Transcript
Speaker: Hello and welcome to Uncovering Trusts, a podcast by Edison Group. I'm your host, Liam Eberne, and today I'm joined by Milos Paps, Director of Investment Company Content at Edison, to talk about Patriot Private Equity Trust, ticker PPET.
Speaker: Milos, thanks for joining us today. Thanks, Liam. As always, good to be here. So for those listening who may be less familiar with PPET, could you perhaps start with a brief introduction to the trust? Yes, of course. Patriot Private Equity Trust aims to deliver long-term total returns through a diversified portfolio of private equity equity funds and direct investments in private companies, mostly alongside European private equity managers.
Speaker: The Trust was launched in 2001 while the investment management business transferred from Aberdeen to Patria in April 2024. So it offers a 25-year track record across several market cycles.
Speaker: Pipet is a FTSE 250 company and had net assets of about £1.27 billion pounds at the end of March um What's important charges a flat annual management fee of 95 basis points of NAV with no performance fee, which I think is unusual among listed private equity vehicles. Okay, great. And what would you say is the core of PPET's investment approach? I would highlight three things.
Speaker: First, PIPED partners with a concentrated group of leading European general partners, or GPs, many of which are sector specialists. um At the end of March 2026, 17 core managers accounted for 74% of portfolio NAV, and PIPED has longstanding relationships with firms such as HG, Triton, PAI Partners, Nordic Capital, IK Partners, and Aalto.
Speaker: ah The manager's selection record is strong, I believe, as 79% of P-PED's primary funds were in the first or second quartile by total value to patent capital at the end of 2025, based on PATRIA data.
Speaker: Second, PIPED focuses on the European mid-markets, which is the finest companies with enterprise values between 100 and 1 billion euros at entry, but with increasing emphasis on the lower end of that range, so roughly 100 to 500 million.
Speaker: ah This segment can offer attractive entry pricing and value creation opportunities, um tends to use less syndicated leverage and has exit routes that do not depend on the IPO market.
Speaker: um At period end, lower mid-market exposure was 34% of the portfolio alongside 44% in the upper mid-market, 15% in the large-cap buyouts, 6% in growth equity and 1% in other investments.
Speaker: Third, there is a clear rationale for the European focus, I believe. Europe has a deep pool of family-owned businesses, so more than 4,000 with revenue above $100 million, dollars of which 26% are seeking outside investment or private equity.
Speaker: um Its fragmented markets can also create more opportunities for operational improvement and buy and build strategies. And then entry pricing has historically been lower too. So European buyouts averaged about nine times EBITDA in 2024 compared to 13 times in the US. Okay, so with that investment approach in mind, how do the managers go about building the the portfolio in terms of funds versus direct deals?
Speaker: um The trust invests through three routes, primary fund commitments, secondary investments, and direct investments, which includes co-investments and single asset secondaries alongside its core GPs.
Speaker: At the end of March, um primary funds represent 64% of the portfolio, secondaries 10%, and direct investments 26%. But by 2030, the manager is targeting 50 to 60% in primary funds, 10 to 15% in secondaries, and 30 35% in direct investments.
Speaker: and to fifteen percent in secondaries and thirty to thirty five percent in direct investments ah So primary funds remain the foundation while secondary so can deploy capital more quickly with a lower blind pool risk, um while co-investments are generally not charged an additional fee by the underlying GP which supports the trust's cost efficiency.
Speaker: um The direct portfolio has grown to 45 holdings and is gradually maturing while the overall portfolio provides exposure to more than 700 private companies. I see that PPET recently published its half-year report.
Speaker: Could you walk us through some of the numbers? How did the trust perform over the six months to end March 2026? It was a period that well tested the portfolio's resilience. NAV total return was 3.1% in the first half of 2026, following a robust 10.6% in FY25. The backdrop was challenging as the conflict in the Middle East pushed energy prices higher, reignited inflation concerns and added to market volatility, while global private equity exit activity slowed further. um And then the sell-off in listed software stocks in February 2026 also fed through into the valuations of Pbitt's private software holdings, even though their underlying earnings growth remained solid.
Speaker: Share price total return was slightly higher at 5.5%, reflecting a narrowing of the discount to NAV from around 34% to over the by accretive buybacks. um supported by acc creative buybacks Now, the longer term record remains robust. Over the 10 years end March 2026, PIPED's annualized NAV total return was 13.4% and its annualized share price total return um with dividends reinvested was 14.9%. Okay, great. And could you also break down where the H126 portfolio return came from?
Speaker: Yes, the portfolio return in constant currency terms was 2.7%, which is up from 1.9% in H125, although performance varied by investment type, i would say.
Speaker: um Fund secondaries led with an 8.7% return, while primary funds returned 2.2% and direct investments 1.9%.
Speaker: Among the top 100 underlying holdings, which represents around 59% of portfolio NAV, average revenue grew by 13.7% and by 13.4% in the 12 months to end March 2026, which I think illustrates the resilience of these mostly profitable, less cyclical mid-market businesses.
Speaker: The median valuation multiple across the group fell slightly to 13.4 times EBITDA from times at the end of September So um the return was probably not driven multiple expansion um Exit uplifts were softer. Underlying portfolio company realizations during the period were completed at an average 4.8% uplift today, carrying values two quarters prior, um which compares to 18.9% in the first half of 2025. And then the headline realized return fell to 1.8 times cost from times.
Speaker: app which is a meaningful slowdown, but but I would note that positive uplifts in a difficult M&A market still provide some reassurance about portfolio valuations. You touched before on the software sell-off.
Speaker: Given how sensitive markets are to AI disruption narratives at the moment, how exposed is P-PET? It's a fair question, Liam, because software represents 19.5% of the portfolio, um mostly business-to-business vertical software.
Speaker: Alan Gold, PIPED's lead investment manager, argues that these businesses generally have high switching costs, proprietary data, and deep domain expertise, which should make them more resilient to AI disruption.
Speaker: And the exposure is also um diversified, as only four software holdings represent at least 1% of net assets. The largest is Visma, at 2.1% of NAV through 8G-managed investments.
Speaker: um It's anticipated that the IPO has been delayed, but the manager believes there may still be an opportunity to realize part of the position in the near term. Moving on to deployments during the half, am I right in thinking that it was an active period for the trust?
Speaker: Yes, indeed. it It was an active period as new commitments total around £176 million in the first half, up from around £136 million in H1 to E25, reflecting the manager's view that current pricing is creating attractive entry opportunities. um However, the manager expect expects the second half of the financial year um to be quieter for new commitments.
Speaker: Primary fund commitmente commitments were 85.3 million across five new funds, um with ah four of them having a technology focus, including HG Mercury 5, One Peak 4, Expedition Growth Capital 3, and HG Genesis 11, while a Triton Smaller Mid Cap 3 targets lower mid-market businesses in services, industrials, and healthcare.
Speaker: and The manager stressed that the technology concentration was coincidental rather than you know a strategic shift and expects ah the rest of FY26 to lean more towards non-technology strategies.
Speaker: Secondary commitments were £33 million pounds and related to the final crunches of ah Project Captain, which comprises 13 fund interests and one direct investment.
Speaker: PIVET also gained exposure to six additional secondaries through Patria's Secondary Opportunities Fund 5, which continues to perform well. In terms of direct investment commitments, they stood at 57.5 million um and included three new deals worth approximately 20 million pounds. um Omelia, a provider of conversational AI for customer care, Alphapet, a pan-European premium pet food platform, and Blue Unit, a German commercial heating, ventilation, and air conditioning services business.
Speaker: ah There was also a 36.8 million commitment to Patria Co-Investment Partnership Fund 1, which is a Patria-managed vehicle that focuses on European mid-market co-investments and is excluded from PPAT's 95 basis points management fee calculation to avoid double charging.
Speaker: um it It should help make PPET's direct investment deployment more systematic alongside deals made directly by the trust. Okay, and on the other side of the ledger then, was there also activity in terms of realizations? Yes, realizations reached close to £126 million pounds in the first half up from million pounds in age This comprised 106.5 million of portfolio distributions and 19.1 million from a partial secondary sale of PPAT's direct co-investment in action, which was completed 100% its December carrying value.
Speaker: Now within the direct portfolio, PIPED also completed its second full exit, which was the sale of Uvesco, the Spanish premium grocer, which generated £15.1 million pounds of proceeds at 2.1 times invested capital after a four-year holding period alongside PAI partners.
Speaker: The robodows were £95.6 million, below £107 million in H1 2025 as geopolitical uncertainty, moderated deployments by the underlying funds.
Speaker: PIPED therefore generated positive net cash flow for the period. The wider fund portfolios also showed how varied the exit market remains. ah For instance, AG backed GE Treasury was realized at an 84% uplift, IK Partners backed Innovat Group at a 25% uplift, while the transfer of PAI backed Fronari into a continuation vehicle was completed in line with its carrying value. So given the softer exit environment, how mature is the portfolio at the moment and and what could that mean for future realizations?
Speaker: Well, it is now a mature portfolio. um The prolonged slowdown in private equity exits means that 61% of the underlying companies have been held for four years or more.
Speaker: ah So the manager estimates that this represents about 848 million pounds of portfolio value that could be ready for realizations realiz realizations when well conditions allow.
Speaker: Within the 45 company direct portfolio, several assets have reached later stages of development and could offer exit opportunities as markets normalize. Okay, that's interesting. Moving on to the balance sheet, then how is PPAT positions?
Speaker: Solidly, would say, um a very available resources, so cash plus the undrawn credit facilities, do that close to £277 million pounds at the end of March down slightly million at the end of September
Speaker: Netgearing rose modestly to 9.7% from 8.4% as the facility was drawn to fund new investments I've i've just discussed. um the The entire 400 million ah revolving credit facility runs to February 2028 with options to extend it by up to two years.
Speaker: I would also note that the overcommitment ratio rose to 39.4% from but um remained comfortably within the target range.
Speaker: Now, um total outstanding commitments were around 825 million and the manager estimates that about 125 million is currently financed through credit facilities and underlying funds and is therefore likely to be called over the next 12 months, which is already reflected in BPED's liquidity planning.
Speaker: Turning to shareholder returns, could you discuss the trust's dividend policy and its current discount? Sure, let's start with dividends. um The board has continued its progressive dividend policy and proposed a total dividend of 18.4 pence per share for FY26, which represents an increase of 4.5% from
Speaker: ah That would mark the 12th consecutive year of dividend growth, um maintaining PPET's status as an AAC Next Generation Dividend Hero and represents a yield of about 3% at the current share price.
Speaker: The board also continued its accretive buyback program, repurchasing 1.9 million shares in the first half of 2026 for eleven point three million pounds um Since the program began in January 2024, PIPED had bought back 7.5 million shares by 25th of June, 26th, enhancing an IV per share for the remaining shareholders.
Speaker: As I mentioned before, the discount narrowed from thirty around 34% to 33% during the half and has since narrowed further to around 28% of the time of recording, although it remains wide in absolute terms. Before we wrap up, could you tie it all together and summarize the investment case for PPET?
Speaker: I would put it in three parts. First, PPET offers differentiated access to the European private equity mid-market through a concentrated group of long-standing, high-conviction GP relationships with an increasing tilt towards the lower mid-market where the manager sees the greatest potential for out performance.
Speaker: Second, the portfolio remains broadly diversified and its underlying companies continue to deliver double-digit revenue EBITDA growth through a difficult six months, even though software valuations were headwind.
Speaker: Third, the direct investment portfolio is maturing, creating potential for more realizations as market conditions normalize. This is supported by a sound balance sheet, a strong dividend record and NAV accretive buybacks, as well as a still wide discount.
Speaker: The main risks are a further weakening in private credit markets, which could make refinancing more difficult or expensive for private equity-backed companies, um continued pressure on software valuations, and the fact that PPED is still building a track record of successful exits from the direct portfolio.
Speaker: ah Realization timing is also inherently uncertain. um Taken together, however, PPED remains well-resourced trust with a strong long-term record across the the difficult market cycles. Milos, thank you for a really thorough update on Patria Private Equity Trust.
Speaker: Thanks, Liam. You've been listening to Uncovering Trusts, a podcast by Edison Group. If you want to find out more about PPET and other investment companies we cover, please visit www.edisongroup.com.
