Few investors know much about Petershill Partners - but that could now change

With a stock market valuation of £3.04bn, it is the 31st largest company in the FTSE-Mid 250, ranked above much better-known businesses including Marks & Spencer, HomeServe, Travis Perkins, Virgin Money and Greggs.

It also boasts in Naguib Kheraj, a senior adviser to the Aga Khan and a former finance director at Barclays and former chief executive at JP Morgan Cazenove, a chairman who is one of the best-known names in the City.

Yet few investors, including plenty in the Square Mile, appear to know an awful lot about Petershill Partners.

Today’s maiden results should mean a few more start to pay attention.

Petershill, for the uninitiated, was a spin-off from the Wall Street banking giant Goldman Sachs. At the time of flotation, it owned minority stakes in 19 “partner firms”, since raised to 23.

The idea was that it would provide a way for stock market investors to obtain exposure to alternative investment managers, such as private equity firms and hedge funds, that are normally more difficult to access.

Those stakes, including holdings in some of the hottest names in investment management such as Clearlake Capital, Francisco Partners, Caxton Associates and Pelham Capital, were previously held in private funds managed by Goldman Sachs Asset Management.

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The argument was that, were these businesses listed in their own right, they would command high prices – making the chance to buy into them via Petershill an attractive one and particularly at a time when the private equity sector has been enjoying a boom in trading conditions.

It was also, according to the marketing, a fantastic opportunity to buy into the secret sauce that is Goldman’s unparalleled contacts book.

But it’s fair to say that Petershill has been a disappointment since its shares made their stock market debut at the end of September last year. Priced at 350p each, valuing the overall business at £4bn, they briefly hit 359.35p on their first day before drifting to as low as 183.2p at the beginning of March.

Today’s results have sent the shares, which rose by 4%, back to their level at the beginning of the year – although they still remain below the IPO price.

That lacklustre performance may, in part, be explained by the complexity, in the eyes of some investors, of the business. There was also a fair degree of opacity because Petershill did not make clear how much it owned of each firm in its portfolio. Nor was information on the fees it was receiving from each partner firm forthcoming.

Another deterrent, for risk-averse investors, was the relatively small “free float” – with only a quarter of the shares tradeable on the public market. That potentially made them more prone to volatility and particularly when the assets Petershill itself owns are themselves pretty illiquid.

Moreover, given the backdrop of the war in Ukraine, 2022 has been difficult for financial markets so far. That has, for example, reduced the scope for stock market flotations – a key means by which private equity firms exit their investments at a profit.

That was the backdrop to today’s results. The company, which raised $750m during the IPO, reported a pre-tax profit of $260.5m for the period which ran from 24 March last year to the end of 2021.

It also reported a book value per share – basically a measure of the price at which its assets are valued in the accounts divided by the number of shares in issue – equal to 339p as at the end of last year.

That compares with the closing price on Tuesday evening of 264.5p – a significant discount, in other words, the company and its advisors places a significantly higher value on its assets (between $5.5-$6bn, depending on your choice of accounting standard) than the market has been.

Mr Kheraj said the company had surpassed expectations set at the time of the flotation.

He added: “The exceptional quality of our partner-firms has driven a 57% increase in full year partner distributable earnings with highly visible and dependable fee-related earnings at the core of our operating income, underlining our ability to generate sustainable returns for our investors.”

The question is whether this will be enough to attract some sceptics to invest. Certainly the response from brokers today was pretty buoyant.

Hubert Lam, of Bank of America Securities, described the results as “reassuring” while the general financials team at JP Morgan told clients the results were “strong”.

Meanwhile, over at UBS, Michael Werner and his colleagues drew attention to the “better than expected performance fees”.

Time will tell whether that will be enough to drive the shares back towards their IPO price. The current state of global markets is likely to drag on sentiment because it may well hurt the ability of Petershill’s partner firms to make money from performance fees or from exiting investments. It could also impact fund-raising opportunities for the partner firms.

The buy-back scheme unveiled today will be an opportunity for the management to narrow the discount at which the shares trade to book value.

But it may require a wider recovery in investor sentiment for the share price to really go places.

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