Half-yearly Report

Pantheon International Participations PLC Half Yearly Financial Report 31st December 2010 The Company presents its Half Yearly Financial Report for the six months to 31st December 2010. FINANCIAL SUMMARY Highlights 31ST DECEMBER 2010 30TH JUNE 2010 CHANGE Summary of results NAV per share 978.5p 958.7p 2.1% Net assets Â£649.6m Â£636.5m 2.1% Ordinary shares Share price 625.0p 486.0p 28.6% Discount to NAV 36.1% 49.3% Redeemable shares Share price 540.0p 550.0p (1.8)% Discount to NAV 44.8% 42.6% HALF YEAR TO FULL YEAR TO 31ST DECEMBER 2010 30TH JUNE 2010 Investment activity Invested in private equity Â£47.2m Â£67.3m assets Received from private equity Â£76.1m Â£72.5m assets SINCE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION Performance % % P.A. % P.A. % P.A. % P.A. NAV per share 15.8 (2.4) 4.9 4.8 11.4 Ordinary share price 47.1 (9.4) (3.7) 0.8 9.7 FTSE All-Share Total 14.5 1.4 5.1 3.7 8.1 Return MSCI World Total Return 16.4 3.7 5.0 2.4 6.7 (sterling) PIP was launched on 18th September 1987. Â£1,000 invested at inception, assuming reinvestment of dividends and capital repayments, would have been worth Â£8,630 at the share price quoted as at 31st December 2010. Capital structure Ordinary shares 37,521,013 Redeemable shares 28,871,255 Total 66,392,268 CHAIRMAN'S STATEMENT The Company's NAV per share increased by 2% to 978p in the half year to 31st December 2010. Investment gains, amounting to approximately 5% of opening NAV, were partially offset by foreign exchange losses during the period. The ordinary share price increased by 29% in the period to 625p. Recently accelerating positive cash flows reflect the maturing of the portfolio, which should be beneficial for performance and further promotes the Company's financial strength. Realisation activity picked up considerably in the period, with the Company generating net distributions of Â£22m in the December quarter alone. The balance sheet has been strengthened by these cash flows, and your Board is confident that the Company has sufficient financing to comfortably cover its future commitments. PIP's mature portfolio of assets, with an average age of 6.6 years, should be entering a phase of strong cash flow generation. Furthermore, many of these distributions should be executed at uplifts to carrying value, thereby contributing positively to PIP's investment performance. The Company will soon be in a position to resume its investment programme. The continuation of higher distribution rates has meant that since 31st December, the Company has fully repaid its bank debt facility, which will expire in May 2012. The Company is seeking to extend the facility beyond this maturity date to provide additional flexibility in the management of its finances. As stated in the June 2010 Annual Report, the Board intends to prioritise the secondary market for any new commitments. Secondary assets should provide attractive investment opportunities with earlier performance and cash flows. Furthermore, the lower outstanding commitments associated with secondary investment strategies are consistent with the Company's aim of reducing financial risk. The Board believes that the current share price represents attractive value. Consequently, we will consider targeted buybacks as a means of taking advantage of the wide discount. Although the discount narrowed from 49% at 30th June 2010 to 36% at 31st December 2010, it is our view that the share price does not fully reflect the fundamental improvements that we have seen in the performance of the Company and the wider private equity sector. A continuation of healthy positive cash flows and investment performance, together with recognition of the renewed strength of the Company's balance sheet, should help to continue to narrow the discount. Performance and Investment Activity In the six months to 31st December 2010 the NAV increased by Â£13m. Reported gains in unlisted and listed securities amounted to Â£33m. These were partially offset by a Â£17m loss from the effect of foreign exchange movements on the Company's portfolio and cash balances. Interest and expenses, net of income, amounted to Â£3m. The Company generated net cash inflows from investments of Â£29m in the six months to 31st December 2010, more than double the net cash inflow of Â£11m in the six months to 30th June 2010. Distributions in the six month period were Â£76m, which is Â£4m more than the total distributions generated during the whole of the 2010 financial year. Over 60% of this activity occurred in the December quarter, when PIP witnessed a significant increase in the rate of realisations of underlying companies. Many of these realisations have been executed at uplifts to carrying value. Investment activity has increased also, although not to the same extent as realisation activity. Total calls in the six month period amounted to Â£47m, which represents over two thirds of the calls experienced in the Company's entire 2010 financial year. During the crisis private equity managers were quick to stabilise capital structures within their portfolio companies, and it is no surprise that most new investments are financing buy and build strategies or investments new to the portfolio. Commitments The Company made no new commitments in the six months to 31st December 2010 but continues to make new investments through calls of current undrawn commitments. Through drawdowns and currency movements, these were reduced during the six month period by Â£55m to Â£276m. Market and Portfolio Review The recovery of global economic growth continued mostly unabated during the second half of 2010, leading to an approximate 20% rise in both the S&P 500 and the FTSE All-Share. The private equity industry has been quick to react to the downturn, rationalising cost bases and re-structuring balance sheets to strengthen portfolio companies. With economies returning to growth, these same companies are, on the whole, very well positioned to benefit from any upswing in the economic cycle. Notwithstanding this, our optimism about the future is tempered by a number of risks concerning sovereign debt, the spectre of inflation and potential overheating in Asian economies. In the context of these issues, we still feel that the best way to view the market is with a healthy dose of caution. Buyout investment activity in the six months to 31st December 2010 continued to recover from its lows in the financial crisis, more than doubling relative to the same period in 2009. The improved outlook for corporate earnings and the increase in the availability of debt, particularly in the high-yield bond market, aided much of this increase in activity. Even so, it remains the case that the market for larger buyout transactions is still not fully recovered, and it could be some time before the availability of debt rises back to historically normal levels. A significant risk to any recovery in investment activity would be further defaults or bail outs in the European sovereign debt market, sucking up liquidity and restricting the debt available for buyout transactions. Buyout realisation activity dramatically improved in the period under review, driven by an increase in both trade sales and secondary buyouts. Furthermore, strength in the venture-backed M&A market continued, with the calendar year 2010 producing the largest number of venture-backed M&A exits since records began in 1985. There continue to be many technology companies with high levels of cash that have the ability and desire to buy cutting edge assets, to bolster research and development programmes and enhance product offerings. As such, we expect strength in the venture-backed M&A market to continue. In addition, 32 US venture-backed IPOs were executed in the December quarter, representing the biggest quarter for IPOs since the September quarter of 2000. Healthy IPO and M &A markets are desirable to create a favourable pricing dynamic within the venture-backed M&A market. Any further IPO strength could lead to potentially attractive returns in the venture & growth market in the coming quarters. The diversification of the Company's assets by stage, geography, sector and maturity helps to reduce portfolio risk. The majority of the Company's buyout exposure is to small/mid market transactions that tend to utilise moderate levels of debt. Only 14% of the portfolio relates to large/mega buyouts from 2005 to 2007 vintages, that are sometimes associated with excessive leverage. 33% of the portfolio is invested in venture & growth assets that utilise little or no debt. As a result, the underlying leverage of PIP's portfolio is moderate in the context of buyout debt levels associated with transactions executed at the peak of the buyout market. PIP's ability to buy mature assets in the secondary market is a valuable advantage in adding performance potential in the medium and long term. In the past two years, activity in the private equity industry has been relatively subdued. With a strengthened balance sheet and Pantheon's globally focused, market leading investment capabilities, PIP is well positioned to benefit from increasing activity in the secondary market and attractive opportunities available in the broader private equity industry. Capital Structure and Financing At 31st December 2010, PIP's available financing stood at Â£197.6m, comprising Â£ 16.3m in cash, unutilised bank loans with a sterling equivalent of Â£131.8m and Â£49.5m of available standby financing. The sum of the Company's available financing and portfolio of assets exceeded its undrawn commitments by 3.5 times, up from 2.8 times at 30th June 2010. It should be noted that a portion of the Company's undrawn commitments might not be called by the underlying managers. When a fund is past its investment period, which is typically between five and six years, it generally cannot make any new investments (only draw capital to fund existing follow-on investments or pay expenses). As a result, the rate of capital calls in these funds tends to slow dramatically. 24% of the Company's undrawn commitments are in fund vintages of six years or older. In the period, a further Â£51m of unsecured subordinated loan notes (the "Notes") were issued to ensure the Company has sufficient liquidity to meet an expected increase in call activity. This takes the total Notes outstanding to Â£100.5m. The Board remains confident that the Company has sufficient financing to comfortably cover its future commitments. The bank loan facility is due to mature in May 2012. As mentioned earlier, it is a key priority of the Board to extend this facility to provide additional flexibility in the management of the Company's finances. In conjunction with this, the Company intends to review how it could simplify its equity capital structure going forward. Outlook We view the second half of PIP's 2011 financial year with cautious optimism. Private equity managers, on the whole, have been quick to deal with cost and debt issues within portfolio companies, and as a result, should be in a strong position to benefit from top line growth if economies continue to recover. We expect to see continued increases in call activity. Many private equity funds have substantial levels of undrawn commitments that can be invested in potentially attractive deals over the coming periods. Furthermore, as debt markets continue to open up, we may see an increase in the proportion of larger deals in the market. Realisation activity should continue to be healthy in the coming periods. Many of the portfolio's mature underlying funds will be seeking to exit profitable investments and provide liquidity to their investors. Further recovery in the IPO markets, along with a continuation of activity from trade buyers, should lead to very significant cash generation in the next few years. Such a background should lead to realisations being made, on the whole, at uplifts to carrying value and consequently a period of strong cash generation for the Company should enhance NAV per share growth. It is our view that a continuation of profitable realisation activity will highlight to the market the significant disconnect between PIP's discount and the fundamentals driving value in the private equity sector. As mentioned at the start of this statement, the Board is focused upon resuming the Company's investment programme. The investment outlook is promising, particularly in the secondary market, where current discount levels provide attractive opportunities for investors with the expertise and deal credentials to execute transactions at disciplined prices. TOM BARTLAM Chairman 28th February 2011 THE MANAGER'S REVIEW Investments Called in the Half Year to 31st December 2010 New investments financed during the period ranged across a multitude of sectors, from mobile satellite communications firms to oil and gas companies, publishers to cinema operators and from finance-related companies to firms operating at the cutting edge of the life sciences and health care industries. Further investments will be made in the coming periods via the Company's undrawn commitments of Â£276m, ensuring that the portfolio continues to invest throughout the economic cycle. Calls* PIP paid Â£47m in calls during the half year to 31st December 2010, representing approximately 70% of the value of calls in the whole of the Company's 2010 financial year. USA 38% Europe 49% Asia and other 13% Activity levels have continued to pick up in the period. The call rate, as measured by calls in the period divided by opening undrawn commitments, in the half year to 31st December 2010 was over 50% greater than the same period in 2009. * Geographical split of calls calculated using PIP holding level data and looking through the portfolio's largest fund-of-funds, Monteverdi. Distributions in the Half Year to 31st December 2010 PIP received distributions from more than 200** funds, with many at significant uplifts to carrying value. The Company's mature, well diversified portfolio is well placed to generate significant levels of cash in the future. Distributions** PIP received Â£76m in proceeds from the portfolio during the half year to 31st December 2010, Â£4m more than the Company received in the full 2010 financial year. USA 67% Europe 19% Asia and other 14% In the half year to 31st December 2010, the Company experienced a significant increase in realisation activity across all stages. In terms of region, the majority of the pick-up in activity was driven by the portfolio's USA-based assets. ** Total number of distributions and geographical split calculated using PIP holding level data and looking through the portfolio's largest fund-of-funds, Monteverdi. Finance Cash and Available Bank Facility At 31st December 2010 the Company had Â£16.3m in cash. In addition, $102.4m of its $117.4m available US dollar bank loan facility and â‚¬77.5m of its â‚¬85.9m available euro bank loan facility remained undrawn. Standby Financing PIP has a number of "standby" agreements with certain institutions under which the Company can require the institutions to subscribe up to Â£150m for new redeemable shares, at a price equal to the prevailing NAV per share at the time of subscription. The purpose of these agreements is to provide an additional level of assurance that PIP will be in a position to meet its financial obligations. PIP has issued a total of Â£100.5m in unsecured subordinated loan notes (the "Notes") to these institutions. All of these Notes mature on 15th November 2011. If PIP issues redeemable shares via its "standby" agreements, it must use the proceeds of the issue to repay the Notes. Only once the Notes have been paid down in full can any issuance via the "standby" agreements be used to finance other activities in the Company. As a result, the Company effectively had Â£49.5m of unutilised "standby" financing available at 31st December 2010. Commitment Cover At 31st December 2010, PIP's available financing stood at Â£197.6m, comprising Â£16.3m in cash, Â£131.8m remaining bank loan (sterling equivalent) and Â£49.5m of available "standby" financing. The sum of the Company's available financing and portfolio of assets exceeded its undrawn commitments by 3.5 times, up from 2.8 times at 30th June 2010 and 2.4 times at 31st December 2009. It should be noted that a portion of the Company's undrawn commitments might not be called by the underlying managers. When a fund is past its investment period, which is typically between five and six years, it generally cannot make any new investments (only draw capital to fund existing follow-on investments or pay expenses). As a result, the rate of capital calls in these funds tends to slow dramatically. 24% of the Company's undrawn commitments are in fund vintages of six years or older. Portfolio Overview The underlying companies in the portfolio range from large and mature industrial enterprises with multinational operations to early-stage ventures operating at the leading edge of technological development. All the companies have one factor in common: the influence of professional private equity managers who are motivated to maximise the value of each underlying investment. Portfolio Analysis by Value as at 31st December 2010 Geographical Spread The weighting of Europe increased by 5% and the weighting of the USA decreased by 4% in the half year period. These movements were in part due to the strengthening of the euro and the weakening of the dollar against sterling. Furthermore, net calls were higher in Europe which also had the effect of increasing its weighting. The weighting of Asia decreased by 1% to 10%. Europe 35% USA 55% Asia and other 10% Stage Composition PIP's portfolio is well diversified across all the major stages of private equity. The majority of the Company's exposure to buyouts is via mid and small cap funds, which have tended to utilise lower levels of leverage in their acquisition structures than the very largest funds. In addition, PIP has a significant exposure to venture and growth-focused funds. Small/Mid Buyout 35% Venture & Growth 33% Large/Mega Buyout 20% Special Situations 6% Generalist 4% Directs 2% Maturity PIP's portfolio is well diversified by fund vintage (referring to the year the fund made its first drawdown). Only 14% of the portfolio relates to large/mega buyouts from fund vintages 2005 to 2007, indicating that the Company has a relatively low exposure to the highest levels of leverage experienced during the peak of the buyout market. 1999 and earlier 11% 2000 13% 2001 6% 2002 2% 2003 3% 2004 7% 2005 13% 2006 18% 2007 20% 2008 6% 2009 1% Primary/Secondary Split 61% of the portfolio is derived from primary transactions and 39% from secondary transactions. Primary 61% Secondary 39% Sector Composition PIP's portfolio is well diversified by the sectors in which the underlying companies operate. This sectoral diversification helps to minimise the effects of cyclical trends within particular industry segments. Relative to the FTSE All-Share and MSCI World indices, PIP is underweight in many of the segments that have been most associated with high levels of volatility since the start of the financial crisis, such as Financials, Energy and Materials. Energy 6% Materials 4% Industrials 17% Consumer 19% Discretionary Consumer Staples 6% Health Care 14% Financials 6% Information 22% Technology Telecom Services 6% Outstanding Commitments PIP's outstanding commitments to fund investments, 75% of which relate to primary funds and 25% of which relate to secondary funds, are well diversified by stage and geography and will enable the Company to participate in future investments with many of the highest quality fund managers in the private equity industry. Portfolio Analysis by Outstanding Commitments as at 31st December 2010 PIP's outstanding commitments to investments decreased to Â£276m at 31st December 2010 compared with Â£331m at 30th June 2010. The movement in the period was predominantly due to calls of Â£47m and fluctuations in foreign exchange rates. Geographical Spread The USA and Europe have the largest outstanding commitments, reflecting the fact that they have the most mature private equity markets. Commitments to Asia and other regions totalled 14%. USA 46% Europe 40% Asia and other 14% Stage Composition PIP's outstanding commitments are well diversified across all major stages of private equity. The majority of the buyout exposure is with small/mid cap funds. Venture & growth forms a significant portion of the Company's outstanding commitments. Small/Mid Buyout 43% Venture & Growth 29% Large/Mega Buyout 18% Special Situations 7% Generalist 2% Directs 1% Maturity 24% of PIP's outstanding commitments are in fund vintages of six years or older. These vintages are likely to be past their investment periods and, as such, should have slower call rates. It is likely that a portion of these commitments will not be drawn. 2004 and earlier 24% 2005 7% 2006 16% 2007 31% 2008 20% 2009 2% PANTHEON VEHICLES PIP's manager, Pantheon Ventures (UK) LLP ("Pantheon"), is not entitled to management and commitment fees in respect of PIP's holdings in, and outstanding commitments to, the firm's managed fund-of-funds vehicles. In addition, Pantheon has agreed that PIP will never be disadvantaged in terms of fees compared with the position it would have been in had it made investments directly into the underlying funds rather than indirectly through such fund-of-funds vehicles. TOP 20 MANAGERS BY VALUE AS AT 31ST DECEMBER 2010 % OF PIP'S PRIVATE NUMBER MANAGER REGION STAGE BIAS EQUITY ASSET VALUE 1 Apax Partners EUROPE BUYOUT 2.7% 2 Barclays Private Equity EUROPE BUYOUT 2.6% 3 CVC Capital Partners EUROPE BUYOUT 2.5% 4 IK Investment Partners EUROPE BUYOUT 1.9% 5 Golden Gate Capital USA BUYOUT 1.8% 6 Vision Capital EUROPE BUYOUT 1.7% 7 ABS Capital Partners USA GENERALIST 1.6% 8 Brentwood Associates USA BUYOUT 1.5% 9 Doughty Hanson & Co EUROPE BUYOUT 1.5% 10 Providence Equity USA BUYOUT 1.5% Partners 11 Nova Capital Management EUROPE BUYOUT 1.5% 12 Nordic Capital EUROPE BUYOUT 1.4% 13 Carlyle Group/ USA SPECIAL 1.4% Riverstone Holdings SITUATIONS 14 BC Partners EUROPE BUYOUT 1.4% 15 Oak Investment Partners USA VENTURE & 1.3% GROWTH 16 Pacven Walden Ventures ASIA AND VENTURE & 1.3% OTHER GROWTH 17 Carlyle Group GLOBAL GENERALIST 1.3% 18 Hutton Collins EUROPE SPECIAL 1.3% SITUATIONS 19 Avista Capital Partners USA BUYOUT 1.3% 20 Apollo Management USA BUYOUT 1.2% TOP 20 MANAGERS BY OUTSTANDING COMMITMENTS AS AT 31ST DECEMBER 2010 % OF OUTSTANDING NUMBER MANAGER REGION STAGE BIAS COMMITMENTS 1 Hutton Collins EUROPE SPECIAL 3.1% SITUATIONS 2 Summit Partners GLOBAL VENTURE & 2.6% GROWTH 3 CVC Capital Partners EUROPE BUYOUT 2.4% 4 Carlyle Group GLOBAL GENERALIST 2.1% 5 Clessidra Capital EUROPE BUYOUT 2.1% Partners 6 Golden Gate Capital USA BUYOUT 2.0% 7 Barclays Private Equity EUROPE BUYOUT 1.9% 8 Mercapital EUROPE BUYOUT 1.8% 9 Private Equity Partners EUROPE BUYOUT 1.8% 10 Mid-Europa Partners EUROPE BUYOUT 1.8% 11 Doughty Hanson & Co EUROPE BUYOUT 1.7% 12 ABS Capital Partners USA GENERALIST 1.6% 13 Technology Crossover USA VENTURE & 1.6% Ventures GROWTH 14 Brentwood Associates USA BUYOUT 1.5% 15 Arcadia EUROPE BUYOUT 1.5% 16 Vision Capital EUROPE BUYOUT 1.4% 17 Gemini Israel Funds EUROPE VENTURE & 1.3% GROWTH 18 Sagard Private Equity EUROPE BUYOUT 1.3% Partners 19 Archer Capital ASIA AND BUYOUT 1.2% OTHER 20 Apax Partners EUROPE BUYOUT 1.2% TOP 20 COMPANIES BY VALUE AS AT 31ST DECEMBER 2010 % OF PIP'S PRIVATE NUMBER COMPANY SECTOR EQUITY ASSET VALUE 1 Carbolite INDUSTRIALS 1.1% 2 Attendo HEALTHCARE 1.1% 3 Nycomed HEALTHCARE 0.8% 4 Bibby Scientific INDUSTRIALS 0.7% 5 TDC* TELECOMMUNICATION 0.6% SERVICES 6 MYOB INFORMATION TECHNOLOGY 0.5% 7 Vizada TELECOMMUNICATION 0.5% SERVICES 8 Rosetta Stone* INFORMATION TECHNOLOGY 0.5% 9 Scilabware HEALTHCARE 0.4% 10 The Teaching Company CONSUMER DISCRETIONARY 0.4% 11 Jack Wolfskin CONSUMER DISCRETIONARY 0.4% 12 InterXion** INFORMATION TECHNOLOGY 0.4% 13 Brighthouse CONSUMER DISCRETIONARY 0.4% 14 Array Marketing Group CONSUMER DISCRETIONARY 0.4% 15 Capio HEALTHCARE 0.3% 16 PFW INDUSTRIALS 0.3% 17 CPL Industries INDUSTRIALS 0.3% 18 2e2 INFORMATION TECHNOLOGY 0.3% 19 Qlik Technologies* INFORMATION TECHNOLOGY 0.3% 20 VBrick Systems INFORMATION TECHNOLOGY 0.3% * Quoted holding as at 31st December 2010 ** InterXion executed an IPO in January 2011 COMPANY STRATEGY, OBJECTIVE AND INVESTMENT POLICY The Company's primary investment objective is to maximise capital growth by investing in a diversified portfolio of private equity funds and, occasionally, directly in private companies. Company Strategy The spread of performance in private equity is much wider than in other asset classes and the selection of managers has a significant influence on investment performance. As a specialist fund-of-funds manager monitoring and researching the global private equity market, Pantheon, PIP's Manager, is well positioned to identify fund managers who have the skills and strategies to deliver superior performance within their particular market segments. PIP's strategy is to invest with leading private equity managers whilst reducing investment risk through diversification of the underlying portfolio by geography, investment stage and sector. This strategy is implemented through PIP's primary and secondary investment programmes. PIP has the flexibility to vary the size of the primary and secondary investment programmes depending on available financing. The portfolio reflects PIP's prolonged access to Pantheon's highly successful primary and secondary investments over the past 23 years. Only funds that have passed rigorous due diligence and research are selected for the primary and secondary programmes. Primary Programme The primary programme invests in private equity funds when they are first formed. Pantheon aims to secure access to superior managers and to identify high quality managers often overlooked by the market. Investments are made on a pro-rata basis alongside Pantheon's regional fund-of-funds. Through the primary programme, PIP invests in fewer than 2% of the estimated universe of private equity funds and thus aims to substantially outperform the market averages, given the high dispersal of returns between managers. The primary programme enables PIP to invest strategically in specific areas of the market, put money to work steadily over time and gain access to the very best funds. Secondary Programme The secondary programme purchases existing investments in private equity funds. Typically these investments are acquired between three and six years after a fund's inception. PIP benefits from secondaries because the fees and expenses in the first few years have been paid and distributions from the fund will be returned over a shorter time period. This helps to reduce the drag to performance from young and immature funds, known as the "J-curve effect". In addition, secondary assets can be purchased at a discount, especially in cases where the seller has liquidity problems, increasing the opportunity for outperformance. In accordance with the terms of its management agreement with Pantheon, PIP is entitled under Pantheon's allocation policy to the opportunity to co-invest in a predetermined ratio alongside Pantheon's latest global secondary fund, benefiting from access to larger secondary opportunities that it would not have had the capacity to complete alone. The secondary programme enables PIP to acquire attractively priced secondary interests as they become available, and aims to outperform market averages through judicious pricing and timing. Resuming the Investment Programmes The Company will resume making commitments when the Board is satisfied that it has sufficient liquid resources. The Company will prioritise the secondary programme with its new commitments. Limited primary commitments might be made where the Board feels that sufficient exposure to a particular stage or geography cannot be obtained from the secondary programme alone. The Company is in the process of seeking an extension to the maturity of the bank loan facility so as to further alleviate current constraints over making new commitments. Objective and Investment Policy The Company's primary investment objective is to maximise capital growth by investing in a diversified portfolio of private equity funds and, occasionally, directly in private companies. The Company's policy is to make unquoted investments, in general, by subscribing for investments in new private equity funds and buying secondary interests in existing private equity funds and, occasionally, by acquiring direct holdings in unquoted companies, usually either where a vendor is seeking to sell a combined portfolio of fund interests and direct holdings or where there is a private equity manager, well known to the Company's Manager, investing on substantially the same terms. The Company may invest in private equity funds which are quoted. In addition, the Company may from time to time hold quoted investments in consequence of such investments being distributed to the Company from its fund investments or in consequence of an investment in an unquoted company becoming quoted. The Company will not otherwise normally invest in quoted securities, although the Company reserves the right to do so should this be deemed to be in the interests of the Company. The Company may invest in any type of financial instrument, including equity and non-equity shares, debt securities, subscription and conversion rights and options in relation to such shares and securities and interests in partnerships and limited partnerships and other forms of collective investment scheme. Investments in funds and companies may be made either directly or indirectly, through one or more holding, special purpose or investment vehicles in which one or more co-investors may also have an interest. The Company employs a policy of over-commitment. This means that the Company may commit more than its available uninvested assets to investments in private equity funds on the basis that such commitments can be met from anticipated future cash flows to the Company and through the use of borrowings and capital raisings where necessary. The Company's policy is to adopt a global investment approach. The Company's strategy is to mitigate investment risk through diversification of its underlying portfolio by geography, sector and investment stage. Since the Company's assets are invested globally on the basis, primarily, of the merits of individual investment opportunities, the Company does not adopt maximum or minimum exposures to specific geographic regions, industry sectors or the investment stage of underlying investments. In addition, the Company adopts the following limitations for the purpose of diversifying investment risk: > the requirement for approval as an investment trust that no holding in a company will represent more than 15% by value of the Company's investments at the time of investment; > the aggregate of all the amounts invested by the Company in (including commitments to or in respect of) funds managed by a single management group may not, in consequence of any such investment being made, form more than 20% of the aggregate of the most recently determined gross asset value of the Company and the Company's aggregate outstanding commitments in respect of investments at the time such investment is made; > the Company will invest no more than 15% of its total assets in other UK-listed closed-ended investment funds (including UK-listed investment trusts). The Company may invest in funds and other vehicles established and managed or advised by Pantheon or any Pantheon affiliate. In determining the diversification of its portfolio and applying the manager diversification requirement referred to above, the Company looks through vehicles established and managed or advised by Pantheon or any Pantheon affiliate. The Company may enter into derivatives transactions for the purposes of efficient portfolio management and hedging (for example, hedging interest rate, currency or market exposures). Surplus cash of the Company may be invested in fixed interest securities, bank deposits or other similar securities. The Company may borrow to make investments and typically uses its borrowing facilities to manage its cash flows flexibly, enabling the Company to make investments as and when suitable opportunities arise and to meet calls in relation to existing investments without having to retain significant cash balances for such purposes. Under the Company's articles of association, the Company's borrowings may not at any time exceed 100% of the Company's net asset value. Typically, the Company does not expect its gearing to exceed 30% of gross assets. However, gearing may exceed this in the event that, for example, the Company's pipeline of future cash flows alters. The Company may invest in private equity funds, unquoted companies or special purpose or investment holding vehicles which are geared by loan facilities that rank ahead of the Company's investment. The Company does not adopt restrictions on the extent to which it is exposed to gearing in funds or companies in which it invests. INTERIM MANAGEMENT REPORT AND RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE HALF YEARLY FINANCIAL REPORT Interim Management Report The important events that have occurred during the period under review, the key factors influencing the financial statements and the principal uncertainties for the remaining six months of the financial year are set out in the Chairman's Statement and the Manager's Review. The principal risks facing the Company are substantially unchanged since the date of the Annual Report for the year ended 30th June 2010 and continue to be as set out in that report on pages 40 and 41. Risks faced by the Company include, but are not limited to, funding of investment commitments, risks relating to investment opportunities, financial risk of private equity, long-term nature of private equity investments, liquidity/marketability risk, valuation uncertainty and market price risk, gearing, interest rate risk, foreign currency risk, competition, the unregulated nature of underlying investments, defaults on commitments, taxation and the risks associated with the engagement of third parties. Responsibility Statement The Directors confirm that to the best of their knowledge: > the condensed set of financial statements has been prepared in accordance with the Statement on Half Yearly Financial Reports issued by the UK Accounting Standards Board and gives a true and fair view of the assets, liabilities and financial position of the Company; and > this Half Yearly Financial Report includes a fair review of the information required by: (a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and (b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Company during that period; and any changes in the related party transactions described in the last annual report that could do so. This Half Yearly Financial Report was approved by the Board of Directors on 28th February 2011 and the above responsibility statement was signed on its behalf by Tom Bartlam, Chairman. CONDENSED INCOME STATEMENT (UNAUDITED) FOR THE SIX MONTHS TO 31ST DECEMBER SIX MONTHS TO 31ST SIX MONTHS TO 31ST YEAR TO 30TH JUNE 2010 DECEMBER 2010 DECEMBER 2009 REVENUE CAPITAL TOTAL* REVENUE CAPITAL TOTAL* REVENUE CAPITAL TOTAL* Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Gains on - 16,124 16,124 - 51,005 51,005 - 130,815 130,815 investments designated at fair value through profit or loss** Currency - 91 91 - 1,793 1,793 - 2,758 2,758 gains on cash and borrowings Income 4,694 - 4,694 1,742 - 1,742 4,128 - 4,128 Investment (4,407) - (4,407) (4,227) - (4,227) (8,715) - (8,715) management fees Other (578) (4) (582) (378) (195) (573) (668) (459) (1,127) expenses RETURN ON (291) 16,211 15,920 (2,863) 52,603 49,740 (5,255) 133,114 127,859 ORDINARY ACTIVITIES BEFORE FINANCING COSTS AND TAX Interest (1,673) - (1,673) (2,057) - (2,057) (3,840) - (3,840) payable and similar charges/ finance costs RETURN ON (1,964) 16,211 14,247 (4,920) 52,603 47,683 (9,095) 133,114 124,019 ORDINARY ACTIVITIES BEFORE TAX Tax on (1,123) - (1,123) (528) - (528) (1,129) - (1,129) ordinary activities RETURN ON (3,087) 16,211 13,124 (5,448) 52,603 47,155 (10,224) 133,114 122,890 ORDINARY ACTIVITIES AFTER TAX FOR THE PERIOD RETURN PER (4.65)p 24.42p 19.77p (8.21)p 79.23p 71.02p (15.40)p 200.50p 185.10p ORDINARY AND REDEEMABLE SHARE * The total column of this statement represents the Company's profit and loss account prepared in accordance with UK Accounting Standards. The supplementary revenue return and capital columns are prepared under guidance published by the Association of Investment Companies. ** Includes currency movements on investments. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period. There were no recognised gains or losses other than those passing through the Income Statement. The Notes form part of these financial statements. RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS (UNAUDITED) CAPITAL CAPITAL OTHER RESERVE ON SHARE SHARE REDEMPTION CAPITAL INVESTMENTS SPECIAL REVENUE CAPITAL PREMIUM RESERVE RESERVE HELD RESERVE RESERVE TOTAL Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Movement for the six months ended 31st December 2010 OPENING EQUITY 25,428 183,184 26 185,419 192,828 99,861 (50,234) 636,512 SHAREHOLDERS' FUNDS Return for the - - - 24,371 (8,160) - (3,087) 13,124 period CLOSING EQUITY 25,428 183,184 26 209,790 184,668 99,861 (53,321) 649,636 SHAREHOLDERS' FUNDS Movement for the six months ended 31st December 2009 OPENING EQUITY 25,428 183,184 26 175,592 69,541 99,861 (40,010) 513,622 SHAREHOLDERS' FUNDS Return for the - - - (2,289) 54,892 - (5,448) 47,155 period CLOSING EQUITY 25,428 183,184 26 173,303 124,433 99,861 (45,458) 560,777 SHAREHOLDERS' FUNDS Movement for the year ended 30th June 2010 OPENING EQUITY 25,428 183,184 26 175,592 69,541 99,861 (40,010) 513,622 SHAREHOLDERS' FUNDS Return for the - - - 9,827 123,287 - (10,224) 122,890 year CLOSING EQUITY 25,428 183,184 26 185,419 192,828 99,861 (50,234) 636,512 SHAREHOLDERS' FUNDS The Notes form part of these financial statements. CONDENSED BALANCE SHEET (UNAUDITED) AS AT AS AT AS AT 31ST DECEMBER 2010 31ST DECEMBER 2009 30TH JUNE 2010 Â£'000 Â£'000 Â£'000 Fixed assets Investments designated 753,965 694,394 763,304 at fair value through profit or loss Current assets Debtors 3,522 526 917 Cash at bank 16,346 45,842 6,431 19,868 46,368 7,348 Creditors: Amounts falling due within one year Other creditors 6,885 10,485 6,916 Bank loan 16,812 120,000 77,724 Loan notes *100,500 **49,500 49,500 124,197 179,985 134,140 NET CURRENT LIABILITIES (104,329) (133,617) (126,792) NET ASSETS 649,636 560,777 636,512 Capital and reserves Called-up share capital 25,428 25,428 25,428 Share premium 183,184 183,184 183,184 Capital redemption 26 26 26 reserve Other capital reserve 209,790 173,303 185,419 Capital reserve on 184,668 124,433 192,828 investments held Special reserve 99,861 99,861 99,861 Revenue reserve (53,321) (45,458) (50,234) TOTAL EQUITY 649,636 560,777 636,512 SHAREHOLDERS' FUND NET ASSET VALUE PER 978.48p 844.64p 958.71p SHARE - ORDINARY AND REDEEMABLE Number of ordinary 66,392,268 66,392,268 66,392,268 shares and redeemable shares in issue * In addition to the series A unsecured subordinated loan notes issued in December 2008, the Company issued Â£51m of series B unsecured subordinated loan notes in September and October 2010, set to mature in November 2011. At the same time it was agreed to extend the maturity date of the series A unsecured subordinated loan notes from November 2010 to November 2011. ** The series A loan notes issued in December 2008 have been reclassified from a non-current liability to a current liability as at 31st December 2009, due to their maturity date at that time of November 2010. This did not affect the figure of total assets less current and non-current liabilities. The Notes form part of these financial statements. CONDENSED CASH FLOW STATEMENT (UNAUDITED) FOR THE SIX MONTHS TO 31ST DECEMBER SIX MONTHS TO SIX MONTHS TO YEAR TO 31ST DECEMBER 2010 31ST DECEMBER 2009 30TH JUNE 2010 Â£'000 Â£'000 Â£'000 Cash flow from operating activities Investment income 4,696 1,739 4,121 received Deposit and other (2) 3 7 interest (paid)/ received Investment management (4,459) (4,268) (12,236) fees paid Secretarial fees paid (102) (102) (178) Other cash payments (370) (2,922) (3,382) NET CASH OUTFLOW FROM (237) (5,550) (11,668) OPERATING ACTIVITIES Returns on investment and serving of finance Revolving credit (463) (1,036) (1,804) facility and overdraft interest paid Loan commitment and (238) (109) (341) arrangement fees paid Redeemable share (189) (320) (640) commitment fees paid Interest on loan notes (782) (606) (1,105) paid NET CASH OUTFLOW FROM (1,672) (2,071) (3,890) RETURNS ON INVESTMENT AND SERVING OF FINANCE Tax Net tax charge (1,123) (528) (1,129) NET CASH OUTFLOW FROM (1,123) (528) (1,129) TAX Capital expenditure and financial investment Purchases of (51,609) (42,123) (75,857) investments Disposals of 74,403 73,809 117,983 investments Realised currency gains 29 191 205 NET CASH INFLOW FROM 22,823 31,877 42,331 CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT NET CASH INFLOW BEFORE 19,791 23,728 25,644 FINANCING Financing Drawdown of loan 3,754 - - Repayment of loan (64,688) - (41,685) Issue of loan notes 51,000 - - Realised currency gains 484 - 591 on repayment of revolving credit facility NET CASH OUTFLOW FROM (9,450) - (41,094) FINANCING INCREASE/(DECREASE) IN 10,341 23,728 (15,450) CASH The Notes form part of these financial statements. NOTES TO THE HALF YEARLY FINANCIAL STATEMENTS (UNAUDITED) 1. Financial Information The financial information has been prepared on the historical cost basis of accounting, except for the measurement at fair value of investments and financial instruments, and in accordance with applicable UK accounting standards on the basis that all activities are continuing. The accounting policies set out in the statutory accounts for the year ended 30th June 2010 have been applied to this Half Yearly Financial Report. The accounts have been prepared in accordance with the Statement of Recommended Practice (revised January 2009) issued by the Association of Investment Companies. The financial information contained in this Half Yearly Financial Report is not the Company's statutory accounts. The financial information for the six months ended 31st December 2010 and 31st December 2009 are not for a financial year and have not been audited but have been reviewed by the Company's auditors and their report is attached. The statutory accounts for the financial year ended 30th June 2010 have been delivered to the Registrar of Companies and received an audit report which was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain statements under section 498 (2) or (3) of the Companies Act 2006. 2. Going Concern The Company's business activities, together with the factors likely to affect its future development, performance and position, including its financial position, are set out in the Chairman's Statement and Manager's Review. After due consideration of the balance sheet and activities of the Company and the Company's assets, liabilities, commitments and financial resources, the Directors have concluded that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason, they consider it appropriate to continue to adopt the going concern basis in preparing the financial statements. 3. Tax Charge on Ordinary Activities The tax charge for the six months to 31st December 2010 is Â£1,123,000 (six months to 31st December 2009: Â£528,000; year to 30th June 2010: Â£1,129,000). The tax charge is wholly comprised of irrecoverable overseas withholding tax suffered. Investment gains are exempt from capital gains tax owing to the Company's status as an investment trust. 4. Related Party Transactions Pantheon Ventures (UK) LLP, as Manager of the Company, is considered to be a related party by virtue of its management contract with the Company. Mr R.M. Swire, a Director of the Company, is a director of Pantheon Ventures Limited, a parent undertaking of Pantheon Ventures (UK) LLP. During the period, services of a total value of Â£4,407,000 (six months to 31st December 2009: Â£4,227,000; year to 30th June 2010: Â£8,715,000) were purchased by the Company from Pantheon Ventures Limited and Pantheon Ventures (UK) LLP. At 31st December 2010, the amount due to Pantheon Ventures (UK) LLP in management fees and performance fees disclosed under creditors was Â£1,491,000 and Â£5,057,000 respectively. The performance fee payable as at 31st December 2010 relates to the initial 18-month calculation period ending 30th June 2008. Details of the novation of the management agreement between the Company and Pantheon Ventures Limited are set out in note 10. 5. Performance Fee The Manager is entitled to a performance fee from the Company in respect of each 12 calendar month period ending on 30th June in each year. The fee payable in respect of each such period is 5% of any increase in the net asset value of the Company at the end of such period over the applicable "high water mark" plus the hurdle rate of 10%. The applicable "high water mark" in respect of any calculation period is the net asset value at the end of the previous calculation period in which a performance fee was payable, compounded annually at the hurdle rate for each subsequent completed calculation period up to the commencement of the calculation period for which the performance fee is being calculated. 6. Reconciliation of Return on Ordinary Activities Before Tax and Financing Costs to Net Cash Flow from Operating Activities SIX MONTHS TO SIX MONTHS TO YEAR TO 31ST DECEMBER 2010 31ST DECEMBER 2009 30TH JUNE 2010 Â£'000 Â£'000 Â£'000 Return on ordinary 15,920 49,740 127,859 activities before financing costs and tax Gains on investments (16,124) (51,005) (130,815) Currency gains on cash (91) (1,793) (2,758) and borrowings Decrease in creditors (32) (2,609) (6,143) Decrease in other 90 117 189 debtors NET CASH OUTFLOW FROM (237) (5,550) (11,668) OPERATING ACTIVITIES 7. Reconciliation of Net Cash Flow to the Movement in Net Debt SIX MONTHS TO SIX MONTHS TO YEAR TO 31ST DECEMBER 2010 31ST DECEMBER 2009 30TH JUNE 2010 Â£'000 Â£'000 Â£'000 Increase/(decrease) in 10,341 23,728 (15,450) cash in period Non-cash movement Exchange (losses)/gains (448) 1,602 1,960 CHANGE IN NET FUNDS/ 9,893 25,330 (13,490) (DEBT) Net debt at beginning (120,793) (148,988) (148,988) of period Loans drawn down (3,754) - - Loans repaid 64,688 - 41,685 Loan notes drawn down (51,000) - - NET DEBT AT END OF (100,966) (123,658) (120,793) PERIOD 8. Analysis of Net Debt SIX MONTHS TO SIX MONTHS TO YEAR TO 31ST DECEMBER 2010 31ST DECEMBER 2009 30TH JUNE 2010 Â£'000 Â£'000 Â£'000 Cash at bank 16,346 45,842 6,431 Bank loan (16,812) (120,000) (77,724) Loan notes (100,500) (49,500) (49,500) (100,966) (123,658) (120,793) 9. Fair Value Hierarchy Financial Assets at Fair Value Through Profit or Loss at 31st December 2010 TOTAL LEVEL 1 LEVEL 2 LEVEL 3 Â£'000 Â£'000 Â£'000 Â£'000 Share holdings 1,286 1,286 - - Fund holdings 752,679 - - 752,679 753,965 1,286 - 752,679 Level 3 Financial Assets at Fair Value Through Profit or Loss at 31st December 2010 PRIVATE EQUITY INVESTMENTS TOTAL Â£'000 Â£'000 Opening balance 762,834 762,834 Purchases at cost 51,609 51,609 Sales proceeds (77,072) (77,072) Total gains or losses included in "Gains on investments" in the Income Statement - on assets sold 23,942 23,942 - foreign exchange loss on disposal (80) (80) - on assets held as at 31st December 2010 (8,554) (8,554) CLOSING BALANCE 752,679 752,679 10. Novation of the Management Agreement Following the acquisition of the Pantheon group by Affiliated Managers Group, Inc., the business of Pantheon Ventures Limited was transferred to a new limited liability partnership, Pantheon Ventures (UK) LLP, as part of a restructuring of the Pantheon group. As part of this process, the management agreement between the Company and Pantheon Ventures Limited was novated to Pantheon Ventures (UK) LLP on 1stDecember 2010. The management and staff of Pantheon Ventures have become partners in or employees of Pantheon Ventures (UK) LLP and continue their previous roles in relation to the Company and other Pantheon-managed funds and accounts. INDEPENDENT REVIEW REPORT TO PANTHEON INTERNATIONAL PARTICIPATIONS PLC Introduction We have been engaged by the Company to review the condensed set of financial statements in the half yearly financial report for the six months ended 31st December 2010 which comprises the Income Statement, Reconciliation of Movements in Equity Shareholders' Funds, Balance Sheet, Cash Flow Statement and Notes to the half yearly financial report. We have read the other information contained in the half yearly financial report which comprises only the Financial Summary, Chairman's Statement, The Manager's Review, the Company Strategy, Objective and Investment Policy, and Interim Management Report and Responsibility Statement of the Directors and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. This report is made solely to the Company in accordance with guidance contained in ISRE (UK and Ireland) 2410, "Review of Interim Financial Information performed by the Independent Auditor of the Entity". Our review work has been undertaken so that we might state to the Company those matters we are required to state to them in a review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusion we have formed. Directors' Responsibilities The half yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. As disclosed in Note 1, the annual financial statements of the Company are prepared in accordance with applicable United Kingdom law and Accounting Standards (United Kingdom Generally Accepted Accounting Practice) and with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts", issued in January 2009. The condensed set of financial statements included in this half yearly financial report has been prepared in accordance with the Accounting Standards Board Statement "Half Yearly Financial Reports" issued in July 2007. Our Responsibility Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half yearly financial report based on our review. Scope of Review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half yearly financial report for the six months ended 31st December 2010 is not prepared, in all material respects, in accordance with the Accounting Standards Board Statement "Half Yearly Financial Reports" and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. GRANT THORNTON UK LLP Auditor London 28 February 2011 Ends The Half Yearly Financial Report will be posted to shareholders shortly. The Report will also be available for download from the following website: www.pipplc.com or on request from the Company Secretary. Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of this announcement.

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