Pantheon International (PIN ), or ‘PIP’, believes the tide for private equity is beginning to turn as the Bank of England cuts interest rates and the Federal Reserve signalled it may do so in September, bringing much-needed relief to a funds sector dogged by fears of rising finance costs.

Fund managers Helen Steers and Charlotte Morris told Citywire that more companies in their global private equity portfolio were being prepared for exit, with mandates given to investment banks, as the sector prepared for deal activity to mount in the coming months.

Annual results showed that demand for private equity could already be improving, as the £2.3bn investment trust saw the shares advance 20% in the 12 months to 31 May, buoyed by last year’s groundbreaking £200m share buyback programme.

The shares’ wide discount to net asset value narrowed from 41% to 34% in response to the buybacks, with the board unveiling a new policy of how cashflows will be allocated between buybacks and new investments at the end of May.

Chair John Singer said misunderstandings of the private equity sector persisted, such as perceptions of inflated valuations, fees and the lack of consistent disclosure, that dampened demand and led to discounts.

‘As a sector, we must come together to address the concerns of shareholders, so that a well-deserved rerating of our sector can take place,’ Singer said.

In an attempt to ‘dispel myths’, Pantheon has appointed a marketing agency to make communications and branding clearer as it looks to drum up interest from retail investors.

The portfolio saw underlying growth in net asset value (NAV) per share of 6.1%, helped by its external fund managers exiting more than 400 positions at an average 20% valuation uplift. The trust has exposure to thousands of private companies through its fund investments.

Just under half the portfolio consists of smaller and mid-level buyout companies valued between £500m and £1.5bn. 

Steers and Morris said they preferred the smaller, but still profitable, end of the spectrum, as debt levels tended to be lower and valuations were more attractive.

On average portfolio companies grew earnings and revenues by 17% and 14% respectively, slightly below their five-year rates of 19% and 17%, but good nonetheless.

‘This indicates the strength and resilience of these companies and underpins our confidence in PIP’s reported NAV,’ the company said.

The May factsheet shows primary investments, or private equity funds Pantheon has invested in from launch, comprise 35% of assets, while co-investments (which is when the firm invests in a company alongside another private equity manager) make up 34%.

The pair noted that manager-led secondaries, the ‘sweet spot’ where Pantheon invests in a company alongside a private equity manager that has already been invested for some time, will grow from the current 20% allocation, as the pair reduce the legacy 11% weighting to fund secondaries.

‘That part of the market is incredibly interesting, as you can cherry-pick some of the best companies across the private equity universe,’ they said.

The growth in co-investments means 54% of assets are now invested in private companies directly, belying Pantheon’s reputation as a ‘fund of funds’.

Enterprise software companies make up a third of the portfolio, while healthcare and consumer names respectively make up 20% and 13%.

Dutch retailer Action is the largest individual position in the global portfolio at 1.2% of assets and qualifies as a large buyout as its value has swelled to £3.6bn, supported by 3i Group (III ), which by contrast has 64% of its assets in the rapidly growing discounter, the main factor in its shares commanding a 51% premium.

Steers and Morris emphasised that the majority of portfolio companies were profitable, with only several in the venture allocation, which makes up 4% of assets, not profitable.

They added that over the last decade only 2.3% of capital has either been lost or impaired.  

Over the last five years, shareholder returns of 73% have outpaced the portfolio’s returns of 41%, as well as the MSCI World index’s 68%, according to Deutsche Numis data.

On Thursday, the shares gained 0.2% to 325p, putting them on a 34% discount below their 30 June NAV of 491.4p, which Deutsche Numis analyst Gavin Trodd said offered ‘significant value’.