Pengana Private Equity Trust (ASX: PE1)

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1. PRODUCT SUMMARY
Pengana Private Equity Trust (PE1, or “the Trust”) is a newly formed trust that will seek to list
on the ASX. The Trust will seek to raise $100m to $600m through the issue of 80m to 480m
units at $1.25 per unit. The Trust will be structured as a fund of funds, providing exposure to
a diversified portfolio of private equity and private credit investments. The Responsible Entity
(RE) of the Trust will be Pengana Investment Management Limited, who will appoint Pengana
Capital Limited as the Manager of the Trust. Both the RE and the Manager are wholly owned
subsidiaries of Pegana Capital Group Limited (ASX:PCG). The Manager will in turn appoint
Grosvenor Capital Management L.P. (“Grosvenor” or the “Investment Manager”) to manage
the portfolio. Grosvenor is a US based alternative asset manager established in 1971 with
in excess of US$52 billion of assets under management (AUM). The Trust will provide an
additional incentive to investors through the issue of ‘Alignment Shares’. PCG will issue an
amount equal to 5% of the total subscription amount of convertible preference shares in
PCG to the Trust, increasing the initial NAV of the Trust by 5%. PCG intends to convert the
Alignment Shares into ordinary shares approximately two years after listing and distribute
in-specie to unitholders. The Trust will seek to generate attractive returns over the long-term,
which is considered to be a ten year period. The Investment Manager has an internal longterm
target return of 8%-14%p.a. The Trust has a target distribution of 4%p.a of the NAV
at the end of the period the distribution is to be paid, which the Trust will seek to pay semiannually.
An inaugural distribution is expected to be paid for the period ending 31 December
2019. The Trust will seek to offset the typically long dated nature of private equity returns by
generating cashflow through an investment in short duration credit investments in the initial
years to generate income for unitholders. The Trust will also invest in and alongside Grosvenor
secondary and co-investment funds in which the portfolio has already been partially invested,
thereby reducing the time to realisation of the underlying investments.
2. INVESTOR SUITABILITY
An investment in the Trust is suitable for investors seeking to diversify their portfolio with
exposure to alternative investments. PE1 provides the ability to gain diversified exposure
to private equity and private credit investments, an asset class not readily available to retail
investors. Private equity investments have an additional layer of risk to listed companies due
to the lack of liquidity and limited transparency. Given this, diversification is key in private
equity investments. Once fully invested, PE1 is seeking to provide exposure to more than
500 underlying investments through around 100 funds. It will seek to pay a semi-annual
distribution of 4%p.a. thus providing a regular income stream to investors. It is expected the
Trust will not distribute returns in excess of the target distribution to unitholders under the
AMIT regime. Capital raised will be invested globally, largely in North America, and will have
direct currency exposure. PE1 is not expected to hedge the currency exposure and therefore
movements in the relevant currencies will impact the Australian dollar value of the portfolio.
3. RECOMMENDATION
Independent Investment Research (IIR) has assigned the Pengana Private Equity Trust
(expected ASX code: PE1) a Recommended Plus rating. Our rating is based on PE1 raising
funds towards the upper end of the offer range and may be subject to review if this is
not achieved. The Trust is complex in both structure and investment style and as such we
advise potential investors to take the time to gain comfort in the structure and investment
style. While the Trust will have ASX liquidity, the underlying investments will be largely
illiquid. By nature returns from private equity investments can be lumpy and require a
long-term investment commitment. The Trust is yet to raise capital and list and therefore
has no performance history, however, the portfolio will be managed by Grosvenor which
has significant experience in private market investments and a robust investment process.
Grosvenor has developed a sizable investment platform that provides it with unprecedented
access to fund managers and co-investment opportunities in the private equity market. There
are a number of positive structural features of the Trust, including (1) PCG will be paying the
costs of the offer which means there will be no discount to the NAV at the time of listing;
(2) the Trust will be issued with Alignment Shares in PCG that will result in the NAV at the
commencement of trading being at a 5% premium to the offer price; and (3) the Trust will
seek to pay distributions from the outset, mitigating the typically long dated nature of returns
from private equity investments.