Annual Financial Report

PANTHEON INTERNATIONAL PARTICIPATIONS PLC ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2010 The full Annual Report and Accounts can be accessed via the Company's website at www.pipplc.com or by contacting the Company Secretary on telephone 01392 412122. FINANCIAL SUMMARY HIGHLIGHTS 30TH JUNE 30TH JUNE CHANGE 2010 2009 Summary of results NAV per share 958.7p 773.6p 23.9% Net assets Â£636.5m Â£513.6m 23.9% Ordinary shares Share price 486.0p 295.3p 64.6% Discount to NAV 49.3% 61.8% Redeemable shares Share price 550.0p 350.0p 57.1% Discount to NAV 42.6% 54.8% Investment activity Invested in Â£67.3m Â£157.2m private equity assets Received from Â£72.5m Â£86.1m private equity assets 1 YEAR 3 YEARS 5 YEARS 10 YEARS PERFORMANCE % % P.A. % P.A. % P.A. NAV per share 23.9 1.4 7.8 5.5 Ordinary share 64.6 (19.1) (5.7) 1.4 price FTSE All-Share 21.1 (5.7) 3.5 1.6 Total Return MSCI World Total 21.9 (1.8) 4.3 (0.4) Return (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£6,950 at 30th June 2010. CAPITAL STRUCTURE Ordinary shares 37,521,013 Redeemable shares 28,871,255 Total 66,392,268 CHAIRMAN'S STATEMENT I am pleased to report that PIP's net asset value ("NAV") per share increased by 24% to 958.7p in the 12 months to 30th June 2010. Investment gains accounted for over two-thirds of the increase, with most of the remainder attributed to currency movements. The investment gains were driven by the recovery of global stock markets coupled with improvements in earnings at many of our underlying portfolio companies. The Company's share price increased by 65% in the year under review, due to both NAV performance and a reduction of the discount from 62% to 49%. Whilst this discount reduction is welcome, we believe that market sentiment doesn't acknowledge the renewed strength of the Company's balance sheet and the recent improvement in economic fundamentals which benefits our underlying companies. The Board and the Company's management regard the excessively high discount as unsatisfactory and are reviewing potential ways of addressing this issue. We are seeing evidence of relatively strong earnings growth in our portfolio, as our underlying portfolio company managers have worked to ensure efficiency savings through rationalised cost structures. This is supported by an analysis of our largest buyout funds, which is discussed in more detail in the Manager's Review. This strengthens the Board's belief that our underlying buyout managers have, on the whole, been adept at guiding their portfolio companies through the financial crisis. In addition, the review of our largest buyout funds indicates that leverage may not be as high as many commentators had expected. Distributions have exceeded calls in each of the past three quarters, and many of these have been executed at uplifts to carrying value. Undrawn commitments were Â£331m at 30th June 2010, and were covered by the Company's portfolio assets and available financing by a healthy multiple of 2.8 times. The Board is confident that the Company has sufficient financing in place to meet future cash flow requirements from existing commitments. Furthermore the increasing maturity of the portfolio brings nearer the point at which the Company can begin to make new commitments. Performance and Investment Activity In the 12 months to 30th June 2010 the NAV increased by Â£123m. Reported gains in unlisted and listed securities amounted to Â£91m. An additional Â£43m gain was due to the effects of foreign exchange movements on the Company's portfolio and cash balances. These gains were partially offset by interest and expenses. Net cash inflow from investments was Â£6m in the 12 months to 30th June 2010, compared with a net cash outflow of Â£71m in the previous year. Distributions in the period were Â£73m, accounting for 11% of opening private equity assets. The Company received distributions from more than 300 funds, demonstrating that a well diversified portfolio can generate a good level of distribution activity even when exit markets have not yet fully recovered. Investment activity has been at relatively subdued levels, with calls totalling Â£67m in the 12 months to 30th June 2010. Commitments The Company made no new commitments in the 12 months to 30th June 2010. The Company will continue to invest via its current undrawn commitments which, through drawdowns and currency movements, decreased during the year by Â£97m to Â£331m. Market and Portfolio Review The 12 months to 30th June 2010 has seen a recovery in the global economy, driven primarily by demand in emerging markets. Western economies, which have been the most severely hit by the de-leveraging process, have responded to the unprecedented injections of government funding designed to stimulate economic growth. The stabilised economic environment has led to improved investor sentiment and rising stock market indices. However, concerns still remain over levels of government and consumer debt in many western economies, and in particular, how GDP growth will be impacted by tax increases and cuts in public sector spending. Of particular concern are European nations with large budget deficits, who may find it difficult to maintain growth in the coming years. In the year under review, the private equity market has seen an increase in distribution activity, driven predominantly by sales to trade buyers, and to a lesser degree, an increase in IPO activity. The improvement in the economic environment allied to increased earnings visibility has provided buyers with more assurance on valuations. In addition to increased exit activity, we have also seen evidence that distributions, on the whole, have not only been profitable in terms of multiple of original cost, but in many cases have also been executed at uplifts to portfolio value. It is encouraging to know that private equity managers can still realise value even in the most challenging environments. Private equity funds tend to realise the majority of their assets between the 5th and 9th years of their lives, as managers look to exit profitable investments before the end of the fund's life (typically 10 years). PIP, with a weighted average vintage age of 6.5 years, is moving into what typically could be a cash-generative phase over the coming years. Investment activity in the industry remained at a relatively low level throughout much of the year under review, before picking up somewhat in the final quarter. Although there has been an improvement in the availability of credit, particularly in the US market, the financing of large deals in particular is proving to be difficult, with many transactions taking place at lower debt multiples and with a higher proportion of equity in the deal structure. Even though the debt market is yet to fully recover, deal volumes seem to be trending upwards and we expect to see an increase in investment levels, especially as many private equity managers still have substantial undrawn commitments with which to finance future investments. Buyout assets, which are valued with reference to listed market comparables, have benefited from increases in stock markets during the 12 months to 30th June 2010, with the MSCI World Total Return (sterling) and FTSE All-Share Total Return indices up 22% and 21% respectively. In addition, the focus of buyout firms on reducing costs and managing debt has helped to enhance value. It is our belief that many of these assets, now with leaner cost structures, will be in a good position to benefit from any further recovery in the economic environment. As with buyout assets, the venture and growth stage has also benefited from the recovering economy. Furthermore, venture and growth performance has been aided by a substantial pick-up in the venture-backed exit markets, driven particularly by cash-rich trade buyers. The majority of PIP's buyout exposure is to companies in the small and mid-sized range, which tend to have lower levels of debt than is associated with large and mega transactions. Approximately a third of the Company's investments are comprised of venture and growth assets, which typically utilise little or no debt. Consequently, the overall underlying leverage of the Company's portfolio is moderate in the context of buyout debt levels associated with the transactions executed at the peak of the buyout market. This is supported by the average debt multiples of our largest buyout managers, illustrated in the Manager's Review. The diversification within PIP's portfolio, with assets spread across buyout, venture and growth and special situations stages, helps to reduce volatility of both returns and cash flows. The maturity profile of the portfolio ensures that PIP is not overly exposed to any one vintage. It is worth pointing out that investments made in large and mega buyouts in the 2005-2007 vintages, when prices and leverage were considered to be at their peak, represent only 13% of PIP's portfolio. Furthermore, our geographical diversification extends our exposure beyond the USA and Europe, to regions with faster economic growth such as Asia. As such, the Company offers a genuinely global, diversified selection of private equity assets, managed by high quality managers. Capital Structure and Financing At 30th June 2010, PIP had Â£178m of available financing, comprising Â£6.4m of cash, Â£71m of unutilised bank loan facility and Â£100.5m of unutilised standby financing. Together with any distributions received during the coming year from the Company's portfolio of assets (Â£763m), liquid financial resources are confidently expected to be sufficient to meet calls arising from outstanding commitments (Â£331m). In February 2010 the Company announced the re-denomination of its Â£150m revolving credit facility into dollars and euros to better match the foreign exchange profile of its future cash requirements. In December 2008, PIP issued Â£49.5m of unsecured subordinated loan notes (the "Notes") to institutional investors who had previously entered into "standby" agreements to subscribe, if called upon by PIP to do so, for new redeemable shares. In the event of a drawdown by the Company under a "standby" agreement from an institutional investor who is a Noteholder, the Company shall repay an equivalent amount on the Notes held by such investor (or such lesser amount as is outstanding). The Company has commitments from institutional investors under "standby" agreements to subscribe a total of Â£150m for new redeemable shares. After the financial year end a further Â£51m of Notes were issued to ensure the Company has sufficient liquidity to meet an expected increase in call activity in the coming year. This takes the total Notes outstanding to Â£100.5m. Ownership of the Manager Affiliated Managers Group, Inc. ("AMG"), alongside senior members of the Pantheon team, acquired Pantheon, the Company's Manager in 2010. The new ownership structure, with Pantheon senior management owning a meaningful share of the equity in the business, provides a framework for long-term succession and enables Pantheon management to continue to direct the firm's day-to-day operations. AMG is a global asset management company with equity investments in leading boutique investment management firms. Outlook We are entering the Company's 24th financial year with cautious optimism. Private equity firms have on the whole strengthened many of their portfolio companies during the financial crisis, through focused cost management and financial restructuring. As a result, they should be in a better position to benefit from any economic recovery. That said, the risks of subdued economic growth or even a double dip recession still remain, especially in Europe and the USA, where issues surrounding the significant levels of government debt and the effects of fiscal tightening could act as a drag on economic growth. In the event of the economic environment worsening, our diversified portfolio should be well placed to limit the impacts of underperformance on any particular stage, region or sector. In addition, the effect of leverage at the underlying company level is mitigated by our focus on mid-market buyouts and venture and growth stages. Investment activity has picked up recently, and this trend is expected to continue. We expect that the majority of our calls in the coming financial year will be used to finance new investments. Consequently, our undrawn commitments will ensure that PIP's portfolio continues to develop throughout the economic cycle. The effect of decreasing our commitments to new funds over the past two years means the average maturity of our portfolio has increased to 6.5 years. The enhanced cash flow potential from a more mature portfolio brings nearer the point at which the Company will have sufficient financing available to make new commitments. It is the Board's intention to prioritise any new commitments on opportunities in the secondary market. Tom Bartlam Chairman 12th October 2010 THE MANAGER'S REVIEW Market Review Private equity markets have seen an increase in new investment activity in the 12 months to 30th June 2010, driven by improvements in the availability of debt and stronger economic fundamentals. In addition, the level of realisations has shown signs of a recovery, albeit from a very low base, driven in particular by increases in acquisitions by cash-rich trade buyers. Both investment and realisation activity remain low relative to previous economic cycles, and there is considerable scope for call and distribution rates to increase if the economic environment and investor sentiment continue to recover. USA and Europe Buyout Market Buyout investments in the USA have recovered strongly during the year. Investment activity in the first half of 2010, measured by deal activity, was up nearly 200% relative to the same period in the previous year. This increase, albeit from a low base, is mainly due to the improvement in the availability of debt. The June quarter of 2010 was particularly strong in the USA, indicating that the pick-up in activity could continue into the remainder of the year. The European buyout market experienced a similar increase in activity. As with the USA, this increase was driven primarily by improvements in local debt markets and the wider economy. Activity on both sides of the Atlantic is still well below what is considered to be "normal" levels, and further substantial improvements in the debt markets would be necessary for buyout activity to recover to pre-crisis levels. It should be noted that concerns over high levels of government debt in Europe, and the impacts of necessary fiscal tightening on growth, unsettled the market in the second quarter of 2010. Consequently, European buyout activity was more subdued relative to that of the USA towards the end of the period under review. Buyout realisation activity also posted something of a recovery during the 12 months to 30th June 2010. The global volume of private equity exits nearly doubled on a year-on-year basis in the first half of 2010, as the economy showed signs of recovery and earnings visibility increased. In particular, trade sales picked up in the second half of 2009 as cash-rich corporations looked to make strategic acquisitions in the more favourable economic environment. In addition, the first half of 2010 saw an increasing number of secondary buyouts, a trend which could continue as private equity funds look to invest the large quantities of capital raised before the financial crisis. Venture and Growth Market As with the buyout market, there has been a recovery in venture and growth activity during the period under review. In the first half of 2010, investment activity in the USA increased by 50% on a year-on-year basis. This increase was lower than the buyout market, probably due to the fact that the venture and growth market is less reliant on debt, and as such, activity levels did not drop as dramatically during the financial crisis or recover as quickly. Venture and growth investment is still focused on the traditional information technology, health care and life science sectors, although an increasing proportion is now being invested in clean energy to capitalise on concerns over climate change and the desire of many western economies to become more self-sufficient in terms of energy management. Venture and growth realisation activity is driven primarily by the M&A and IPO markets. The volume of venture and growth backed M&A deals in the USA, where the majority of PIP's venture and growth investments are based, was up 64% year-on-year in the first half of 2010. Many of the large technology firms went into the financial crisis with high levels of cash and strong balance sheets. Consequently, they have the ability to strategically acquire desirable assets, operating in cutting edge fields, to bolster research and development programmes and to enhance product offerings. The first quarter of 2010 saw the all time highest number of venture and growth backed M&A deals in the USA, and we are hopeful that these significant levels of activity will continue into the coming year. The IPO market has also seen recovery, although from an exceptionally low base. There were 33 venture and growth-backed IPOs in the USA in the 12 months to 30th June 2010, up from only 6 in the previous period. The June quarter in particular saw a marked uptick in activity, with 17 venture and growth-backed IPOs. These figures, allied to a healthy pipeline of scheduled offerings in the coming quarters, show encouraging signs that the IPO could soon return as a viable and consistent method of exit for venture capital and growth equity firms. However, the state of the IPO market is extremely dependent on investor sentiment, and as such, any recovery could be cut short by deterioration in economic fundamentals or stock market volatility. Asia Asian private equity is predominantly comprised of firms investing in regional or country specific small/mid-sized buyout deals and growth equity (acquisitions of non-controlling stakes in established and growing businesses). Consequently, Asian private equity-backed companies went into the financial crisis with relatively low levels of leverage. This, allied to the resilience of economic growth in economies such as China and India, resulted in lower volatility in the region's private equity activity relative to the USA and Europe. The potential for continued economic growth with increases in consumer wealth and spending make Asia an attractive prospect for private equity investors. A significant number of Asian companies with strong operational capabilities, in comparatively mature markets, such as Australia, Japan and South Korea, need to sell subsidiaries due to financial stress or inefficient ownership by conglomerates. This provides an opportunity for financial investors with a strong local presence to make control investments that combine a capital infusion with a change in ownership control and managerial restructuring. We are seeing increasing numbers of professional managers in Asia who are experienced in sophisticated management practices, thereby deepening the local management talent pool and increasing the availability of top-class business leaders in the region. The economies, laws and cultures of the different countries within the region can vary dramatically. In order to fully capitalise on opportunities in Asian private equity, it is necessary to invest with firms who have a deep knowledge, understanding and experience of the region, combined with the local presence to maximise access to the best companies and managers. Secondary Market Deal flow in the secondary market was relatively subdued in 2009, as potential sellers waited for discounts (the difference between transaction price and NAV) to narrow. However, 2010 has seen a significant pick-up in deal flow, as pricing has improved and buy and sell side expectations have become more aligned. In addition, many banks are coming under increasing pressure from regulators to reduce private equity assets, or alternatively, hold more capital to offset the risks of holding private equity assets on their balance sheets. This has already had a positive impact on deal flow, and we expect the trend to continue. Improved earnings visibility and rising public markets have led to stronger levels of demand from secondary buyers. These factors, in addition to pent-up market appetite for secondary deals, could lead to stronger deal flow and a higher rate of transactions in the coming quarters. It remains a key objective for the Company to be able to resume its secondary investment programme at the earliest opportunity. Investments Called in the Year to 30th June 2010 New investments financed during the year ranged across a multitude of sectors and regions, from telecommunications firms to clothing manufacturers, energy companies to residential care providers and from internet companies to firms operating on the cutting edge of the life sciences industry. Further investments will be made in the coming year via the Company's undrawn commitments of Â£331m, ensuring that the portfolio continues to invest throughout the economic cycle. Calls PIP paid Â£67m in calls during the year to 30th June 2010, equivalent to approximately 16% of opening undrawn commitments. This was substantially lower than historical norms, and there is evidence that this rate is picking up. USA 45% Europe 43% Asia and other 12% Total 100% Levels of investment activity picked up throughout the year with the exception of the March 2010 quarter. The final quarter of the financial year saw a significant uptick in investment. Distributions in the Year to 30th June 2010 PIP received distributions from more than 300 funds, with many at significant uplifts to carrying value, highlighting that a well diversified, mature portfolio can generate significant realisation activity, even during tough market conditions. Distributions PIP received Â£73m in proceeds from the portfolio during the 12 months to 30th June 2010, equivalent to approximately 11% of opening private equity assets. USA 67% Europe 21% Asia and other 12% Total 100% In the year to 30th June 2010, annualised distribution rates picked up in the December quarter, before stabilising at around 11% in the last 6 months. However, distributions in the year remained at a lower level than PIP has experienced throughout its history, with the exception of 2009. Finance At 30th June 2010 the Company had Â£6.4m in cash. In addition, $55.9m of its $117.4m available US dollar bank loan facility, and â‚¬41.2m of its â‚¬85.9m available euro bank loan facility, remained undrawn. PIP continues to have in place "standby" agreements with certain institutions under which the Company can require the institutions to subscribe for new redeemable shares, up to the value of Â£150m. 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. In December 2008, PIP issued Â£49.5m of unsecured subordinated loan notes (the "Notes") to institutional investors who had previously entered into "standby" agreements to subscribe, if called upon by PIP to do so, for new redeemable shares. Following the financial year end a further Â£51m Notes were issued, taking the total Notes outstanding to Â£100.5m, which now all mature on 15th November 2011. The Company can elect to repay the Notes through a drawdown by the Company under "standby" agreements in place with the Noteholders. In the event of such a drawdown by the Company under a "standby" agreement from an institutional investor who is a Noteholder, the Company shall repay an equivalent amount on the Notes held by such investor (or such lesser amount as is outstanding). The Company has commitments from institutional investors under "standby" agreements to subscribe a total of Â£150m for new redeemable shares. In February 2010 the Company announced the re-denomination of its Â£150m revolving credit facility into dollars and euros to better match the foreign exchange profile of its future cash requirements. At 30th June 2010, PIP's available financing stood at Â£178m. As a result, the sum of the Company's available financing and portfolio of assets exceeded its undrawn commitments by 2.8 times, up from 1.9 times at end of the prior year. It should be noted that a portion of the Company's undrawn commitments may not get called by the underlying managers. When a fund is past its investment period, which is typically between 5 and 6 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. 21% of the Company's undrawn commitments are in fund vintages of 6 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 30th June 2010 Geographic Spread The weightings of both the USA and Europe decreased by 1% during the period to 59% and 30% respectively. The weighting to Asia increased by 2% to 11%. Europe 30% USA 59% Asia and other 11% Total 100% 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 34% Large/Mega Buyout 20% Venture and Growth 34% Special Situations 7% Generalist 4% Directs 1% Total 100% Maturity PIP's portfolio is well diversified by fund vintage (referring to the year the fund made its first drawdown). Only 13% 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 14% 2000 15% 2001 7% 2002 2% 2003 4% 2004 6% 2005 14% 2006 18% 2007 16% 2008 4% 2009 0% Total 100% Primary/Secondary Split 57% of the portfolio is derived from primary transactions and 43% from secondary transactions. Primary 57% Secondary 43% Total 100% Portfolio Analysis We have reviewed PIP's 50 largest buyout funds and direct investments to provide more detailed analysis of the portfolio. The companies within the sampled funds, which account for approximately 50% of the value of the buyout and direct portfolio, have levels of leverage, as measured by net debt divided by EBITDA, of 3.4 times for the small/mid buyout portfolio and 4.3 times for the large/mega buyout portfolio. The sample also provides evidence that revenue and EBITDA growth at many of our portfolio companies has outperformed those of listed markets. Furthermore, we demonstrate that valuation multiples within the sample are typically lower than multiples seen in public markets. We also provide an analysis of our venture and growth returns by vintage. Portfolio Leverage The key constituents of PIP's portfolio are venture and growth, mid size buyouts and large/mega buyouts. These three sections account for 88% of the portfolio value, and have differing leverage characteristics: . The companies within our venture and growth portfolio, which accounted for 34% of portfolio value at 30th June 2010, have very little or no reliance on debt. . The small/mid size buyout portfolio contains a moderate level of debt. Based upon a sample that accounted for 46% of small/mid size buyout portfolio NAV, net debt / EBITDA was 3.4 times at 31st December 2009. . The large/mega buyout portfolio contains higher levels of debt, although still relatively low compared to the leverage levels of deals executed at the peak of the buyout market in 2006/2007. Based upon a sample that accounted for 63% of large/mega buyout portfolio NAV, net debt / EBITDA was 4.3 times at 31st December 2009. Revenue and EBITDA For a sample comprising the companies within PIP's largest 50 buyout funds and direct investments, we calculated weighted average revenue and EBITDA growth figures for the year to 31st December 2009: . Weighted average revenue and EBITDA growth for the sampled buyout companies was +2.9% and +5.9% respectively in the year to 31st December 2009. This compares favourably with the S&P 500 and FTSE All-Share indices, both of which recorded negative revenue and EBITDA growth in the same time period. . These underlying revenue and EBITDA growth figures are encouraging. They point to a good degree of resilience amongst our portfolio companies and in particular, they suggest that our managers have been quick to manage costs and drive efficiencies throughout the downturn. Valuation Multiple Accounting standards require private equity managers to value their portfolio at fair value. This leads to volatility in valuations reflecting movements in the broader markets. However, private equity assets can often leave some room for value enhancement when sold. For a sample comprising the companies within PIP's largest 50 buyout funds and direct investments, we calculated the weighted average enterprise value / EBITDA for the year to 31st December 2009 as 9.5 times, compared to 11.7 times and 10.6 times for the S&P 500 and FTSE All-Share respectively. Buyout Sample Methodology The buyout figures used above were calculated from over 85% of the value of the companies within the largest 50 buyout funds and direct investments as at 31st March 2010 (which were based upon 31st December 2009 underlying valuations). This accounts for approximately 50% of the value of PIP's buyout and direct portfolio. The figures are based upon unaudited data. The revenue and EBITDA figures were based upon the year to 31st December 2009, or where not available the closest annual period disclosed. The net debt and enterprise value figures were based upon 31st December 2009 underlying valuations, or the closest period end disclosed. The underlying company data was weighted by NAV to calculate an average. Individual company revenue and EBITDA growth figures were capped between +100% and -100% to avoid large distortions from movements relative to a small denominator. The methodology used to calculate the S&P 500 and FTSE All-Share (ex-financials) figures was consistent with the above. Venture and Growth Assets Much of PIP's venture and growth assets are in funds dated 2000 and earlier. These companies are now mature and many are cash-generative, having survived the bursting of the technology bubble and the latest downturn. Venture managers focus their attention on those companies that have the ability to drive meaningful returns. Consequently, only venture assets with good potential survive to maturity. Mature venture companies, which can often resemble growth investments in terms of cash generation and profitability, have shown an increased likelihood of returning cash to investors, often at uplifts to carrying value. It is our view that mature venture assets play an important role in complimenting the newer venture and growth vintages. PIP's venture and growth assets performed well during the 12 months to 30th June 2010, driven in particular by returns in the older vintages. Returns have been aided by a pick up in sales to trade buyers, and to a lesser degree, recovery in the IPO market. If the exit markets continue to recover, we could see a continuance of strong returns from the venture and growth portfolio. Portfolio Companies by Sector 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. Conversely, PIP is overweight in the Health Care, Consumer and Information Technology sectors. Energy 6% Materials 5% Industrials 10% Consumer Discretionary 24% Consumer Staples 3% Health Care 15% Financials 8% Information Technology 22% Telecom Services 7% Total 100% Please note that the methodology used to calculate the sector diversification has been changed from the prior year. The new methodology is the Global Industry Classification Standard (GICS). Outstanding Commitments PIP's outstanding commitments to fund investments, 76% of which relate to primary funds and 24% 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 30th June 2010 PIP's outstanding commitments to investments decreased to Â£331m at 30th June 2010 compared with Â£428m at 30th June 2009. The Company paid calls of Â£67m and disposed of fund interests with Â£41m of outstanding commitments. These reductions were partially offset by currency movements. Geographic 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 47% Europe 39% Asia and other 14% Total 100% 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 and growth forms a significant portion of the Company's outstanding commitments. Small/Mid Buyout 42% Large/Mega Buyout 20% Venture and Growth 29% Special Situations 7% Generalist 2% Directs 0% Total 100% Maturity 21% 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 21% 2005 7% 2006 16% 2007 31% 2008 23% 2009 2% Total 100% Pantheon Vehicles Pantheon Ventures Limited ("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 30TH JUNE 2010 % OF PIP'S TOTAL PRIVATE NUMBER MANAGER REGION STAGE BIAS EQUITY ASSET VALUE 1 Apax Partners EUROPE BUYOUT 2.6% 2 Barclays Private Equity EUROPE BUYOUT 2.1% 3 Golden Gate Capital USA BUYOUT 1.9% 4 ABS Capital Partners USA GENERALIST 1.9% 5 IK Investment Partners EUROPE BUYOUT 1.8% 6 CVC Capital Partners EUROPE BUYOUT 1.7% 7 Vision Capital EUROPE BUYOUT 1.7% 8 Brentwood Associates USA BUYOUT 1.6% 9 Pacven Walden Ventures ASIA AND VENTURE AND GROWTH 1.6% OTHER 10 Avista Capita Partners USA BUYOUT 1.4% 11 BC Partners EUROPE BUYOUT 1.4% 12 Providence Equity USA BUYOUT 1.4% Partners 13 ABRY Partners USA BUYOUT 1.4% 14 Oak Investment Partners USA VENTURE AND GROWTH 1.3% 15 Nordic Capital EUROPE BUYOUT 1.3% 16 Doughty Hanson & Co EUROPE BUYOUT 1.3% 17 Oaktree Capital GLOBAL GENERALIST 1.3% Management 18 Carlyle Group/ USA SPECIAL SITUATIONS 1.3% Riverstone Holdings 19 Apollo Management USA BUYOUT 1.2% 20 Nova Capital Management EUROPE BUYOUT 1.2% TOP 20 MANAGERS BY OUTSTANDING COMMITMENTS AS AT 30TH JUNE 2010 % OF OUTSTANDING NUMBER MANAGER REGION STAGE BIAS COMMITMENTS 1 CVC Capital Partners EUROPE BUYOUT 3.6% 2 Hutton Collins EUROPE SPECIAL 3.3% SITUATIONS 3 Golden Gate Capital USA BUYOUT 3.0% 4 Summit Partners GLOBAL VENTURE AND GROWTH 2.4% 5 Carlyle Group GLOBAL GENERALIST 2.3% 6 Barclays Private EUROPE BUYOUT 2.0% Equity 7 Doughty Hanson & Co EUROPE BUYOUT 1.8% 8 Clessidra Capital EUROPE BUYOUT 1.7% Partners 9 Technology Crossover USA VENTURE AND GROWTH 1.6% Ventures 10 Mercapital EUROPE BUYOUT 1.5% 11 Baring Vostok Capital EUROPE BUYOUT 1.5% Partners 12 Mid-Europa Partners EUROPE BUYOUT 1.5% 13 ABS Capital Partners USA GENERALIST 1.4% 14 Arcadia EUROPE BUYOUT 1.4% 15 Private Equity EUROPE BUYOUT 1.3% Partners 16 Archer Capital ASIA AND VENTURE AND GROWTH 1.3% OTHER 17 Unison Capital ASIA AND BUYOUT 1.3% OTHER 18 Gemini Israel Funds EUROPE VENTURE AND GROWTH 1.3% 19 Brentwood Associates USA BUYOUT 1.3% 20 Texas Pacific Group GLOBAL BUYOUT 1.2% TOP 20 COMPANIES BY VALUE AS AT 30TH JUNE 2010 % OF PIP'S TOTAL PRIVATE NUMBER COMPANY SECTOR EQUITY ASSET VALUE 1 Nycomed HEALTH CARE 0.9% 2 Carbolite INDUSTRIALS 0.8% 3 Bibby INDUSTRIALS 0.7% Scientific 4 TDC TELECOMMUNICATION 0.5% SERVICES 5 Endurance FINANCIALS 0.5% Specialty Holdings* 6 Nord Anglia CONSUMER 0.5% Education DISCRETIONARY 7 Rosetta Stone* INFORMATION 0.5% TECHNOLOGY 8 SciLabware HEALTH CARE 0.5% 9 Genband TELECOMMUNICATION 0.5% SERVICES 10 Orchid HEALTH CARE 0.4% Orthopedic Solutions 11 Spectrum CONSUMER 0.4% Athletic Clubs DISCRETIONARY 12 Array CONSUMER 0.4% DISCRETIONARY 13 InterXion INFORMATION 0.4% TECHNOLOGY 14 SMART CONSUMER 0.4% Technologies DISCRETIONARY 15 AMG Advanced MATERIALS 0.4% Metallurgical Group* 16 The Teaching CONSUMER 0.4% Company DISCRETIONARY 17 Verimatrix INFORMATION 0.4% TECHNOLOGY 18 Duff & Phelps* FINANCIALS 0.3% 19 VBrick Systems INFORMATION 0.3% TECHNOLOGY 20 Lantheus Medical HEALTH CARE 0.3% Imaging * Quoted holding as at 30th June 2010. THE MANAGER (PANTHEON) Pantheon, one of the world's foremost private equity specialists, has acted as Manager to PIP since its inception in 1987, evaluating and managing investments on PIP's behalf in line with the strategy agreed by the Board. Pantheon is also one of the largest and most experienced secondary managers, having committed more than $5 billion to secondaries over more than 20 years. Strong Private Equity Track Record Pantheon is one of the leading private equity fund-of-fund managers in the world, with global assets under management of $22.2 billion (as at 31st March 2010), and over 300 institutional investors. Pantheon has a strong and consistent private equity investment track record. For nearly 30 years Pantheon has made investments in over 1,000 private equity funds, gaining exceptional insight and access to the most attractive funds in all the major private equity regions. Pantheon has more than 20 years' experience of successful private equity secondary investing, having committed $5.3 billion in the secondary market globally across more than 270 transactions, including more than 80 portfolio transactions and more than 180 single fund secondaries. Affiliated Managers Group, Inc. ("AMG") alongside senior members of the Pantheon team, acquired Pantheon in 2010. The new ownership structure, with Pantheon senior management owning a meaningful share of the equity in the business, provides a framework for long-term succession and enables Pantheon management to continue to direct the firm's day-to-day operations. AMG is a global asset management company with equity investments in leading boutique investment management firms. Risk Management Pantheon has substantial experience of investing in private equity through various economic cycles and in different regional markets. The firm's asset allocation, diversification strategies and disciplined investment process are structured with the objective of producing the best possible risk-adjusted returns. Pantheon's diversification strategy limits portfolio risk by including a multi-strategy approach, targeting funds with a variety of different return characteristics and deploying capital over a number of vintage years, generally ensuring that the most attractive segments of the market are represented in the portfolio. When applying this approach, the Board works closely with Pantheon to ensure that the management of the Company is in line with its agreed strategy. Reputation as a Preferred Investor Pantheon has been investing in private equity for nearly 30 years and has an enviable reputation in the industry. Pantheon is often considered a preferred investor due to its reputation, active approach and scale of commitments. In addition, Pantheon generally seeks advisory board seats to contribute actively to governance during the life of the fund. As such Pantheon is represented on over 180 advisory boards worldwide. Longstanding partnerships with managers on a global basis can also enhance the firm's deal flow in the secondary market. Team-Based Culture Pantheon draws upon a deep pool of resources that contributes to a unique team-based culture. With teams operating in London, San Francisco, Hong Kong and New York, Pantheon adopts a collegial approach to investment decision-making, globally leveraging the collective experience and expertise of all investment professionals. The team's experience is also brought to bear on the evaluation, selection and ongoing monitoring of fund investments. Pantheon's team of 66 investment professionals, supported by 89 other professionals, work together with the ultimate aim of producing strong and consistent results (staff figures as at 1st October 2010). Responsible Investment Pantheon's policy in terms of responsible investment is to seek to ensure that the social, environmental and ethical considerations that are taken into account in its own day-to-day business are, as much as possible, reflected in the policy adopted by each of the individual private equity managers with whom they invest. Pantheon is committed to the Principles for Responsible Investing ("PRI") and was one of the first fund-of-funds managers to support the policy. Pantheon believes that adoption of PRI initiatives will ultimately work to the benefit of investors. Pantheon takes into account both financial and non-financial factors, of which Environmental, Social and Governance ("ESG") risks are a core part of the analysis. Pantheon believes that consideration of ESG risk forms part of general risk management and its mitigation strengthens downside protection and enhances reputation, which can also lead to value creation. In considering a new fund commitment, Pantheon is committed to understanding the manager's willingness to adhere to sound ESG practices, favouring those managers who understand the nature of ESG risks and who seek to minimise them. Pantheon's due diligence process ascertains the extent to which the manager incorporates ESG risks in their analysis and the measures they take to mitigate them before and after investment. 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 signiï¬cant 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 ï¬rst 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 speciï¬c 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. The Company does not intend to make any further commitments to either the primary or secondary programmes until there is a sustained recovery in the level of distributions or additional financing is obtained. As the Company's finances become less constrained, either as a result of a normalisation in the level of distributions, or due to a capital raising, it will be able to participate in new investments, with emphasis on the current opportunities in the secondary market as a priority. 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: â€¢ 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; â€¢ 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; â€¢ 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. THE DIRECTORS The Directors in office during the year and at the date of this report are: Tom Bartlam (Chairman) Ian Barby (Audit Committee Chairman) Richard Crowder Peter Readman Rhoddy Swire Sandy Thomson EXTRACTS FROM THE DIRECTORS' REPORT BUSINESS REVIEW The Business Review which follows is designed to provide shareholders with information about the Company's business and results in the year to 30th June 2010. It should be read in conjunction with the Chairman's Statement and Manager's Review. Business and Strategy Pantheon International Participations PLC (the "Company" or "PIP"), a closed-ended investment trust, is the longest established private equity fund-of-funds quoted on the London Stock Exchange. It enables investors to gain access to a substantial portfolio of unquoted companies in the USA, Europe and Asia, within funds managed by experienced private equity managers selected for their ability to outperform. PIP'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 full Objective and Investment Policy areset out above. The Company has received written approval from HM Revenue & Customs as an authorised investment trust under Section 842 of the Income and Corporation Taxes Act 1988 for the year ended 30th June 2009. This approval is subject to there being no subsequent enquiry under corporation tax self-assessment. The Company has been approved as an investment trust for all previous years. It is the opinion of the Directors that the Company has subsequently directed its affairs so as to enable it to continue to qualify for such approval and the Company will continue to seek approval each year. With effect from the year ended 30th June 2010, approval will be given under Section 1158/9 of the Corporation Tax Act 2010. The Company's status as an investment trust allows it to obtain an exemption from paying taxes on the profits made from the sale of its investments. Investment trusts offer a number of advantages for investors, including access to investment opportunities that might not be open to private investors and to professional stock selection skills at low cost. The Company was incorporated and registered in England and Wales on 16 July 1987. It is registered as a public limited company and is an investment company as defined by Section 833 of the Companies Act 2006. It is a member of The Association of Investment Companies ("AIC"). Principal Risks and Uncertainties Facing the Company The Company invests principally in private equity funds. However, the Company's strategy is to adopt a global fund-of-funds investment programme, maximising returns through selection of the best available funds, and to mitigate investment risk through diversification of the underlying portfolio by geography, investment stage and sector. The principal risks facing the Company include the following: Funding of investment commitments In the normal course of its business, the Company typically has outstanding commitments to private equity funds which are substantial relative to the Company's assets. The Company's ability to meet these commitments is dependent upon it receiving cash distributions (the timing and amount of which can be unpredictable) from its private equity investments and, to the extent these are insufficient, on the availability of financing facilities. Risks relating to investment opportunities There is no guarantee that the Company will find sufficient suitable investment opportunities, or that the private equity funds in which it invests will find suitable investment opportunities, to achieve the level of diversification which the Company seeks to achieve in relation to its investment portfolio. Financial risk of private equity The Company invests in private equity funds and unquoted companies which are less readily marketable than quoted securities and may take a long time to realise. In addition, such investments may carry a higher degree of risk than investments in quoted securities. The Company may be adversely affected by these risks notwithstanding the level of diversification which it seeks to achieve in relation to its investment portfolio. Long-term nature of private equity investments Private equity investments are long-term in nature and may take some years before reaching a level of maturity at which they can be realised. Accordingly, it is possible that the Company may not receive a return on investments made by it for a number of years. Liquidity risk Due to the Company's investment policy, a large proportion of the Company's portfolio comprises indirect participations in unquoted investments and direct holdings in unquoted investments. Such investments are less readily marketable than quoted securities and realisation of these investments may require a lengthy time period or may result in distributions in kind to the Company. Valuation uncertainty In valuing its investments in private equity funds and unquoted companies and in publishing its net asset value, the Company relies to a significant extent on the accuracy of financial and other information provided by these funds and companies to the Manager. There is potential for inconsistency in the valuation methods adopted by these funds and companies. In addition, the information provided is typically more than 90 days old at the time the net asset value of the Company's shares is reported. Gearing As at 30th June 2010 the Company had borrowings of Â£127m. The use of gearing can cause both gains and losses in the asset value of the Company to be magnified. The Company may also invest in private equity funds or unquoted companies which are geared by loan facilities that rank ahead of the Company's investment both for payment of interest and capital. As a consequence, the Company may be exposed to gearing through the borrowings from time to time of such private equity funds and companies, therefore investment in such assets presents a higher risk as to their capital return. Foreign currency risk The Company makes investments in US dollars, euros and other currencies as well as sterling. Accordingly, the Company is exposed to currency exchange rate fluctuations. Competition The Company competes for investments with other investors. It is possible that competition for appropriate investment opportunities may increase, thus reducing the number of opportunities available and adversely affecting the terms upon which such investments can be made. Unregulated nature of underlying investments The private equity funds and underlying unquoted investments that form the basis of the majority of the Company's portfolio are not subject to regulation by the Financial Services Authority or an equivalent regulatory body. Funds and unquoted companies in which the Company invests (directly or indirectly) may be domiciled in jurisdictions which do not have a regulatory regime which provides an equivalent level of investor protection to that provided under the laws of the United Kingdom. Defaults on commitments If, in consequence of any failure to meet a demand for payment of any outstanding unpaid capital commitment of the Company to any private equity fund in which the Company has invested, the Company is treated as a defaulting investor by that fund, the Company may suffer a resultant dilution in its interest in that fund and, possibly, the compulsory sale of that interest. Taxation Any change in the Company's tax status or in taxation legislation or practice could affect the value of the investments held by and the performance of the Company. In addition, the income and gains of the Company from its investments may suffer withholding tax which may not be reclaimable in the countries where such income and gains arise. The Manager and other third party advisers Like most investment trust companies, the Company has no employees and the Directors are all non-executive. The Company is dependent upon the services of Pantheon Ventures Limited ("Pantheon") as Manager and may be adversely affected if the services of Pantheon cease to be available to the Company. Details of the terms of the Management Agreement are set out below. Other third party service providers on whom the Company relies include Capita Sinclair Henderson Limited, which provides administrative, accounting and company secretarial services, and HSBC Bank plc, which acts as Custodian. Further information on risks Further information on the principal risks the Company faces in its portfolio management activities and the policies for managing these risks and the policy and practice with regard to financial instruments are summarised in Note 21 to the financial statements. REVIEW OF 2009/2010 Net asset value The Company's total net assets attributable to shareholders increased during the year to Â£636.5 million (2009: Â£513.6 million). The net asset value per ordinary share and redemption value per redeemable share was 958.71p at 30th June 2010 (2009: 773.62p). Results and dividends The results for the year are set out in the Income Statement. This shows that the Company's net revenue deficit on ordinary activities before taxation for the year was Â£9.1 million (2009: deficit of Â£14.7 million) and capital returns were Â£133.1 million (2009: deficit of Â£207.4 million). The Directors do not recommend the payment of a dividend in respect of the year ended 30th June 2010 (2009: nil). Performance highlights The Board and the Manager monitor the following Key Performance Indicators: 1. The net asset value performance 2. The level of discount 3. The total expense ratio PIP's net asset value per share increased by 23.9% to 958.71p in the year to 30th June 2010. Net assets increased by Â£122.9 million to Â£636.5 million. The net asset value returns over 1 year, 3 years, 5 years and 10 years are set out above. The 23.9% increase in PIP's net asset value per share compares with increases in the MSCI World Total Return (sterling) Index of 21.9% and the FTSE All-Share Total Return Index of 21.1% respectively. PIP's ordinary share price during the year increased by 64.6% and the discount narrowed to 49.3% at the year end (discount of 61.8% at 30th June 2009). The total expense ratio of the Company for the year ended 30th June 2010 was 1.47% (2009: 2.05%). The total expense ratio, which is calculated using closing net asset value, is lower in the year to 30th June 2010, partly due to the denominator effect of an increase in closing net asset value year-on-year. An additional factor was the 11% reduction in absolute fees charged to the income account in the year ended 30th June 2010, driven by movements in net asset value and lower outstanding commitments. Future Developments A review of the year to 30th June 2010 and the outlook for the coming year can be found in the Chairman's Statement. Share Capital As at 30th June 2010 and as at the date of this Report, the Company had shares in issue as shown in the table below, all of which are admitted to trading on the London Stock Exchange. No shares were issued or repurchased by the Company and no shares were held in treasury during the year or since the year end. The redeemable shares do not carry any right to speak or vote at general meetings of the Company, including on resolutions for the issue or buy back of shares, although holders of redeemable shares are entitled to receive notice of general meetings of the Company and to attend such meetings. Redeemable shares do carry the right to vote at separate class meetings of the holders of redeemable shares in a number of circumstances set out in the Articles of Association. Further details of the rights attaching to each of the Company's classes of share are included in Note 14 to the financial statements. VOTING % OF TOTAL VOTING RIGHTS NUMBER OF ATTACHED TO RIGHTS REPRESENTED SHARES SHARE CAPITAL AND VOTING IN ISSUE EACH SHARE BY EACH CLASS RIGHTS ORDINARY SHARES OF 67P EACH 37,521,013 1 100 REDEEMABLE SHARES OF 1P EACH 28,871,255 - - TOTAL VOTING RIGHTS 37,521,013 Social, Environmental, Community and Employee Issues The Company has no employees and the Board consists entirely of non-executive Directors. As an investment trust, the Company has no direct impact on the community or the environment. The Manager is committed to the Principles for Responsible Investing and its polices are set out above. These Principles are integrated into Pantheon's investment analysis and decision-making process, as well as during post-investment monitoring. Management The Company's investment manager, Pantheon Ventures Limited, is one of the world's foremost private equity fund-of-funds managers and has acted as Manager to the Company since its inception in 1987. Affiliated Managers Group, Inc. ("AMG"), alongside senior members of the Pantheon team, acquired Pantheon in 2010. The new ownership structure, with Pantheon senior management owning a meaningful share of the equity in the business, provides a framework for long-term succession and enables Pantheon management to continue to direct the firm's day-to-day operations. AMG is a global asset management company with equity investments in leading boutique investment management firms. Pantheon evaluates and manages investments on the Company's behalf in line with the strategy agreed by the Board. The Manager acts under a management agreement with the Company dated 25th February 2004 (as amended by supplemental agreements dated 9th August 2004 and 30th January 2007) (the "Management Agreement"). Under the terms of the Management Agreement (as amended) Pantheon has been appointed as the sole and exclusive discretionary manager of all the assets of the Company from time to time and to provide certain additional services in connection with the management and administration of the Company's affairs, including monitoring the performance of, and giving instructions on behalf of the Company to, other service providers to the Company. The Manager is entitled to a monthly management fee at an annual rate of (i) 1.5% on the value of the Company's investment assets up to Â£150 million and (ii) 1% on the value of such assets in excess of Â£150 million. In addition, the Manager is entitled to a monthly commitment fee of 0.5% per annum on the aggregate amount committed (but unpaid) in respect of investments, up to a maximum amount equal to the total value of the Company's investment assets. The Manager was also entitled to a performance fee from the Company in respect of the period of 18 months commencing on 1st January 2007 and ending on 30th June 2008 and, thereafter, 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 performance fee payable in respect of each such calculation period is 5% of the amount by which the net asset value at the end of such period exceeds 110% of the applicable `high-water mark', i.e. the net asset value at the end of the previous calculation period in respect of which a performance fee was payable, compounded annually at 10% for each subsequent completed calculation period up to the start of the calculation period for which the fee is being calculated. If no performance fee has previously been expensed, the applicable `high-water mark' is the aggregate net asset value of all the shares of the Company in issue as at 31st December 2006 multiplied by 1 + (181 / 365 x 10%), compounded annually at 10% for each completed 12 calendar month period after 30th June 2007 up to the start of the calculation period for which the fee is being calculated. The performance fee is calculated so as to ignore the effect on performance of any performance fee payable in respect of the period for which the fee is being calculated or of any increase or decrease in the net assets of the Company resulting from any issue, redemption or purchase of any shares or other securities, the sale of any treasury shares or the issue or cancellation of any subscription or conversion rights for any shares or other securities and any other reduction in the Company's share capital or any distribution to shareholders. The value of investments in, and outstanding commitments to, investment funds managed or advised by the Pantheon group ("Pantheon Funds") are excluded in calculating the monthly management fee and the commitment fee. In addition, the Manager has agreed that the total fees (including performance fees) payable by Pantheon Funds to members of the Pantheon group and attributable to the Company's investments in Pantheon Funds shall be less than the total fees (excluding the performance fee) that the Company would have been charged under the Management Agreement had it invested directly in all of the underlying investments of the relevant Pantheon Funds instead of through the relevant Pantheon Funds. The Management Agreement is capable of being terminated (without penalty to the Company) by either party giving two years' notice in writing. It is capable of being terminated by the Company (without penalty to the Company) immediately if, among other things, the Manager defaults or goes into liquidation and on six months' notice if there is a change of control of the Manager or if certain "key man" provisions are triggered. The Manager has the benefit of an indemnity from the Company in respect of liabilities arising out of the proper performance by the Manager of its duties and compliance with instructions given to it by the Board and an exclusion of liability save to the extent of any negligence, fraud, wilful default or breach of duty. Under the terms of the Management Agreement, the Company is entitled to participate in allocations made by the Pantheon group, under its secondary investment programme, of opportunities to acquire secondary investments, other than certain co-investment opportunities in single companies or business entities. The Company is entitled to be allocated half of any such opportunity (other than a single fund secondary investment opportunity) up to an acquisition cost of $40 million and 25% of any balance. The Company is also entitled to be allocated, on the same basis, a share of the excess participation in single fund secondary investment opportunities which cannot be allocated to the Pantheon group's regional fund-of-funds clients. This basis for allocation to PIP of secondary investments applies until replaced by alternative allocation arrangements. It will apply during the investment period of Pantheon Global Secondary Fund III ("PGSF III"), a fund established by the Pantheon group in July 2006 for the purpose of acquiring secondary investments, and will continue to apply during the investment period of Pantheon Global Secondary Fund IV ("PGSF IV"), a successor fund to PGSF III. An alternative basis for the allocation to the Company of secondary investment opportunities may be applied by Pantheon in the context of a successor fund to PGSF IV. In the event of Pantheon and the Company being unable to agree any such alternative allocation basis, Pantheon will cease to be entitled to any performance fee for calculation periods following that in which the alternative allocation basis takes effect and the Company will be entitled to terminate the Management Agreement (without penalty to the Company) on six months' notice. The Board keeps under review the performance of the Manager. The ongoing review of the Manager includes activities and performance over the course of the year and review against the Company's peer group. The Board are of the opinion that it is in the interests of shareholders to continue the appointment. The reasons for this view are that the investment performance is satisfactory and the Manager is best placed to continue to manage the assets of the Company according to the Company's strategy. Related party transactions and Directors' interests in contracts and agreements are disclosed in Note 22 to the financial statements. 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 on pages 4 to 36. 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. STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare financial statements in accordance with United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to: â€¢ select suitable accounting policies and then apply them consistently; â€¢ make judgements and estimates that are reasonable and prudent; â€¢ state whether applicable UK accounting standards have been followed, subject to any material departure disclosed and explained in the financial statements; and â€¢ prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors, to the best of their knowledge, state that: â€¢ the financial statements, prepared in accordance with UK Accounting Standards, give a true and fair view of the assets, liabilities, financial position and return of the Company; and â€¢ this Annual Report includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that it faces. The Directors are responsible for keeping adequate accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. The Directors are responsible for ensuring that the Directors' Report and other information in the Annual Report is prepared in accordance with Company law in the United Kingdom and that the Annual Report includes information required by the Listing Rules of the Financial Services Authority. They also have responsibility for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. On behalf of the Board Tom Bartlam Chairman 12th October 2010 INDEPENDENT AUDITOR'S REPORT The Company's financial statements for the year ended 30th June 2010 have been audited by Grant Thornton UK LLP. The text of the Independent Auditor's Report can be found in the Company's Annual Report and Accounts at www.pipplc.com. The statutory accounts for the year ended 30th June 2010 have been prepared on the basis of the financial information presented by the Directors in this announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The financial information for the year ended 30th June 2009 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The Auditor reported on those accounts; their report was unqualified and did not contain any emphasis of matter or a statement under sections 495,496 and 497 of the Companies Act 2006. INCOME STATEMENT YEAR ENDED 30th JUNE 2010 2010 2009 REVENUE CAPITAL TOTAL* REVENUE CAPITAL TOTAL* NOTE Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Gains/(losses) on 9 b - 130,815 130,815 - (181,805) (181,805) investments designated at fair value through profit or loss** Currency gains/ 19 - 2,758 2,758 - (22,335) (22,335) (losses) on cash and borrowings Investment income 2 4,128 - 4,128 2,761 - 2,761 Investment management 3 (8,715) - (8,715) (11,279) 106 (11,173) fees Refund of VAT on 3 - - - 2,295 - 2,295 investment management fees Other expenses 4 (668) (459) (1,127) (1,554) (3,393) (4,947) RETURN ON ORDINARY (5,255) 133,114 127,859 (7,777)(207,427) (215,204) ACTIVITIES BEFORE FINANCING COSTS AND TAX Interest payable and 6 (3,840) - (3,840) (6,882) - (6,882) similar charges / finance costs RETURN ON ORDINARY (9,095) 133,114 124,019 (14,659)(207,427) (222,086) ACTIVITIES BEFORE TAX Tax on ordinary 7 (1,129) - (1,129) (399) - (399) activities RETURN ON ORDINARY (10,224) 133,114 122,890 (15,058)(207,427) (222,485) ACTIVITIES AFTER TAX FOR THE FINANCIAL YEAR RETURN PER ORDINARY 8 (15.40)p 200.50p 185.10p (22.68)p(312.43)p (335.11)p 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 year. 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 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 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 Expenses relating - - - - - - - - to issue of ordinary shares written back CLOSING EQUITY 25,428 183,184 26 185,419 192,828 99,861 (50,234) 636,512 SHAREHOLDERS' FUNDS Movement for the year ended 30th June 2009 OPENING EQUITY 25,428 183,182 26 227,504 225,056 99,861 (24,952) 736,105 SHAREHOLDERS' FUNDS Return for the - - - (51,912) (155,515) - (15,058) (222,485) year Expenses relating - 2 - - - - - 2 to issue of ordinary shares written back CLOSING EQUITY 25,428 183,184 26 175,592 69,541 99,861 (40,010) 513,622 SHAREHOLDERS' FUNDS The Notes form part of these financial statements. BALANCE SHEET as at 30th JUNE 2010 2010 2009 NOTE Â£'000 Â£'000 Fixed assets Investments designated at 9a 763,304 648,207 fair value through profit or loss Current assets Debtors 11 917 27,685 Cash at bank 18 6,431 20,512 7,348 48,197 Creditors: Amounts falling due within one year Other creditors 12 6,916 13,282 Bank loan 18 77,724 120,000 Loan notes 18 49,500 - 134,140 133,282 NET CURRENT LIABILITIES (126,792) (85,085) Creditors: Amounts falling due after one year Loan notes 13 - 49,500 NET ASSETS 636,512 513,622 Capital and reserves Called-up share capital 14 25,428 25,428 Share premium 15 183,184 183,184 Capital redemption reserve 15 26 26 Other capital reserve 15 185,419 175,592 Capital reserve on 15 192,828 69,541 investments held Special reserve 15 99,861 99,861 Revenue reserve 15 (50,234) (40,010) TOTAL EQUITY SHAREHOLDERS' 636,512 513,622 FUNDS NET ASSET VALUE PER SHARE - 16 958.71p 773.62p ORDINARY AND REDEEMABLE The Notes form part of these financial statements. The financial statements were approved by the Board on 12th October 2010 and were signed on its behalf by TOM Bartlam Chairman CASH FLOW STATEMENT YEAR ENDED 30th JUNE 2010 2010 2009 NOTE Â£'000 Â£'000 Cash flow from operating activities Investment income received 4,121 2,140 Deposit and other interest received 7 621 Investment management fees paid (12,236) (8,100) Secretarial fees paid (178) (169) Other cash payments (3,382) 269 NET CASH OUTFLOW FROM OPERATING 19 (11,668) (5,239) ACTIVITIES Returns on investment and servicing of ï¬nance Revolving credit facility and (1,804) (5,459) overdraft interest paid Loan commitment and arrangement fees (341) (429) paid Redeemable share commitment fees paid (640) (629) Interest on loan notes paid (1,105) (824) NET CASH OUTFLOW FROM RETURNS ON (3,890) (7,341) INVESTMENT AND SERVICING OF FINANCE Tax Net tax charge (1,129) (399) NET CASH OUTFLOW FROM TAX (1,129) (399) Capital expenditure and ï¬nancial investment Purchases of investments (75,857) (164,296) Purchases of government securities - - Disposals of investments 117,983 114,124 Disposals of government securities - - Realised currency gains 205 93 NET CASH INFLOW / (OUTFLOW) FROM 42,331 (50,079) CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT NET CASH INFLOW / (OUTFLOW) BEFORE 25,644 (63,058) FINANCING Financing Written back / costs of ordinary - 2 shares issue Drawdown of loan - 90,034 Repayment of loan (41,685) (40,000) Issue of loan notes - 49,500 Realised currency gains / (losses) on 591 (23,515) repayment of revolving credit facility NET CASH (OUTFLOW) / INFLOW FROM (41,094) 76,021 FINANCING (DECREASE) / INCREASE IN CASH 17 (15,450) 12,963 The Notes form part of these financial statements. NOTES TO THE FINANCIAL STATEMENTS 1. Accounting Policies A summary of the principal accounting policies, all of which have been applied consistently throughout the year, is set out below. (A) Basis of Preparation The financial statements have been prepared on the historical cost basis of accounting, except for the measurement at fair value of investments and ï¬ nancial instruments, and in accordance with applicable UK accounting standards and on the basis that all activities are continuing. The Company's financial statements are presented in sterling and all values are rounded to the nearest thousand pounds (Â£'000) except when indicated otherwise. Since 30th June 2009, the amendment to FRS 29 made by the Accounting Standards Board has been adopted. This amendment introduces a three-level fair value hierarchy that distinguishes fair value measurements by the significance of the inputs used. The disclosures are expected to provide more information about the relative reliability of the fair value measurements and increase convergence of International Financial Reporting Standards and UK Generally Accepted Accounting Standards. (B) Statement of Recommended Practice The financial statements have been prepared in accordance with the Statement of Recommended Practice (as amended in January 2009) for the financial statements of investment companies and venture capital trusts issued by the Association of Investment Companies. (C) Segmental Reporting The Directors are of the opinion that the Company is engaged in a single segment of business, being investment business. (D) Valuation of Investments All investments held by the Company are classiï¬ed as `fair value through proï¬t or loss'. As the Company's business is investing in ï¬nancial assets with a view to proï¬ting from their total return in the form of interest, dividends or increases in fair value, quoted equities and ï¬xed income securities are designated as fair value through proï¬t or loss on initial recognition. The Company manages and evaluates the performance of these investments on a fair value basis in accordance with its investment strategy. For investments actively traded in organised ï¬nancial markets, fair value is generally determined by reference to Stock Exchange quoted market bid prices at the close of business at the balance sheet date. For investments that are not actively traded in organised ï¬nancial markets, fair value is determined using reliable valuation techniques as described below: (i) Unquoted ï¬xed asset investments are stated at the estimated fair value. In the case of investments in private equity funds, this is based on the net asset value of those funds ascertained from periodic valuations provided by the managers of the funds. Such valuations are necessarily dependent upon the reasonableness of the valuations by the fund managers of the underlying investments. In the absence of contrary information the values are assumed to be reasonable. These valuations are reviewed periodically for reasonableness. In the case of direct investments in unquoted companies, the initial valuation is based on cost. Where better indications of fair value become available, such as through subsequent issues of capital or dealings between third parties, the valuation is adjusted to reflect the new evidence. This information may include the valuations provided by private equity managers who are also invested in the company. Valuations are reduced where the company's performance is not considered satisfactory. Private equity funds may contain a proportion of quoted shares from time to time, for example, where the underlying company investments have been taken public but the holdings have not yet been sold. The quoted market holdings at the date of the latest fund accounts are reviewed and compared with the value of those holdings at the year end. If there has been a material movement in the value of these holdings, the valuation is adjusted to reflect this. (ii) Quoted investments are valued at the bid price on the relevant stock exchange. (iii) The Company may acquire secondary interests at either a premium or a discount to the fund manager's valuation. Within the Company's portfolio, those fund holdings purchased at a premium are normally immediately revalued to their stated net asset values irrespective of the purchase price. Those fund holdings purchased at a discount are normally held at cost until the receipt of a valuation from the fund manager in respect of a date after acquisition, when they are revalued to their stated net asset values, unless an adjustment against a speciï¬c investment is considered appropriate. As at 30th June 2010 there was no aggregate difference to be recognised in the profit or loss at the start or end of the period. (E) Income Dividends receivable on quoted equity shares are brought into account on the ex-dividend date. Dividends receivable on equity shares where no ex-dividend date is quoted are brought into account when the Company's right to receive payment is established. The ï¬xed return on a debt security is recognised on a time apportionment basis so as to reflect the effective interest rate on the security. Other interest receivable is included on an accruals basis. (F) Taxation Corporation tax payable is based on the taxable proï¬t for the year. The charge for taxation takes into account taxation deferred or accelerated because of timing differences between the treatment of certain items for accounting and taxation purposes. Full provision for deferred taxation is made under the liability method, without discounting, on all timing differences that have arisen but not reversed by the balance sheet date, unless such provision is not permitted by FRS 19: Deferred Tax. The tax effect of different items of income/gain and expenditure/loss is allocated between capital and revenue on the same basis as the particular item to which it relates, using the marginal method of tax for the accounting period. (G) Expenses All expenses are accounted for on an accruals basis. Expenses, including investment management fees, are charged through the revenue account except as follows: â€¢ expenses which are incidental to the acquisition or disposal of an investment are treated as capital costs and separately identified and disclosed in Note 9; â€¢ expenses of a capital nature are accounted for through the capital account; and â€¢ investment performance fees. (H) Foreign Currency The currency of the Primary Economic Environment in which the Company operates (the "functional currency") is pounds sterling ("sterling"), which is also the presentation currency. Transactions denominated in foreign currencies are recorded in the local currency at actual exchange rates as at the date of transaction or, where applicable, at the rate of exchange in a related forward exchange contract. Monetary assets and liabilities denominated in foreign currencies at the year end are reported at the rates of exchange prevailing at the year end or, where appropriate, at the rate of exchange in a related forward exchange contract. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss in the Income Statement. For non-monetary assets these are covered by fair value adjustments. (I) Other Capital Reserve The following are accounted for in this reserve: â€¢ investment performance fees; â€¢ gains and losses on the realisation of investments; â€¢ realised exchange differences of a capital nature; and â€¢ expenses of a capital nature. Capital distributions from investments are accounted for on a reducing cost basis; cash received is ï¬rst applied to reducing the historical cost of an investment; a realised gain will be recognised only when the cost has been reduced to nil. (J) Capital Reserve on Investments Held The following are accounted for in this reserve: â€¢ increases and decreases in the value of investments held at the year end. (K) Cash and Cash Equivalents Cash and cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment purposes. Assets are classified as cash equivalents if they are readily convertible to cash and are not subject to significant changes in value. Cash and cash equivalents are defined as cash at bank. (L) Investment 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. If no performance fee has previously been expensed, the applicable `high-water mark' is the net asset value at 31st December 2006 multiplied by 1 + (181/365 x 10%), compounded annually at the hurdle rate for each completed 12 calendar month period after 30th June 2007 up to the commencement of the calculation period for which the performance fee is being calculated. 2. Income 30TH JUNE 30TH JUNE 2010 2009 Â£'000 Â£'000 Income from investments Unfranked dividends 4,121 2,140 4,121 2,140 Other income Interest on VAT - 620 recovered Exchange differences on 7 1 income 7 621 TOTAL INCOME 4,128 2,761 Total income comprises: Dividends 4,121 2,140 Interest - 620 Exchange differences on 7 1 income 4,128 2,761 Analysis of income from investments Unlisted 4,121 2,140 4,121 2,140 3. Investment Management Fees 30TH JUNE 2010 30TH JUNE 2009 REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Investment management 8,715 - 8,715 11,279 - 11,279 fees Investment performance - - - - (106) (106) fee VAT refund - - - (2,295) - (2,295) 8,715 - 8,715 8,984 (106) 8,878 The investment management fee is payable monthly in arrears at the rate set out in the Extracts from the Directors' Report above. At 30th June 2010 Â£1,543,000 (2009: Â£5,064,000) was owed for investment management fees. A performance fee of Â£5,057,000 is payable to the Manager at the year end (see note 12) in respect of the initial 18 month performance fee calculation period ended 30th June 2008. Of this amount Â£3,660,000 was charged in the year to 30th June 2008 with the remaining balance charged in the year to 30th June 2007. No performance fee is payable in respect of the 12 calendar month period to 30th June 2010. The basis upon which the performance fee is calculated is explained in Note 1(L) and in the Extracts from the Directors' Report above. 4. Other Expenses 30TH JUNE 2010 30TH JUNE 2009 REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Secretarial and 180 - 180 169 - 169 accountancy services Fees payable to the 40 - 40 35 - 35 Company's Auditors for the audit of the annual financial statements Fees payable to the Company's Auditors for other services: - all other services 17 - 17 26 - 26 Directors' remuneration 145 - 145 145 - 145 (see Note 5) Irrecoverable VAT (274) - (274) 299 - 299 Legal and professional 304 459 763 585 3,393 3,978 fees Printing 61 - 61 65 - 65 Other 195 - 195 230 - 230 668 459 1,127 1,554 3,393 4,947 The Directors do not consider that the provision of non-audit work to the Company affects the independence of the Auditors. 5. Directors' Remuneration Directors' emoluments comprise wholly Directors' fees. A breakdown is provided in the Directors' Remuneration Report. 6. Interest Payable and Similar Charges 30TH JUNE 2010 30TH JUNE 2009 Â£'000 Â£'000 Bank loan and overdraft 1,828 5,045 interest Loan commitment and 366 344 arrangement fees Redeemable share commitment 541 669 fee Loan notes interest 1,105 824 3,840 6,882 7. Tax on Ordinary Activities 30TH JUNE 2010 30TH JUNE 2009 REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Withholding tax deducted 1,129 - 1,129 399 - 399 from distributions The current taxation for the year differs from the standard rate of corporation Current tax tax in the UK (28%). The differences are explained below: Net return on ordinary (9,095) 133,114 124,019 (14,659) (207,427) (222,086) activities before tax Theoretical tax at UK (2,547) 37,272 34,725 (4,104) (58,080) (62,184) corporation tax rate of 28% (2009: 28%) Non-taxable investment - (37,400) (37,400) - 57,159 57,159 and currency gains Effect of expenses in - 128 128 - 921 921 excess of taxable income Unused management 2,547 - 2,547 4,104 - 4,104 expenses Withholding tax deducted (1,129) - (1,129) (399) - (399) from distributions TOTAL CURRENT TAX (1,129) - (1,129) (399) - (399) Factors That May Affect Future Tax Charges The Company is an investment trust and therefore is not subject to tax on capital gains. Deferred tax is not provided on capital gains and losses arising on the revaluation or disposal of investments because the Company meets (and intends to meet for the foreseeable future) the conditions for approval as an Investment Trust Company. No deferred tax asset has been recognised in respect of excess management expenses and expenses in excess of taxable income as they will only be recoverable to the extent that there is sufï¬cient future taxable revenue. As at 30th June 2010 excess management expenses are estimated to be in excess of Â£44 million. 8. Return per Share 30TH JUNE 2010 30TH JUNE 2009 REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL RETURN PER ORDINARY AND (15.40)p 200.50p 185.10p (22.68)p (312.43)p (335.11)p REDEEMABLE SHARE Ordinary and Redeemable Shares Revenue return per share is based on the net deficit on ordinary activities after taxation of Â£10,224,000 (2009: deficit of Â£15,058,000) and on 66,392,268 (2009: 66,392,268) ordinary shares and redeemable shares, being the number of shares in issue during the year. Capital return per share is based on the return on ordinary activities after taxation of Â£133,114,000 (2009: net deficit of Â£207,427,000) and on 66,392,268 (2009: 66,392,268) ordinary shares and redeemable shares, being the number of shares in issue during the year. Total return per share is based on the return for the year of Â£122,890,000 (2009: net deficit of Â£222,485,000) and on 66,392,268 (2009: 66,392,268) ordinary shares and redeemable shares, being the number of shares in issue during the year. 9a. Movements on Investments 30TH JUNE 30TH JUNE 2010 2009 Â£'000 Â£'000 Book cost brought forward 579,787 582,465 Acquisitions at cost 75,857 164,296 Capital distributions - proceeds (91,575) (140,769) Capital distributions - realised gains / 7,530 (26,205) (losses) on sales BOOK COST AT 30TH JUNE 571,599 579,787 Unrealised appreciation of investments Unlisted investments 191,705 78,679 Provision - (10,259) VALUATION OF INVESTMENTS AT 30TH JUNE 763,304 648,207 9b. Analysis of Investments 30TH JUNE 30TH JUNE 2010 2009 Â£'000 Â£'000 United Kingdom Unlisted investments 37,497 37,230 USA Unlisted investments 562,480 474,584 Other Unlisted investments 163,327 136,393 763,304 648,207 Realised profits / (losses) on sales 7,530 (26,205) Amounts previously recognised as unrealised 1,630 55,121 appreciation on those sales Increase / (decrease) in unrealised 121,655 (210,721) appreciation GAINS / (LOSSES) ON INVESTMENTS 130,815 (181,805) Further analysis of the investment portfolio is provided in the Manager's Review. Transaction costs incidental to the acquisition of investments totalled Â£nil (2009: Â£nil) and to the disposals of investments totalled Â£16,000 (2009: Â£8,000) for the year. 9c. Disposal of Investments During the year PIP disposed of a number of fund interests to strengthen its finances and reduce undrawn commitments. VALUE AS AT PROCEEDS BOOK COST 30TH JUNE 2009 Â£'000 Â£'000 Â£'000 DISPOSAL OF INVESTMENTS 12,879 22,581 21,880 10. Fair Value Hierarchy Financial Assets at Fair Value Through Profit or Loss at 30th June 2010 TOTAL LEVEL 1 LEVEL 2 LEVEL 3 Â£'000 Â£'000 Â£'000 Â£'000 Share holdings 470 470 - - Fund holdings 762,834 - - 762,834 763,304 470 - 762,834 Level 3 Financial Assets at Fair Value Through Profit or Loss at 30th June 2010 PRIVATE EQUITY TOTAL INVESTMENTS Â£'000 Â£'000 Opening balance 648,207 648,207 Purchases at cost 75,857 75,857 Sales proceeds (91,575) (91,575) Total gains or losses included in "Gains on investments" in the income statement - on assets sold 4,229 4,229 - foreign exchange gain on 3,301 3,301 disposal - on assets held as at 30 June 122,815 122,815 2010 CLOSING BALANCE 762,834 762,834 11. Debtors 30TH JUNE 2010 30TH JUNE 2009 Â£'000 Â£'000 Amounts owed by investment funds 540 27 Prepayments and accrued income 377 566 Proceeds from disposal of - 27,092 investments 917 27,685 12. Creditors: Amounts Falling Due Within One Year 30TH JUNE 2010 30TH JUNE 2009 Â£'000 Â£'000 Investment management fees 1,543 5,064 Investment performance fee 5,057 5,057 Other creditors and accruals 316 3,161 Other creditors 6,916 13,282 Bank loan 77,724 120,000 Loan notes 49,500 - 134,140 133,282 The Company has an agreement with The Royal Bank of Scotland whereby the bank has agreed to make available to the Company ï¬ve-year committed revolving dollar and euro credit facilities, expiring 25th May 2012, of $117.4 million and â‚¬85.9 million respectively, a Â£15,000,000 364-day committed revolving credit facility and an overdraft facility of Â£5,000,000. Each individual drawdown bears interest at a variable rate agreed in advance for the period of the drawdown. At 30th June 2010 the sterling equivalent amount of Â£77,724,000 (30th June 2009: Â£120,000,000) was drawn down under the facilities. Terms and debt repayment schedule Terms and conditions of outstanding loan notes were as follows: 2010 2009 FACE CARRYING FACE CARRYING INTEREST YEAR OF VALUE AMOUNT VALUE AMOUNT CURRENCY RATE MATURITY Â£'000 Â£'000 Â£'000 Â£'000 Unsecured GBP LIBOR* 2010** 49,500 49,500 49,500 49,500 subordinated +1.5% loan notes * LIBOR is the published British Bankers' Association rate of interest for one month sterling deposits in the London interbank market on the date the interest period commences or the next business day if the interest commencement date is not a business day. Interest is payable quarterly in arrears. ** After the financial year end the subscribers for the unsecured subordinated loan notes agreed to extend the final repayment date to 15th November 2011. 13. Creditors: Amounts Falling Due After One Year 30TH JUNE 2010 30TH JUNE 2009 Â£'000 Â£'000 Non-current liabilities Loan notes - 49,500 14. Called-up Share Capital 30TH JUNE 30TH JUNE 2010 2009 Â£'000 Â£'000 Allotted, called-up and fully paid: 37,521,013 (2009: 25,139 25,139 37,521,013) ordinary shares of 67p each 28,871,255 (2009: 289 289 28,871,255) redeemable shares of 1p each 25,428 25,428 Redeemable shares rank equally with ordinary shares regarding dividend rights and rights on winding up or return of capital (other than a redemption or purchase of shares). The holders of redeemable shares have the right to receive notice of and attend all general meetings of the Company but not to speak or vote. The holders of ordinary shares are entitled to one vote for each ordinary share held. The redeemable shares are redeemable at the option of the Company, at the prevailing net asset value per share, within 60 days following the end of each quarterly NAV calculation date or within 60 days of any other business day which is determined by the Directors to be a NAV calculation date. 15. Reserves CAPITAL CAPITAL OTHER RESERVE ON SHARE REDEMPTION CAPITAL INVESTMENTS SPECIAL REVENUE PREMIUM RESERVE RESERVE HELD RESERVE RESERVE Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Beginning of year 183,184 26 175,592 69,541 99,861 (40,010) Net gain on - - 7,530 - - - realisation of investments Increase in - - - 121,655 - - unrealised appreciation Transfer on - - - 1,630 - - disposal of investments Exchange - - 2,756 - - - differences on loan and currency Exchange - - - 2 - - differences on other capital items Legal and - - (459) - - - professional costs charged to capital Revenue return for - - - - - (10,224) the year END OF YEAR 183,184 26 185,419 192,828 99,861 (50,234) 16. Net Asset Value per Share The net asset value per share and the net assets attributable at the year end calculated in accordance with the Articles of Association were as follows: NET ASSET VALUE NET ASSETS PER SHARE ATTRIBUTABLE 2010 2009 2010 2009 Â£'000 Â£'000 ORDINARY AND 958.71p 773.62p 636,512 513,622 REDEEMABLE SHARES Basic net asset value per share is based on net assets attributable to equity shareholders of Â£636,512,000 (2009: Â£513,622,000) and on 66,392,268 (2009: 66,392,268) ordinary shares and redeemable shares, being the number of shares in issue at the year end. 17. Reconciliation of Net Cash Flow to the Movement in Net Debt 30TH JUNE 2010 30TH JUNE 2009 Â£'000 Â£'000 (Decrease) / increase (15,450) 12,963 in cash in year Non-cash movement - foreign exchange 1,960 1,002 gains CHANGE IN NET (DEBT) / (13,490) 13,965 FUNDS Net debt at beginning (148,988) (63,419) of year Loans drawn down - (90,034) Loans repaid 41,685 40,000 Loan notes - (49,500) NET DEBT AT END OF (120,793) (148,988) YEAR 18. Analysis of Net Debt AT 30TH JUNE 2010 AT 30TH JUNE 2009 Â£'000 Â£'000 Cash at bank 6,431 20,512 Bank loan (77,724) (120,000) Loan notes (49,500) (49,500) (120,793) (148,988) 19. Reconciliation of Return on Ordinary Activities Before Tax and Financing Costs to Net Cash Flow from Operating Activities 30TH JUNE 2010 30TH JUNE 2009 Â£'000 Â£'000 Return on ordinary 127,859 (215,204) activities before ï¬ nancing costs and tax (Gains) / losses on (130,815) 181,805 investments Currency (gains) / (2,758) 22,335 losses on cash and borrowings (Decrease) / increase (6,143) 5,685 in creditors Decrease in other 189 140 debtors NET CASH OUTFLOW FROM (11,668) (5,239) OPERATING ACTIVITIES 20. Contingencies, Guarantees and Financial Commitments At 30th June 2010 there were ï¬nancial commitments outstanding of Â£331.0 million (2009: Â£427.8 million) in respect of investments in partly paid shares and interests in private equity funds. 21. Analysis of Financial Assets and Liabilities The primary investment objective of the Company is to seek to maximise long-term capital growth for its shareholders by investing in funds specialising in unquoted investments, acquiring unquoted portfolios and participating directly in private placements. Investments are not restricted to a single market but are made when the opportunity arises and on an international basis. The Company's financial instruments comprise securities and other investments, cash balances and debtors and creditors that arise from its operations, for example sales and purchases awaiting settlement and debtors for accrued income. The principal risks the Company faces in its portfolio management activities are: â€¢ liquidity/marketability risk; â€¢ interest rate risk; â€¢ market price risk; and â€¢ foreign currency risk. The Company has little exposure to credit risk. The Manager monitors the financial risks affecting the Company on a daily basis and the Directors receive financial information monthly, which is used to identify and monitor risk. In accordance with FRS 29: Financial Instruments: Disclosures, an analysis of financial assets and liabilities, which identifies the risk to the Company of holding such items, is given below. Liquidity Risk Due to the nature of the Company's investment policy, the largest proportion of the portfolio is invested in unquoted securities, many of which are less readily marketable than, for example, `blue-chip' UK equities. The Directors believe that the Company, as a closed-end fund with no fixed wind-up date, is ideally suited to making long-term investments in instruments with limited marketability. The investments in unquoted securities are monitored by the Board on a monthly basis. There are limited opportunities for the Company to acquire secondary unquoted portfolios due to the cyclical nature of their occurrence. As a result, at times of low investment opportunity, some funds may be invested in gilts and other fixed interest government bonds. It is the nature of investment in private equity that a commitment to invest will be made and that calls for payments will then be received from the unlisted investee entity. These payments are usually on an ad-hoc basis and may be called at any instance over a number of years. The Company's ability to meet these commitments is dependent upon it receiving cash distributions from its private equity investments, and to the extent these are insufficient, on the availability of financing facilities. In order to cover any shortfalls, the Company has entered into five-year committed revolving dollar and euro credit facilities with The Royal Bank of Scotland plc, of $117.4 million and â‚¬85.9 million respectively. These facilities expire on 25th May 2012. At 30th June 2010 the amount drawn down was the sterling equivalent of Â£77,724,000 (30th June 2009: Â£120,000,000) (see Note 12 for further information). The principal covenant that applies to the loan facility is that gross borrowings do not exceed 30% of adjusted gross asset value. All amounts payable under the unsecured subordinated loan notes will be excluded from the calculation of the Company's total gross borrowings for the purposes of determining whether the financial covenant has been met. Interest Rate Risk The Company may use gearing to achieve its investment objectives and manage cash flows and uses a multicurrency revolving credit facility and unsecured subordinated loan notes for this purpose. Interest on the revolving credit facility is payable at variable rates determined subject to drawdown. Variable rates are defined as LIBOR + 1.25%. The interest rate is then fixed for the duration that the loan is drawn down. At 30th June 2010 there was the sterling equivalent of Â£77,724,000 funds drawn down on the loan facilities (30th June 2009: Â£120,000,000). The loans are due to be repaid within one year and as such fair value is not considered to be materially different from par value. Interest on the unsecured subordinated loan notes is payable quarterly in arrears at LIBOR + 1.5%. LIBOR is the published British Bankers' Association rate of interest for 1 month sterling deposits in the London interbank market on the date the interest period commences or the next business day if the interest commencement date is not a business day. At 30th June 2010 there were Â£49,500,000 funds drawn down on the loan notes (30th June 2009: Â£49,500,000). Fair value is not considered to be materially different from par value. See the Financial Liabilities section below for details of changes to the loan notes after the year end. The Company's bank accounts do not earn interest. Should any balance go overdrawn then interest will become payable at variable rates. Non-Interest Rate Exposure The remainder of the Company's portfolio and current assets are not subject to interest rate risks. Financial assets for 2010 and 2009 consisted of investments, cash and debtors (excluding prepayments). As at 30th June 2010, the interest rate risk and maturity profile of the Company's financial assets was as follows: FIXED INTEREST NO MATURES AVERAGE MATURITY WITHIN INTEREST TOTAL DATE 1 YEAR RATE 30TH JUNE 2010 Â£'000 Â£'000 Â£'000 % Fair value interest rate risk ï¬nancial as sets Sterling - - - - US dollar - - - - Other European - - - - - - - - No interest rate risk ï¬nancial assets Sterling 37,592 37,592 - - USA 567,353 567,353 - - Other European 165,330 165,330 - - 770,275 770,275 - - The interest rate risk and maturity profile of the Company's financial assets as at 30th June 2009 was as follows: FIXED INTEREST NO MATURES AVERAGE MATURITY WITHIN INTEREST TOTAL DATE 1 YEAR RATE 30TH JUNE 2009 Â£'000 Â£'000 Â£'000 % Fair value interest rate risk ï¬nancial assets Sterling - - - - US dollar - - - - Other European - - - - - - - - No interest rate risk ï¬nancial assets Sterling 41,601 41,601 - - US dollar 492,259 492,259 - - Other European 161,979 161,979 - - Other - - - - 695,839 695,839 - - As at 30th June 2010, the maturity profile of the Company's financial liabilities was as follows: NO MATURES MATURES MATURITY WITHIN AFTER TOTAL DATE 1 YEAR 1 YEAR 30TH JUNE 2010 Â£'000 Â£'000 Â£'000 Â£'000 Loan 77,724 - 77,724 - Loan notes 49,500 - 49,500 - 127,224 - 127,224 - As at 30th June 2009, the maturity profile of the Company's financial liabilities was as follows: NO MATURES MATURES MATURITY WITHIN AFTER TOTAL DATE 1 YEAR 1 YEAR 30TH JUNE 2009 Â£'000 Â£'000 Â£'000 Â£'000 Loan 120,000 - 120,000 - Loan notes 49,500 - - 49,500 169,500 - 120,000 49,500 Financial Liabilities The Company primarily finances its operations through its issued capital, bank borrowings, unsecured subordinated loan notes and existing reserves. At 30th June 2010, the Company had drawn the sterling equivalent of Â£77,724,000 (2009: Â£120,000,000) of its five-year committed revolving dollar and euro credit facilities, expiring 25th May 2012, of $117.4 million and â‚¬85.9 million respectively with The Royal Bank of Scotland plc. Interest is incurred at a variable rate as agreed at the time of drawdown and is payable at the maturity date of each advance. At the year end, interest of Â£24,000 (2009: Â£nil) was accruing. At 30th June 2010 the Company had unsecured subordinated loan notes worth Â£49,500,000 (2009: Â£49,500,000) in issue. Interest is incurred at a variable rate and payable quarterly in arrears as described in Note 12. At the year end, interest of Â£nil (2009: Â£nil) was accruing. After the financial year end the subscribers for the series A unsecured subordinated loan notes agreed to extend the final repayment date to 15th November 2011. The subscribers agreed to participate in the issue of series B unsecured subordinated loan notes for a total amount of Â£51,000,000, also due for repayment on 15th November 2011. This takes the total loan notes outstanding to Â£100,500,000. With the exception of the loan notes, revolving credit facility and bank overdraft, there was no interest risk associated with other short-term creditors at 30th June 2010 or 30th June 2009. At 30th June 2010 and, with the exception of loan notes, at 30th June 2009, all other financial liabilities were due within one year. The revolving credit facility is included in creditors falling due within one year. Market Price Risk The method of valuation of the fixed asset investments is described in Note 1 (D). The nature of the Company's fixed asset investments, with a high proportion of the portfolio invested in unquoted securities, means that the investments are valued by the Directors after due consideration of the most recent available information from the underlying investments. 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. If the investment portfolio valuation fell by 20% from the 30th June 2010 valuation, with all other variables held constant, there would have been a reduction of Â£152,661,000 (2009 based on a 20% fall: Â£129,641,000) in the return before taxation. An increase of 20% in the investment portfolio valuation would have had an equal and opposite effect in the return before taxation. Foreign Currency Risk Since it is the Company's policy to invest in a diverse portfolio of investments based in a number of countries, the Company is exposed to the risk of movement in a number of foreign exchange rates. A geographical analysis of the portfolio and hence its exposure to currency risk is given in the Manager's Review. Although it is permitted to do so, the Company did not hedge the portfolio against the movement in exchange rates during the financial year as there was no significant increase in the perceived risk of exchange rate movement. The investment approach and the Manager's consideration of the associated risk are discussed in further detail in the Manager's Review. The Company settles its transactions from its bank accounts at an agreed rate of exchange at the date on which the bargain was made. As at 30th June 2010, realised exchange gains of Â£205,000 (2009: Â£93,000 gains) and unrealised gains relating to currency of Â£1,459,000 (2009: Â£1,087,000) have been taken to the capital reserve. If the sterling/dollar and sterling/euro exchange rate had reduced by 10% from that obtained at 30th June 2010, it would have the effect, with all other variables held constant, of decreasing equity shareholders' funds by Â£7,925,000 (2009: increasing by Â£4,807,000). If there had been an increase in the sterling /dollar and sterling/euro exchange rate of 10% it would have the effect of increasing equity shareholders' funds by Â£6,484,000 (2009: decreasing by Â£3,933,000). The calculations are based on the financial assets and liabilities and the exchange rate of 1.4961 sterling/dollar and 1.2214 sterling/euro as at 30 June 2010. An analysis of the Company's exposure to foreign currency excluding private equity investments is given below: 30TH JUNE 30TH JUNE 30TH JUNE 30TH JUNE 2010 2010 2009 2009 ASSETS LIABILITIES ASSETS LIABILITIES Â£'000 Â£'000 Â£'000 Â£'000 US dollar 4,982 41,127 17,675 - Euro 1,416 36,597 25,163 - Swedish krona 505 - 423 - 6,903 77,724 43,261 - Fair Value of Financial Assets and Financial Liabilities The financial assets of the Company are held at fair value. Financial liabilities are held at amortised cost, which is not materially different from fair value. Managing Capital The Company's equity comprises ordinary shares and redeemable shares as described in Note 14. Capital is managed so as to maximise the return to shareholders while maintaining a capital base that allows the Company to operate effectively in the marketplace and sustain future development of the business. The Company also has bank debt facilities and commitments by institutional investors ("standby commitments") to subscribe for redeemable shares against part of which subordinated loan notes have been issued to increase the Company's liquidity. Details of borrowings at the year end can be found earlier in this Note and in the Extracts from the Directors' Report and details of the standby commitments can be found in The Manager's Review above in the Finance section. The Company's assets and borrowing levels are reviewed regularly by the Board of Directors with reference to the loan covenants. The Company's capital requirement is reviewed regularly by the Board of Directors. 22. Related Party Transactions The Manager, Pantheon Ventures Limited, is regarded as a related party of the Company. Mr R.M. Swire, a Director of the Company, is a director of Pantheon Ventures Limited. The amounts paid to the Manager are disclosed in Note 3. The Company is entitled to invest in funds managed by Pantheon. The Manager is not entitled to management and commitment fees in respect of PIP's holdings in, and outstanding commitments to, these funds. ANNUAL GENERAL MEETING The Company's Annual General Meeting will be held on Wednesday, 24th November 2010 at 12 noon at the offices of Pantheon, Norfolk House, 31 St James's Square, London SW1Y 4JR.

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