Transcription of The Stock Network Interview with Pengana Private Equity Trust (ASX:PE1), Investment Specialist Will Dougall
Lel Smits: Pengana Private Equity Trust has just announced significant updates for investors. Listed on the ASX in 2019, PE1 gives Australian investors access to a diversified global portfolio of more than 600 private companies, with its largest holding being SpaceX. The trust has delivered strong performance over the past year, especially following the recent IPO of SpaceX and ongoing realisations across the portfolio.
To learn more, I’m joined by Will Dougal from Pengana Capital Group to discuss PE1’s lift in the distribution target, a move to quarterly payments and a refreshed long-term return objective.
Will, welcome back to the Stock Network.
Will Dougall: Thanks, great to be here again.
Lel Smits: Now, PE1 has just lifted its target distribution from 4% to at least 6% of net asset value and moved to quarterly payments. Can you outline for us what’s driving the timing of this change?
Will Dougall: Yeah, look, the portfolio is in a really great shape and it’s reached a point of maturity that makes this the right time, we feel. And we’ve been going on for seven years now and over that time we’ve built out quite a diversified global portfolio of more than 600 companies.
And what’s happening now is that a growing number of those are starting to realise and send cash back to the trust. And obviously, SpaceX is a big one and we’ve been selling shares at prices above the IPO level. But there’s a lot also going on underneath that as well.
So PE1 has really moved from that sort of building phase into more of a harvesting phase. And that’s what’s unlocked our ability to return more to investors. And we’re taking that distribution target from 4% to up to at least 6% of NAV and moving to quarterly payments as well.
So investors are seeing cash more regularly. And the whole idea is to strike a balance, return more cash on the back of real realisations, but keep that portfolio fully invested into the next generation of growth opportunities.
Lel Smits: Absolutely. And Will, how has PE1 been performing? Also, how are you about the returns going forward?
Will Dougall: Yeah, so portfolio performance has been strong over the last 12 months through to September and we did 17.3% and 4% in September alone. So SpaceX has obviously been a big contributor to that. But honestly, it’s really a reflection of the portfolio doing well.
And of course, past performance is a guide to what comes next, but it certainly does tell you something about the quality of what we’ve built. So when you look under the hood, the underlying companies are growing EBITDA at over 20% a year and revenue at around 13%. And that’s well ahead of listed markets.
I mean, the average EBITDA growth across companies in MSCI or Country World Index, for example, that’s been around 10% to 12% a year over the last five years. And so our businesses are compounding at roughly double that. So the other thing is that what we’ve done with this update is we’ve set a clearer long term return target.
And we’re now aiming for 10% to 14% a year on NAV after fees over at least a 10 year time horizon. So it just gives investors something to find to hold us to and it reflects the quality of the portfolio we’ve built.
Lel Smits: So between the 6% distribution target, also the 10% to 14% long term return objective and the current unit price, what’s the pitch to investors that are looking at PE1 today?
Will Dougall: Yeah, honestly, we think it’s a pretty compelling moment to be looking at PE1.
The new distribution is at least 6% on NAV, as you just said. But if you’re looking at buying today at today’s unit price, that actually works out to be a yield closer to 8%. So that’s a strong income strain for a listed vehicle backed by a diversified global private equity portfolio.
And so just thinking about what you’re actually getting here as well, roughly an 8% cash yield exposure to a portfolio targeting 10% to 14% a year total return over the long run, plus the potential upside if that gap between the unit price and the NAV narrows over time. And we think the ingredients are really now in place for that to happen. And of course, higher and more regular distributions give the market much better visibility on the cash coming back to the trust.
And that’s typically what drives listed vehicles to re-rate. And so for an investor who wants income growth, and of course, access to companies that they otherwise couldn’t own, it’s a pretty rare combination in one listed vehicle.
Lel Smits: Absolutely. Well, Will, I appreciate the update from Pengana Private Equity Trust. Look forward to hearing more.
Will Dougall: Thanks for having me.
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