last count our core manager relationships were 17. and the trust in terms of ah other specific features it pays a quarterly dividend And so that dividends around about a yield of 3%.
00:03:01
Speaker
And the dividend has grown every year for the last 11 years. So now it's an AIC next generation dividend hero. And there's a commitment from the board to maintain the value of the dividend going forward in real terms.
00:03:16
Speaker
In terms of costs, it's a simple fee structure. It's a flat 95 bits management fee. Most private equity vehicles have a management fee and a performance fee on top.
00:03:29
Speaker
We don't. So when performance is particularly good, that flows through to shareholders. And performance, I think that's a key thing here. This has been around a long time, 25 years, as I said.
Portfolio Diversification: Sector Focus and Returns
00:03:40
Speaker
we look over the last 10 years, the annualized NAV total return of the trust is 14%. If we look over the last 25 years or back to IPO in 2001, the annualized NAV total return is 11%.
00:03:55
Speaker
And in 2025 marked 16 consecutive years of positive NAV total return growth, which we're we're really proud about. Great. Thank you for for this introduction to the Trust. Maybe you can tell us more about um the recent underlying topline EBITDA performance across your portfolio companies and how this has been driven by your sector allocation.
00:04:20
Speaker
and No problem, Milo. So um in Patriot Private Equity Trust, we have around about 650 underlying private companies in our portfolio.
00:04:33
Speaker
So it's pretty diversified. So we look at the top 100 companies, which is around about 60% the portfolio NAV. n a z and so revenue growth in the last 12 months averaged around 12 percent and earnings growth EBITDA growth over the last 12 months averaged around 13 percent so the businesses are ah continuing to steadily grow on average which we're really pleased about it's a continuation of what we've seen over the last few years as well which is which is great um if we link that to your question around sector exposure
00:05:09
Speaker
we're not really trying to take too much exposure in certain places. We want a balanced portfolio by sector. We typically like non-discretionary type sectors, business to business in a lot of cases.
00:05:24
Speaker
So when when we look at our sector exposure at the financial year end in 2025, we had information technology and healthcare at 23 and 22% of portfolio value respectively, then followed by industrials, which includes some business of business professional services companies so that industrials was around 17%.
00:05:47
Speaker
We had consumer, both consumer made consumer both consumer discretionary at 12% and consumer staples at 11%. Financials, typically asset-light financials, think insurance brokers, etc.
00:06:03
Speaker
there that That was around 8%. We've got very, very little in relation to sectors that are linked to commodity pricing. For example, energy is 1%, materials is 4% the book. so it's pretty well balanced sort of more towards non-discretionary type sectors and so so that that helps create that that steady underlying performance in the portfolio Excellent, thank you. And I think in this context in this context, it's worth discussing the improving private equity market environment.
Market Outlook: Rebounding Private Equity Market
00:06:35
Speaker
um We've seen in the second half of 2025, a significant rebound in both transaction and exit activity across European private equity. And you've also highlighted during your results that you've seen some notable exits agreed in FY26 so far, with examples being Uvesco, G-Treasury or Intelerat. So maybe in this context, can you share your views on the outlook for 2026 and how the trust is positioned in in this respect?
00:07:06
Speaker
You're absolutely right, Milos. We saw real acceleration in realizations over really the last quarter, even and you're following the the financial year end. So if we look at calendar year quarter four of 2025, our realizations totaled around 61 million, which is almost double what we saw in the quarter prior to that.
00:07:30
Speaker
So we're starting to see that real pickup. There was ah this real disruption in the first half of 2025 due to US tariff, the rhetoric and the uncertainty caused by that, which wasn't helpful in terms of private equity deal flow and ultimately exits. And it's worth reiterating that exits are the the lifeblood of you know private equity because you know when when you receive, when an exit happens, sorry, you receive cash distributions that allows you to reinvest and in new opportunities. So the more exits you get, the faster the wheel moves and and exits have been probably the key issue in private equity since interest rates rises in 2022. We're starting to see that pick up and as you know we saw some interesting signed deals in the last three months uh you mentioned g treasury alongside hg we've had evac with bridgepoint and uh and you noted as well um uvesco which is one of our direct investments actually year-end financial year-end it was the fourth largest uh portfolio company in our book and so that uh has been subject to a sale agreement
00:08:44
Speaker
with a consortium of Spanish investors agreeing to buy that business from PEI partners and its co-investors like PPET.
00:08:55
Speaker
So that that one will will likely close by the end of the first quarter of 2026. So that'll result in good proceeds back to PPET.
00:09:07
Speaker
And we're hopeful that that's a sign of things to come. i mean, if you look at the second half of financial year 2025, our NAV total return was 7.9% over that six-month period.
00:09:22
Speaker
So you know that's you should never extrapolate things going forward. And I know you're you're asking about the outlook for 2026. um but but if if that sort of momentum was to continue we'd start to see returns back in that sort of mid-teens nav total return space which which should be really good so look all bets are off if things happen in the broader market we didn't see the uf tariff uh discussions and rhetoric uh coming around um in 2025 and that caused a pause and a delay in a lot of m a activity but if we have
00:10:00
Speaker
generally relatively stable markets and in 2026 that will provide backdrop for for private equity M&A activity, for private equity exits. The early signs are good, as i said.
00:10:13
Speaker
So you know hopefully we can see those those more stable conditions and that will help pipette drive performance across the year.
00:10:24
Speaker
Perfect, thank you. These are definitely encouraging
Future Plans: Investment Strategy and Management
00:10:27
Speaker
developments. So now in the context of this improving outlook and and maybe also the close to £100 million pounds of deferred consideration you recently received from the secondary sale you did back in 2024, maybe you can talk us through the the future asset ah capital allocation, right, in terms of primaries, secondaries, directs, ah repayment of the credit facility, dividends and buybacks.
00:10:56
Speaker
So we're great believers in, in in certainly in the private equity market, and staying consistently invested through the cycle. So as you know, Milos, in private equity, sometimes you get good vintage years where the pricing is lower and the competition is less intense, and then you get less good vintage years, typically when pricing is higher and and and and competition is fierce.
00:11:21
Speaker
And so good examples of that perhaps in more recent years, you know the sort of less good vintage years would be the the likes of 2007, where a lot of things were bought ahead of the global financial crisis, of of devaluations.
00:11:35
Speaker
We think 2021 might be in in a similar vein, but equally right now we think It could be quite interesting vintage years when we look at luke back five years from now because pricing is more moderate and and there's less competition in the market. There's more time to do due diligence on the asset.
00:11:54
Speaker
So you want exposure through the cycle. So you you pick up exposure to these stronger and vintage years that typically occur following a market dislocation or market event.
00:12:06
Speaker
so So to answer your question as we look ahead, we want to keep making investments as we look to 2026 and 2027 and beyond. So last year we made new investments around 300 million sterling.
00:12:20
Speaker
We will likely do that again in a similar similar number. And when you break that down into the the components as you set out into primary funds, secondaries, and directs, you look at our exposure at the moment,
00:12:34
Speaker
We're about 63% of portfolio value held through primary funds, around 9% through secondaries, and around 27% through direct. We want to increase PPET's exposure to secondaries and directs that little bit more.
00:12:51
Speaker
Primaries will always be the sort of core of the portfolio, but directs, as we know, provide access, or more concentrated access to some of our conviction picks in terms of portfolio companies and importantly, typically come with no fee or carried interest attached. So they're lower cost.
00:13:08
Speaker
if you get it right, you get your selections right, you appropriately diversify the direct portfolio, they should perform better. than the primary funds and then secondaries from a risk return point of view are really attractive because typically by um companies or or funds from another investor part the way through their holding period so that the the payback is quicker the risk return dynamic is is is um is is much different as well and they add something interesting to our portfolio too so
00:13:40
Speaker
We want to just keep investing, keep increasing the exposure to secondaries and directs. And then more broadly, outside of investments, we'll continue to grow that dividend going forward, at least in line with inflation.
00:13:55
Speaker
And then we'll continue to opportunistically buy back pipette stock too and create that additional nav accretion to existing shareholders. And then lastly, in terms of gearing, i mean we're around about 10% of and net assets in terms of gearing.
00:14:12
Speaker
And you know personally, as the lead manager, I'm quite comfortable with that that level. Obviously, there's a pickup in in exits in the the market. there will be the ability to de-gear um and at the moment around 62 of our portfolio value is held in assets that have been held for for four years or more so in theory those those those types of investments that should be approaching exit that that could underpin a good strong cash flow in the years ahead if you know market activity really comes back and that yeah as i say would would allow us to de-gear but as i say around 10% gearing i think thank you um i would like to conclude our conversation by asking you the following question how would you convince an investor that current discount to nav at which the trust is trading is an attractive buying opportunity
00:15:10
Speaker
Well, it's been around a long time, as I said, it's been around for 25 years.
Conclusion: Investment Case and Growth Potential
00:15:14
Speaker
It's delivered for for shareholders throughout that time. If you'd invested at the start and reinvested your dividends, for example, you'd have made around 10 times your original money. So it's been around a long time, has a strong track record.
00:15:29
Speaker
It's mid-market strategy, I think is is really interesting because you're typically and in the mid-market buying companies from families or you're partnering with founders or you're carving out a business unit from a large corporate.
00:15:45
Speaker
It's investments where there's a genuine ability to create value or alpha. and There's literally thousands of these types of businesses.
00:15:56
Speaker
where good quality private equity firms, the types of firms that we partner with in PPET, can really help company management accelerate growth and therefore generate strong investment returns through the cycle.
00:16:08
Speaker
So looking at PPET right now, its share price discount is wider than the longer term average and and considerably so. But even if you assume that that discount doesn't close, the long-term annualized NAV total return, the 10-year annualized NAV total return is 14%, as I said earlier.
00:16:28
Speaker
Since inception, it's 11%. So even if you assume that that discount doesn't close, you can write that NAV. going forward. mean, it's 16 consecutive years of positive NAV total return growth by PPIT. So it tends to grow through the cycle.
00:16:46
Speaker
And in addition, there's that quarterly dividend, that regular yield as well. And as I've mentioned today, I mean, 2025 saw a pickup in in performance, certainly the second half of 2025 once the US tariff noise had dissipated somewhat.
00:17:02
Speaker
um And there's signs of that that momentum can continue into 2026. And if that's the case, and i think private equity trusts or investment companies like PPET will see their performance further accelerate and these trusts will become more popular and more in demand and and have the potential to see some some narrowing of the share price discount. So, yeah, hopefully I've compelled some retail investors that it's quite an interesting time to buy.
00:17:34
Speaker
Alan Gold, lead portfolio manager of Patria Private Equity Trust. Thank you very much for this detailed conversation. Thanks again for the invite, Milos.