In this weekly series, investment reporter Elliot Gulliver-Needham sits down with a fund manager for a Q&A. This week, we’re hearing from Helen Steers, co-lead manager of private equity trust Pantheon International PLC (PIP)
This is a transcript from an interview you can watch online. It has been edited for length and clarity.
How does your fund stand out from its competitors?
Pantheon International (PIP) has been around for a very long time, it actually floated in 1987. The way that it invests is slightly different to some of its competitors as PIP invests directly into investment opportunities, which makes up about 54 per cent of the portfolio.
It goes directly into secondary deals, which are very exciting at the moment, and also into primary fund investments.
The advantage of that is we have full control over portfolio construction and over the deployment of the vehicle. The fact that we do a lot of direct investments is really interesting because there we can pick the sub-sectors that we want to be involved in, and we can get to the nuts and bolts of the underlying investments.
This is also a global vehicle, so we offer exposure to the biggest private equity market in the world, which, unsurprisingly, is the United States.
Which sectors are you most excited about right now?
I’m really excited about enterprise software. I know it sounds a bit odd, but from a fundamental point of view, this is a sector which is really helping the development of digitisation and automation. It really is affecting almost every other industry sector in the world.
We’ve all heard a lot about artificial intelligence, and a lot of what we’re doing is enabling AI through the use of data in all sorts of underlying industries.
The other sector I’m really interested in is healthcare. In the developed world, we have a problem with ageing demographics, and we need to be able to produce the products and services that people need to address our healthcare concerns in an efficient way.
How has the fund changed over its lifetime?
One of the biggest changes is this move to direct investments. Turn the clock back 20 or 30 years, and PIP was essentially investing just in funds. But now, a majority of investments are now direct into companies.
The other thing is the sector split. If you’d have looked at PIP 10 or 15 years ago, the biggest sector would have been consumer discretionary.
Now, that’s a very tiny proportion of our portfolio, the biggest proportion is IT and then healthcare.
What’s the biggest mistake you’ve made while managing the fund?
There are lots of small mistakes here and there, which I think is normal, because you don’t always get every investment decision right.
Probably the biggest mistake I’ve made is maintaining an energy allocation for a little bit too long. So we should have wound down our allocation to energy probably five or six years ago.
There are two problems with the energy sector. First, it’s connected to the commodity cycle, which we don’t control, so it’s very difficult to get things right. Secondly, clearly, there are ESG issues, certainly with traditional energy sources.
I should probably stress though, energy today only accounts for about two per cent of our portfolio, so it’s really just a tiny sliver.
What are the biggest changes you’ve seen since you started in the industry?
Private equity has changed enormously over the last 20 years. To start with, it was a bit of a cottage industry and only the big names were known. Over time, it’s really developed, partly because the number of opportunities have developed.
If you look at the very well documented shrinking of public markets and expansion of private markets, you’ll see that the number of private equity backed companies has grown enormously over the last few decades, whereas the number of publicly traded companies has actually shrunk.
So in order to get exposure to all the different investment opportunities that are out there today, particularly in some of the more exciting, fast growing sectors, you really need to have exposure to private markets.
The other big change is the way in which private equity is managed these days. About 20 or 30 years ago, it was kind of the barbarians at the gate, using financial engineering. That’s everybody’s image, even today, of private equity.
But the truth really couldn’t be more different. Private equity is really about helping to get companies to grow using operational improvements. It is about getting a company from A to B, with not just capital investment, but also surrounding that company with operational expertise and introducing the right people to come and work there.
We invest mostly in the mid market, small to medium sized businesses. They’re not the businesses you’re going to read about in the newspaper every day, but they are part of the fundamental fabric of our economy, and private equity is helping them grow.