Annual Financial Report

PANTHEON INTERNATIONAL PARTICIPATIONS PLC (the "Company" or "PIP") ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2011 The full Annual Report and Accounts can be accessed via the Company's website at www.pipplc.com or by contacting the Company Secretary by telephone on 01392 412122. PIP will be holding a webcast today at 2.30 pm BST to discuss the release of the 2011 Annual Report and Accounts. The presentation can be viewed on www.meetingzone.com/presenter/?partCEC= 1556367 with Access Pin 1556367#. Please use the dial in details below and ensure that you give your name, company name and the password PIP when dialling in for the webcast. 0808 109 0700 UK Toll Free +44 (0) 20 3003 2666 Standard International Access FINANCIAL SUMMARY HIGHLIGHTS 30TH JUNE 2011 30TH JUNE 2010 CHANGE Summary of results Adjusted NAV per share 1,104.1p 958.7p 15.2% Adjusted net assets Â£733.1m Â£636.5m 15.2% Ordinary shares Share price 714.0p 486.0p 46.9% Discount to adjusted NAV per 35.3% 49.3% share Redeemable shares Share price 710.0p 550.0p 29.1% Discount to adjusted NAV 35.7% 42.6% per share Investment activity Distributions Â£165.2m Â£72.5m 127.9% Investments called Â£84.1m* Â£67.3m 25.0% Net cash flow Â£81.1m Â£5.2m * Excludes Â£18.8m acquisition cost of a new secondary transaction completed in the year. The adjusted NAV excludes a derivative asset relating to the Company's standby subscription agreements with certain institutions under which those institutions can be called by the Company to subscribe for new redeemable shares in the Company ("Standby Commitments"). These agreements are required to be included as an asset in the Company's accounts to comply with FRS 26. The utilisation (such as that which took place on 24th August 2011 in respect of Â£100.5m of the Â£150m Standby Commitments) or expiry of Standby Commitments will lead to a reversal of the asset in the accounts at such times. The Board considers that the best measure of the Company's economic value to shareholders is the adjusted NAV per share which is directly comparable to previously published NAV per share. See Notes 13 and 16 of the financial statements for more details. SINCE PERFORMANCE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION AT 30TH JUNE 2011 % % P.A. % P.A. % P.A. % P.A. Adjusted NAV per 15.2 (0.1) 6.7 5.8 11.7 share Share price 46.9 (1.6) (0.3) 2.9 10.2 FTSE All-Share Total 25.6 6.6 4.5 4.8 8.0 Return MSCI World Total 22.2 8.5 5.8 3.2 6.7 Return (sterling) PIP was launched on 18th September 1987. Â£1,000 invested at inception, assuming reinvestment of dividends, capital repayments and cash flows from the exercise of warrants would have been worth Â£10,030 at 30th June 2011. CAPITAL STRUCTURE AT 30TH JUNE 2011 Ordinary shares 37,521,013 Redeemable shares* 28,871,255 Total 66,392,268 * On 24th August 2011 PIP issued 9,102,279 new redeemable shares, taking total redeemable shares in issue to 37,973,534 and the total number of ordinary and redeemable shares to 75,494,547. CHAIRMAN'S STATEMENT I am pleased to report that the adjusted net asset value ("NAV") per share increased by 15.2% to 1,104.1p in the year to 30th June 2011. This performance was driven by substantial valuation gains in our portfolio of private equity assets. Distributions in the year increased by 128% to Â£165m, many of which were completed at significant uplifts to carrying value. Strengthened balance sheet The Company experienced a substantial increase in cash flow during the year, with the portfolio generating Â£81m of net cash inflows before any new investment commitments, an increase of Â£76m relative to the previous financial year. This cash flow, along with the Company's new loan facility which expires in 2015 has strengthened the balance sheet. Furthermore, in August 2011, PIP exchanged its full balance of Â£100.5m of loan notes for new redeemable shares. As a result, the balance sheet is now debt-free and the capital structure has been simplified. Focus on opportunities in the secondary markets As a consequence of the strengthened balance sheet, the Company resumed its secondary investment programme in June 2011, with a Â£24m commitment to a high quality, global portfolio of 25 funds. As I have previously stated, the Company currently intends to place more emphasis with its new commitments on the secondary market. This will allow the Company to acquire mature private equity assets, which tend to have shorter payback periods and relatively low levels of undrawn commitments. The fundamentals driving the secondary market are compelling, and the Company is well positioned to take advantage of opportunities as they arise. Discount does not reflect fundamental value PIP's share price increased by 46.9% in the year to 30th June 2011, driven by the strong NAV performance mentioned above, alongside a reduction of the discount from 49% to 35%. Whilst this improvement is welcome, the Board's view is that the discount, which subsequently widened to 44% by the end of September, does not reflect the high quality of the portfolio and the improvements to the Company's balance sheet. In August 2011 the Company bought back, for Â£6.4m, 940,000 redeemable shares at an average price of 683p, representing a 38% discount to the 30th June adjusted NAV per share. The Board will consider further targeted buybacks of ordinary and redeemable shares as a means of enhancing NAV per share. Performance NAV per share performance driven by strong uplift in valuations The Company has continued to see a significant recovery in valuations. The adjusted net asset value of the Company increased by Â£96m to Â£733m during the year. This was mainly due to the strong portfolio performance resulting in investment gains (excluding foreign exchange effects) of Â£121m. These gains were partially offset by Â£20m of foreign exchange losses, largely due to the Company's exposure to the US dollar, and Â£5m of net expenses and interest. Strong portfolio returns across all stages Investment gains of Â£121m (excluding the effect of foreign exchange) represent a return of +16% on the Company's opening portfolio value. In a year when stock market performance was positive, buyout funds performed particularly well, with large buyout returns of +22% and mid-market and smaller buyout returns of +18%. PIP's venture and growth, and special situations funds also performed well, generating returns of +13% and +12% respectively. Impressive growth at the underlying company level A review of our largest 50 buyout funds and direct investments (representing approximately 50% of the Company's buyout and direct investments by value) revealed weighted average revenue and EBITDA growth rates of +11% and +22% respectively, for the year to 31st December 2010. The relative strength of our portfolio companies' EBITDA growth supports the view that private equity managers have been successful in targeting cost efficiencies as well as revenue increases at the underlying company-level. In fact, these revenue and EBITDA growth rates comfortably outperformed the underlying comparable growth rates of the MSCI World and FTSE All-Share over the same period. Investment Activity The Company generated Â£81m of net cash inflows from the portfolio during the year, up from Â£5m in the previous year. Significant increases in distribution activity Distributions received in the year were Â£165m, representing 22% of opening portfolio value - double the distribution rateÂ¹ of 11% in the previous year. This increase in realisation activity, which was particularly significant from the fourth quarter of 2010, was due to a marked increase in IPO and M&A activity. In particular, the portfolio experienced strong rates of distribution from its US portfolio that includes a large proportion of mature venture and growth assets. Additionally, distribution rates were high in Asia, which has been less affected by the financial crisis than other regions. PIP's European portfolio, consisting mainly of less mature European buyout assets, distributed at a slower rate. The weighted average age of the funds in the Company's portfolio is approximately 6.7 years. A high proportion of the Company's funds are currently in a cash-generative phase. The venture and growth portfolio in particular is very mature at 7.7 years and consists of companies that have passed through several rounds of financing and moved into a more stable growth stage, when managers can focus on an exit. The largest 50 distributions in the period generated substantial uplifts both to cost and carrying value, highlighting the continued ability of private equity managers to create significant value over the course of an investment. PIP is likely to benefit further from realised valuation uplifts as the underlying managers in our mature portfolio continue to realise assets. Â¹Distribution rate defined as distributions received in the year as a percentage of opening portfolio value. Acceleration in call rates and resumption of secondary investments The Company invested Â£84m through calls from underlying private equity funds. These calls represent approximately 25% of opening undrawn commitments, up from 16% in the previous year. This increase coincided with improvements in credit market conditions and economic growth. 64% of our calls went into buyout funds, the majority of which were focused on small and mid-sized transactions. 25% of calls went into venture and growth funds, mainly in the USA, with the remainder focused on special situations funds. In June 2011, the Board was pleased to announce the resumption of the Company's secondary investment programme with a Â£24m commitment to participate in a large proprietary transaction alongside other Pantheon clients. The purchase, at a discount to September 2010 underlying valuations, consisted of a global portfolio of 25 high quality funds which were 79% funded at acquisition. We anticipate a strong flow of high quality secondary investment opportunities. The size and experience of Pantheon's secondary team, combined with its primary investment platform, provides PIP with access to large, complex and, in many cases, proprietary transactions. Pantheon is one of a limited number of managers globally who have the capability to execute such transactions. Portfolio Relatively low underlying leverage and diversification should reduce volatility PIP's portfolio has a 40% exposure to venture and growth, special situations and generalist funds, all of which tend to utilise low levels or no leverage. 60% of the portfolio is invested in buyout funds and direct investments which typically utilise debt. The majority of the Company's buyout and direct investment exposure is with managers that focus on small and mid-sized transactions, which tend to have more conservative levels of debt. In the sample of PIP's largest 50 buyout funds and direct investments, the weighted average debt to EBITDA multiple was 3.7 times at 31st December 2010, substantially lower than the debt levels associated with the peak of the buyout boom, when multiples regularly exceeded 5 to 6 times. PIP is invested with over 300 private equity managers in over 600 funds, reducing exposure to underperformance from individual assets. Furthermore, the Company's carefully selected portfolio is well diversified by stage, vintage, sector and region, which can significantly reduce the volatility of returns and cash flows. The quality, diversification and inclusion of non-leveraged strategies, positions the portfolio relatively well if the current turmoil in global markets persists. Financing and Capital Structure A new loan facility and simplified capital structure In June 2011 PIP signed a new multi-currency, revolving credit facility agreement for $82m and â‚¬57m. This new facility will expire in June 2015, and replaced the old facility of $117m and â‚¬86m that was due to expire in May 2012. The Board intends to utilise this facility to finance calls of undrawn commitments in the event that distributions from realised investments are insufficient to do so. This provides the Company with greater flexibility to reinvest surplus cash generated from its portfolio without needing to reserve it for future calls of undrawn commitments. After the year end, in August 2011, the Company exchanged for new redeemable shares the full outstanding Â£100.5m balance of loan notes issued in 2008 and 2010 to bridge calls under the Company's standby redeemable share subscription agreements with certain institutions ("Standby Commitments"). The new redeemable shares were issued under these Standby Commitments, at a subscription price equal to the adjusted NAV per share at 30th June 2011. As a result of the exchange, the NAV of the Company increased by Â£100.5m and debt was eliminated from the balance sheet. The Company has subsequently terminated the remaining Â£49.5m of Standby Commitments with effect from 30th September 2011. Together these actions have secured financing over the medium term, simplified the capital structure and ultimately strengthened the Company's financial position. Undrawn commitments are well covered Undrawn commitments at 30th June 2011 were Â£243m, down from Â£331m at the start of the year. This movement was mainly due to calls of Â£84m offset by the acquisition of Â£5m undrawn commitments via a secondary transaction. The remaining movements were due to fluctuations in exchange rates and cancellations of outstanding commitments by general partners. At 30th June 2011, the Company's available financing was Â£130.1m, comprising settled cash balances of Â£27.6m and an unutilised bank loan facility of Â£102.5m. This available financing (which excludes the unutilised Standby Commitments that were terminated at the end of September 2011), alongside the private equity portfolio of Â£810m, represented 3.9 times the value of the Company's Â£243m of undrawn commitments. This multiple has improved from 2.8 times at 30th June 2010, and reflects the strengthening of the balance sheet over the period. It should also be noted that 28% of the undrawn commitments are greater than five years old, most of which relate to funds that are outside their investment periods. Consequently, a portion of these undrawn commitments are unlikely to be called. The Board is confident that the Company's financing is sufficient to cover undrawn commitments, such that cash generated from net portfolio realisations can be applied to new investment opportunities, as well as share buybacks if discounts remain wide over the coming year. Outlook Since the year end, the Company has continued to see strong levels of distributions, with the cash position of the Company increasing from Â£27.6m at 30th June 2011 to Â£43.7m at 30th September 2011. It is the Board's view that much of this realisation activity reflects the deal activity consummated by managers in the first half of calendar year 2011, when the financial markets were more settled. Recent volatility in stock markets and the tightening of the credit markets, particularly in Europe, are likely to cause a slowdown in activity. The FTSE All-Share and MSCI World indices were down 13% and 14% respectively in the September 2011 quarter, which provides a more negative backdrop for valuations in the short-term. That said, PIP's diversified portfolio and strengthened balance sheet should provide protection if the economic environment deteriorates. Net asset value, taking into account the newly issued redeemable shares, exceeds undrawn commitments by approximately 3.4 times. Given this ratio, the Company should remain cash-generative even if realisation rates are significantly impacted by weak financial markets. Many private equity managers have, over the past few years, deleveraged and strengthened their underlying portfolio companies, and it is our view that the Company's portfolio and balance sheet are substantially more resilient than at the start of the financial crisis in 2008. With a difficult outlook in mind the Company will continue to take a cautious approach to investing in new opportunities. Board Change I would like to take this opportunity to thank Sandy Thomson for his valuable contribution to the Company as a Director and member of our Audit Committee. Sandy, who has been a Director for the past eight years, will be retiring at the Annual General Meeting. Taking into account Sandy's retirement as a Director, we have appointed an independent recruitment agency to assist in the identification of suitable candidates to join the Board. Tom Bartlam Chairman 4th October 2011 THE MANAGER'S REVIEW MARKET REVIEW Summary Investment activity increased globally, driven by improvements in earnings visibility and an increase in the availability of debt. A rise in realisation activity resulted from an increase in the number of trade sales, IPOs and, in particular, secondary buyouts. However, the future pace of investment and realisation activity, particularly in the USA and Europe, could well be impacted by heightened uncertainty in financial markets. In the secondary market for fund interests a strong recovery in activity is set to continue, as new regulation and exposure factors encourage banks and other institutions to sell private equity assets. US and European Buyouts The past year saw a resurgence in global buyout activity. The aggregate value of buyout deals on a global basis executed in the first half of 2011 increased by over 50% year-on-year. This was particularly marked in Europe where buyout activity in the first half of 2011 doubled year-on-year, albeit from a low base. Growth in the US market approximated 35%.Â¹ Buyout activity was facilitated by improved credit markets across both regions. An increase in high-yield bond issuance in the USA has helped to drive activity, especially in the larger end of the market. It remains to be seen how recent market volatility and growing concerns about the economic outlook in the USA and Europe will impact managers' investment activities. Realisation activity increased correspondingly year-on-year in the first half of 2011. M&A by trade buyers across both regions, IPOs particularly in the USA, and a revival of secondary buyouts particularly in Europe, all contributed to this rise. Secondary buyouts are an established and accepted part of the European market where, in some countries, secondary and tertiary buyouts account for more than 50% of deal flow. Public to private transactions are often problematic to execute in Europe. Public markets are also less accessible for European vendors as an exit route. Trade buyers can provide compelling spin-outs and also constitute attractive acquirers for private equity owned companies. However, sometimes the M&A expertise of private equity managers puts them at an advantage to trade buyers allowing for an active secondary buyout market, particularly in the small and mid-markets. Thus, a company in Europe can often benefit from serial private equity ownership, for example when small country funds sell on to regional funds, who in turn sell to pan-European or global funds. Secondary buyouts can present a number of opportunities to private equity managers because a different type of private equity owner can stimulate the creation of new opportunities to help companies achieve greater scale. Furthermore, timing and cash flow management are frequently more straightforward in companies where the banks and management are already familiar with the buyout's case. Â¹ Source: Q2 2011 Prequin Quarterly. US Venture CapitalÂ² Over the year the US venture capital market has continued to recover. As growth has remained subdued, venture capital managers and growth equity managers are continuing to target sectors with secular growth characteristics or with technologies to displace incumbents. Venture and growth investment activity has been predominantly focused on the healthcare, IT and consumer services sectors, where fundamentals remain more favourable globally. The venture industry has experienced substantial rationalisation over the last decade. This rationalisation, in both the number of funds active in the sector and the amount of dry powder available, has resulted in a more appealing market environment for venture investors. The venture market also experienced a considerable increase in M&A activity over the period. US venture-backed M&A increased by 31% year-on-year in the first half of 2011. In addition, this year saw a rise in US venture-backed IPOs with $6.8bn of IPOs completed in the first half of 2011, up 180% on the same period in 2010. The second quarter of 2011 was particularly strong with $5.5bn of US venture-backed IPOs executed, the highest level since the third quarter 2000.Â³ After the recent strength in venture-backed exits, IPO activity has already slowed following recent stock market volatility. However, if markets stabilise again we could continue to see strength in M&A activity within the sector, as cash-rich IT and healthcare firms seek to acquire venture-backed companies operating in potentially disruptive technologies. Â²As the majority of PIP's venture and growth portfolio is based in the USA, the section focuses entirely upon this region. Â³Source: National Venture Capital Association. Asia The Asian private equity market, which has been less impacted by the financial crisis, has seen continued strong and consistent levels of investment, driven by robust business confidence and growth in the region. China continues to maintain its position as the largest market for private equity capital in the region, followed by Australia and India. In the Chinese market, growth in the number of RMB denominated funds has given rise to an increasing number of new entrants. After a decline in 2010, overall investment activity in Australia has increased this year, particularly at the upper end of the mid-market. In India, domestic specialist funds have overtaken the activity levels of regional funds in the upper mid-market. During the first half of 2011, Asian private equity posted some of its best half-year realisations, with China and India dominating, although Australia also experienced some large exits during this period. These trends were evident in the Company's portfolio where Asian call and distribution activity represented a relatively high proportion of the totals. While overall listing activity is expected to moderate and in some cases decline, key IPO markets like China and Australia may yet remain more resilient for the remainder of 2011 and 2012. As was clear during the 2008 downturn, Asian M&A markets have established themselves as a continued source of liquidity to private equity investors. Since July and through the recent market downturn, managers have continued to successfully turn to the M&A and secondary private equity markets to book large exits or partial realisations. Secondary Interests in Funds After the low activity levels in the market for secondary fund interests in 2009, which were associated with very weak pricing at the height of the financial crisis, deal volume recovered strongly in 2010 to some $20bn, up from approximately $10bn in 2009. This recovery continued in the first half of 2011 with $14bn of deal volume transacted - the busiest first six months of any year in the history of the market for secondary partnership interests.4 As expected, deal activity has emanated particularly from financial institutions and pension funds, which together accounted for about 85% of volume in the first half of 2011.4 Banks started to significantly reduce their private equity holdings in 2010, responding both to balance sheet pressures and new capital adequacy regulations. We expect regulation to continue to stimulate deal flow. The Dodd-Frank Act in the USA and Basel III regulations are forcing higher the capital adequacy requirements in the banking sector. Similarly, the new regulatory regime under Solvency II is likely to affect insurance companies, at least in Europe and possibly globally, with a potential to affect pension funds also. Pension funds have been active sellers whilst rebalancing their portfolios, either to reduce overall private equity exposure, or to reduce exposure to certain vintages or managers. Meanwhile, the average discount for secondary transactions has narrowed to around 15% in the first half of 2011. 4 This has further reduced the gap between buyer and seller pricing expectations, thereby stimulating the market. With the impetus for higher deal volumes likely to continue, there could be plenty of attractive secondary opportunities in the market over the coming year. Pantheon will continue to focus on assets that can maintain their resilience in the face of a weakening economic outlook. Pantheon is one of the largest secondary fund-of-fund managers in the world, with a dedicated team of 23 investment professionals focusing on secondary transactions. This enables the Company to participate alongside other Pantheon clients (according to an agreed allocation ratio) in complex deals that smaller and more inexperienced teams are unable to analyse. Pantheon's global primary platform and reputation as one of the largest and respected primary private equity managers allows it to create proprietary deal flow, thereby avoiding broad auctions, and enabling acquisitions at attractive prices. 4 Source: Cogent Partners INVESTMENTS CALLED IN THE YEAR TO 30TH JUNE 2011 New investments financed during the year ranged across many sectors and regions, from telecommunications firms to leading restaurant chains, energy companies to highly specialised manufacturers and from internet companies to firms operating in the healthcare industry. Further investments will be made in the coming year through calls from the Company's undrawn commitments of Â£243m, ensuring that PIP continues to invest throughout the economic cycle. Calls PIP paid Â£84m of calls in the year to 30th June 2011, equivalent to approximately 25% of opening undrawn commitments. This was substantially higher than the rate last year which was 16%. USA 38% Europe 44% Asia and other 18% Total 100% DISTRIBUTIONS IN THE YEAR TO 30TH JUNE 2011 PIP received distributions from more than 400Â¹ funds, with many at significant uplifts to carrying value. The Company's mature and diversified portfolio should continue to generate significant distributions in the coming quarters. Â¹ This figure looks through feeders and fund-of-funds. Distributions PIP received Â£165m in proceeds from the portfolio in the 12 months to 30th June 2011, equivalent to approximately 22% of opening private equity assets. USA 63% Europe 24% Asia and other 13% Total 100% Cost Multiples on a Sample of the Largest Distributions in the Year to 30th June 2011Â¹ On a sample of the largest 50 distributions, the weighted average cost multiple was 7.2 times. 100% of the distributions in the sample generated multiples in excess of 1.0 times cost for the underlying fund, over 80% achieved multiples in excess of 2.0 times and over 20% of the sample generated multiples in excess of 10.0 times. These results highlight the continued ability of private equity managers to create significant value over the course of an investment. Uplifts to Previous Valuations on a Sample of the Largest Distributions in the Year to 30th June 2011Â² On a sample of the largest 50 distributions, the weighted average uplift was 79%. 98% of the sample distributed an amount greater than the previous valuation, over 70% of the sample generated uplifts in excess of 25%, and 14% generated uplifts in excess of 100%. These findings are consistent with our view that distributions tend to be significantly incremental to returns. PIP's mature portfolio is well placed to continue to generate a good level of distributions in the coming year. Approximately 54% of the largest 50 distributions were derived from trade sales, 26% from IPOs, 17% from sales to other private equity firms and 3% from capital reorganisations. Â¹The available data in the sample represented approximately 35% of PIP's total distributions for the year to 30th June 2011. This data is based upon cost multiples (gross or net) available at the time of the distribution. Â²The available data in the sample represented approximately 28% of PIP's total distributions for the year to 30th June 2011. This data set excluded distributions from the sale of listed holdings. FINANCE Cash and Available Bank Facility At 30th June 2011 the Company had settled cash balances equivalent to Â£27.6m. In June 2011 the Company entered into a new multi-currency revolving credit facility agreement ("New Loan Facility"), replacing its previous multi-currency revolving credit facility agreement that was due to expire in May 2012. The New Loan Facility is due to expire in June 2015 and comprises facilities of $82m and â‚¬57m (down from $117m and â‚¬86m in the previous facility agreement). The New Loan Facility remained undrawn at 30th June 2011. Standby Financing and Loan Notes Between 2005 and 2008 PIP entered into a number of standby agreements (the "Standby Commitments") with certain institutions under which the Company could require the institutions to subscribe up to Â£150m for new redeemable shares, at a price equal to the prevailing NAV per share at the time of subscription. The purpose of these Standby Commitments was to provide an additional level of assurance that PIP would be in a position at all times to meet its financial obligations. Furthermore, in December 2008 and September/October 2010, PIP issued to these institutions a total of Â£100.5m in unsecured subordinated loan notes which were due to mature on 15th November 2011 (the "Loan Notes") in order to bridge calls under the Standby Commitments. At 30th June 2011, Â£150m of Standby Commitments and Â£100.5m of Loan Notes were outstanding. Post Year End: Exchange of Loan Notes for Shares On 24th August 2011, PIP drew down Â£100.5m under the Standby Commitments resulting in the issue of 9,102,279 new redeemable shares (based on the prevailing adjusted NAV per share at 30th June 2011 of 1,104.12p). Simultaneously, the Company repaid Â£100.5m of Loan Notes, effectively exchanging the full balance of the Loan Notes for new redeemable shares. At the end of September 2011 the Board terminated the remaining Â£49.5m of Standby Commitments. These actions have enabled the Company to simplify its capital structure by removing loan notes from the balance sheet. Post Year End: Share Buyback At the end of August 2011, PIP bought in the market 940,000 redeemable shares which are currently being held in treasury. At an average purchase price of 683p (38% discount to the 30th June 2011 adjusted NAV per share), it is the Board's view that these shares represented an attractive investment that will prove to be accretive to NAV per share. The Board will consider making further buybacks at times when the Company's shares remain undervalued in the market. Commitment Cover At 30th June 2011, PIP's available financing, excluding the remaining Standby Commitments terminated in September 2011, stood at Â£130.1m, comprising Â£27.6m in settled cash balances and Â£102.5m in undrawn bank facility (sterling equivalent). The sum of the Company's available financing and private equity portfolio exceeded its undrawn commitments by 3.9 times, up from 2.8 times at 30th June 2010. It should be noted that a portion of the Company's undrawn commitments might not be called by the underlying managers. When a fund is past its investment period, which is typically between five and six years, it generally cannot make any new investments (only draw capital to fund existing follow-on investments or pay expenses). As a result, the rate of capital calls in these funds tends to slow dramatically. 28% of the Company's undrawn commitments are in fund vintages that are greater than five years old. PORTFOLIO OVERVIEW The diversification of PIP's portfolio, with assets spread across different investment styles and stages including buyout, venture and growth, and special situations, 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. Furthermore, PIP's geographical diversification extends its exposure beyond the USA and Europe, to regions with higher rates of economic growth such as Asia. As such, the Company offers a comprehensively global, diversified selection of private equity assets, carefully selected by Pantheon for their quality. Portfolio Analysis by Value as at 30th June 2011 Geography The majority of PIP's geographical exposure is focused on the USA and Europe, reflecting the fact that these regions have the most developed private equity markets. PIP's assets based in Asia and other regions provide access to faster-growing economies. USA 52% Europe 37% Asia and other 11% Total 100% Stage PIP's portfolio is well diversified across different private equity investment styles and stages. The majority of the Company's buyout exposure is focused on 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, many of which were acquired through the secondary market. Small/Mid Buyout 36% Large/Mega Buyout 22% Venture and 30% Growth Special 6% Situations Generalist 4% Directs 2% Total 100% Maturity PIP's portfolio is well diversified by fund vintage (referring to the year the fund made its first drawdown). Only 16% 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 higher levels of leverage experienced during the peak of the buyout market. Because PIP acquires many of its investments in the secondary market, it achieves further "backward diversification" and is able to acquire assets with good visibility of underlying company quality and prospects. 2000 and earlier 19% 2001 6% 2002 2% 2003 3% 2004 6% 2005 14% 2006 20% 2007 23% 2008 7% 2009 0% 2010 0% Total 100% Primary/Secondary 63% of the portfolio is derived from primary transactions and 37% from secondary transactions. Primary 63% Secondary 37% Total 100% PORTFOLIO ANALYSIS Debt MultiplesÂ¹ Venture and growth, small/mid-size buyouts and large/mega buyouts account for 88% of the portfolio value, and have differing leverage characteristics: > The venture and growth portfolio accounts for 30% of portfolio value and has very little or no reliance on debt. > The small/mid-size buyout portfolio sampled contains a moderate level of debt, with net debt / EBITDA of 3.2 times. > The large/mega buyout portfolio sampled contains higher levels of debt with net debt / EBITDA of 4.2 times, although relatively low compared to the debt multiples of deals executed at the peak of the buyout market in 2006/2007. Revenue and EBITDA GrowthÂ¹ > Weighted average revenue and EBITDA growth for the sampled buyout companies was +11.2% and +21.6% respectively in the year to 31st December 2010. This compares favourably with the S&P 500 and FTSE All-Share indices, both of which recorded single digit revenue growth and mid-teens EBITDA growth in the same period. > These revenue and EBITDA growth figures suggest strong performance at the underlying company level. In particular, they suggest that, on the whole, our managers have been successful in managing costs, driving efficiencies and positioning their companies for top line growth throughout 2010. Valuation MultipleÂ¹ > 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, valuations of private equity assets can often leave some room for value enhancement when liquidity is released through a sale. > Weighted average enterprise value/EBITDA for the buyout sample in the year to 31st December 2010 was 9.5 times. This figure is lower than the FTSE All-Share and MSCI World. Â¹Buyout Sample Methodology The sample buyout figures were calculated from over 75% of the value of the companies within the largest 50 buyout funds and direct investments as at 31st December 2010. 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 2010, or where not available the closest annual period disclosed. The net debt and enterprise value figures were based upon 31st December 2010 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 +1000% and -1000% to avoid large distortions from movements relative to a small denominator. FTSE All-Share and MSCI World data was taken from Bloomberg. Impact of Distributions Upon Returns > Distributing funds, defined as funds that paid a distribution during the quarter, have outperformed non-distributing funds in every quarter of the financial year. This data suggests that distributions, on the whole, have been accretive to performance. > The outperformance of distributing funds is more marked for venture and growth funds, where valuations are often based upon cost or the latest round of financing, relative to buyout funds whose valuations tend to be based upon the multiples of comparable listed companies. > Venture and growth funds typically invest in disruptive technologies for which trade buyers can often be willing to pay a substantial premium. These results are consistent with our sample of the largest 50 distributions. In this sample, the weighted average uplift for venture and growth realisations was 151% versus 79% for the sample overall. Venture and Growth Distribution Rates > Over 40% of PIP's venture and growth assets are in funds dated 2001 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 and are generally quick to pull out of investments in failing companies. Consequently, only venture assets with good potential survive to maturity. > Mature venture companies, which often resemble growth investments in terms of cash generation and profitability, have shown an increased likelihood of returning cash to investors. It is our view that PIP's mature venture and growth assets can continue to generate a good level of distributions. Given the fact that distributions tend to lead to uplifts, especially in the venture and growth stage being so mature, PIP's venture and growth portfolio is strongly placed to perform well. UNDERLYING PORTFOLIO COMPANIES PIP has built a portfolio of interests in over 600 funds and over 3,500 underlying companies. The analysis below looks at diversification at the underlying company level. Company 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 recently associated with high levels of volatility, such as Energy and Financials. Energy 6% Materials 4% Industrials 18% Consumer Discretionary 20% Consumer Staples 5% Healthcare 14% Financials 7% Information Technology 22% Telecom Services 4% Utilities 0% Total 100% Company Geography The geographical exposure of PIP's underlying company investments is diversified across North America, Europe and Asia. Notably, PIP's European exposure is focused upon Northern European economies. North America 50% UK 14% Asia and other 11% Germany 6% Scandinavia 6% Benelux 4% France 3% Central and Eastern 2% Europe Italy 2% Iberia 1% Other Europe 1% Total 100% This data is based upon underlying company valuations at 31st December 2010, and accounts for approximately 90% of PIP's overall portfolio value. OUTSTANDING COMMITMENTS PIP's outstanding commitments to fund investments, 74% of which relate to primary funds and 26% 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 2011 PIP's outstanding commitments to investments decreased to Â£243m at 30th June 2011 compared with Â£331m at 30th June 2010. The Company paid calls of Â£84m and acquired Â£5m of outstanding commitments via a secondary transaction. The remaining movements were caused by fluctuations in exchange rates and cancellations of outstanding commitments by general partners. Geography The USA and Europe have the largest outstanding commitments, reflecting the fact that they have the most developed private equity markets. Commitments to Asia and other regions provide access to faster-growing economies. USA 45% Europe 43% Asia and other 12% Total 100% Stage PIP's undrawn commitments are well diversified across all major stages of private equity. The majority of the buyout exposure is with mid-cap and smaller funds. Venture and growth forms a significant portion of the Company's undrawn commitments. Small/Mid Buyout 44% Large/Mega Buyout 20% Venture and Growth 26% Special Situations 7% Generalist 3% Total 100% Maturity 28% of PIP's undrawn commitments are in the 2005 fund vintage or older. Most relate to funds that are outside their investment periods and, as such, should have slower call rates. It is likely that a portion of these commitments will not be drawn. 2005 and earlier 28% 2006 15% 2007 31% 2008 23% 2009 2% 2010 1% Total 100% PANTHEON VEHICLES Pantheon Ventures (UK) LLP ("Pantheon") is not entitled to management and commitment fees in respect of PIP's holdings in, and outstanding commitments to, the firm's managed fund-of-funds vehicles. In addition, Pantheon has agreed that PIP will never be disadvantaged in terms of fees compared with the position it would have been in had it made investments directly into the underlying funds rather than indirectly through such fund-of-funds vehicles. TOP 20 MANAGERS BY VALUE AS AT 30TH JUNE 2011 % OF PIP'S TOTAL PRIVATE NUMBER MANAGER REGION STAGE BIAS EQUITY ASSET VALUE 1 Barclays Private EUROPE BUYOUT 2.9% Equity 2 Apax Partners EUROPE BUYOUT 2.6% 3 CVC Capital Partners EUROPE BUYOUT 2.4% 4 Nova Capital EUROPE BUYOUT 2.0% Management 5 Vision Capital EUROPE BUYOUT 1.7% 6 Brentwood Associates USA BUYOUT 1.7% 7 Golden Gate Capital USA BUYOUT 1.7% 8 Doughty Hanson & Co EUROPE BUYOUT 1.6% 9 Hutton Collins EUROPE SPECIAL SITUATIONS 1.6% 10 IK Investment EUROPE BUYOUT 1.5% Partners 11 Nordic Capital EUROPE BUYOUT 1.5% 12 Providence Equity USA BUYOUT 1.5% Partners 13 Carlyle Group GLOBAL GENERALIST 1.4% 14 Carlyle Group/ USA SPECIAL SITUATIONS 1.3% Riverstone Holdings 15 ABS Capital Partners USA VENTURE AND GROWTH 1.3% 16 Avista Capital USA BUYOUT 1.3% Partners 17 Bain Capital USA BUYOUT 1.3% 18 Oak Investment USA VENTURE AND GROWTH 1.3% Partners 19 BC Partners EUROPE BUYOUT 1.2% 20 Permira EUROPE BUYOUT 1.2% TOP 20 MANAGERS BY OUTSTANDING COMMITMENTS AS AT 30TH JUNE 2011 % OF OUTSTANDING NUMBER MANAGER REGION STAGE BIAS COMMITMENTS 1 CVC Capital EUROPE BUYOUT 3.6% Partners 2 Hutton Collins EUROPE SPECIAL SITUATIONS 3.1% 3 Summit Partners GLOBAL VENTURE AND GROWTH 2.7% 4 Clessidra Capital EUROPE BUYOUT 2.5% Partners 5 Barclays Private EUROPE BUYOUT 2.2% Equity 6 Carlyle Group GLOBAL GENERALIST 2.1% 7 Doughty Hanson & EUROPE BUYOUT 2.1% Co 8 GrandBanks USA VENTURE AND GROWTH 2.0% Capital 9 Arcadia EUROPE BUYOUT 1.9% 10 Private Equity EUROPE BUYOUT 1.8% Partners 11 ABS Capital USA VENTURE AND GROWTH 1.8% Partners 12 Unison ASIA AND BUYOUT 1.7% OTHER 13 Mercapital EUROPE BUYOUT 1.7% 14 Mid-Europa EUROPE BUYOUT 1.6% Partners 15 Golden Gate USA BUYOUT 1.6% Capital 16 Baring Vostok EUROPE BUYOUT 1.5% Capital Partners 17 Vision Capital EUROPE BUYOUT 1.4% 18 Sagard Private EUROPE BUYOUT 1.4% Equity Partners 19 Gemini Israel EUROPE VENTURE AND GROWTH 1.3% Funds 20 Technology USA VENTURE AND GROWTH 1.3% Crossover Ventures TOP 20 COMPANIES BY VALUE AS AT 30TH JUNE 2011 % OF PIP'S TOTAL PRIVATE NUMBER COMPANY SECTOR EQUITY ASSET VALUE 1 Carbolite INDUSTRIALS 1.1% 2 Attendo HEALTHCARE 1.0% 3 Nycomed HEALTHCARE 0.8% 4 Bibby Scientific INDUSTRIALS 0.7% 5 MYOB INFORMATION 0.5% TECHNOLOGY 6 Scilabware INDUSTRIALS 0.5% 7 TDC* TELECOMMUNICATION 0.5% SERVICES 8 Jack Wolfskin CONSUMER 0.4% DISCRETIONARY 9 Rosetta Stone* CONSUMER 0.4% DISCRETIONARY 10 InterXion* INFORMATION 0.4% TECHNOLOGY 11 Array Marketing Group CONSUMER 0.4% DISCRETIONARY 12 Global Blue FINANCIALS 0.4% 13 Siltron INFORMATION 0.4% TECHNOLOGY 14 BrightHouse CONSUMER 0.4% DISCRETIONARY 15 Sterilin INDUSTRIALS 0.4% 16 Glasshouse INFORMATION 0.4% Technologies TECHNOLOGY 17 Norit INDUSTRIALS 0.3% 18 Kinder Morgan* ENERGY 0.3% 19 CPL Industries ENERGY 0.3% 20 IFCO Systems* INDUSTRIALS 0.3% * Quoted holding as at 30th June 2011. 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 $6 billion to secondaries over more than 20 years. Strong Private Equity Track Record Pantheon is one of the leading private equity fund-of-funds managers in the world, with global assets under management of $24.3 billionÂ¹, and over 350 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. 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 250 advisory boards worldwide. Long-standing 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 62 investment professionals, supported by 96 other professionals,Â² work together with the ultimate aim of producing strong and consistent results. Secondary Investing Pantheon is one of the largest and longest established secondary investors in the world, with more than 20 years' experience of successful secondary investing and a team of 23 investment professionals who focus on secondary transactions. This size and experience means Pantheon can focus on large and complex deals in which many other, lower resourced, investors cannot participate. Pantheon has committed more than $6 billion in the secondary market globally across more than 280 transactions, including more than 90 portfolio transactions and more than 190 single fund secondaries. Pantheon always aims to leverage the knowledge and due diligence information of its primary fund teams and global offices. Long-standing partnerships with general partners on a global basis help to enhance the firm's deal flow. While the increase in scale of the secondary market has been paralleled by growth in the number of would-be acquirers of secondary assets, Pantheon believes that there is a relative shortage of experienced teams with the ability to transact the full range of global secondary purchase types. As a result, the differentiation between experienced and well-resourced global specialists and the rest is becoming increasingly apparent as the market evolves. Â¹ As at 31st March 2011 Â² All staff figures as at 1st September 2011 COMPANY STRATEGY The Company's primary investment objective is to maximise capital growth by investing in a diversified portfolio of private equity funds and, occasionally, directly in private companies. Company Strategy The spread of performance in private equity is much wider than in other asset classes and the selection of managers has a significant influence on investment performance. As a specialist fund-of-funds manager monitoring and researching the global private equity market, Pantheon, PIP's Manager, is well positioned to identify fund managers who have the skills and strategies to deliver superior performance within their particular market segments. PIP's strategy is to invest with leading private equity managers whilst reducing investment risk through diversification of the underlying portfolio by geography, investment stage and sector. This strategy is implemented through PIP's access to Pantheon's primary, secondary and co-investment activities. PIP has the flexibility to vary the size and emphasis of its investments depending on its available financing. The current 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 investment. Secondary Programme Emphasis It is the Board's current intention to emphasise secondary investment as the Company's new commitments. Secondary purchases of existing interests in private equity funds are typically acquired between three and six years after a fund's inception, when such funds are substantially invested. As a result they tend to have relatively low levels of undrawn commitments. 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. More details on secondary investments can be found below. As the Company continues to build its financial resources through net portfolio realisations, the shorter duration of secondary investments and lower associated undrawn commitments will help to further increase the Company's financial strength. 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, Pantheon Global Secondary Fund IV, 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. Share Buybacks In certain circumstances, usually where the Company's shares are quoted at a significant discount to NAV, the Board may view the shares as presenting an attractive investment opportunity relative to other uses of cash, such as new investment commitments. In such circumstances, the Board will consider targeted buybacks of ordinary and redeemable shares instead of, or in addition to, new investments as a means of utilising cash generated from the Company's portfolio. CURRENT OUTLOOK FOR SECONDARY INVESTMENTS What is a Secondary? A secondary transaction generally consists of purchasing an interest in a private equity fund, or portfolio of multiple funds (consisting of invested capital and remaining capital commitments) from an existing investor seeking liquidity prior to the termination of these funds. A secondary transaction can also consist of purchasing direct company interests which are either privately held or in which the trading of shares is restricted. Why Invest in Secondaries? A secondary investment exhibits several features that differentiate it from other private equity assets, including the potential for timely deployment and earlier return of capital, portfolio transparency and the ability from time to time to acquire assets at a discount to Pantheon's assessment of the fair market value. Pantheon believes that these characteristics have the potential to reduce the risks typically associated with private equity fund investing. Timely Deployment of Capital Investing in secondaries can be a particularly helpful strategy for investors seeking to boost the proportion of their allocation to private equity actually at work "in the ground". Whereas a primary fund at inception has no assets, and will draw down capital at an unpredictable rate over a period of years as it invests into underlying companies, a fund acquired as a secondary is partially invested at the time of purchase. Earlier Return on Investment Investing later in a fund's life reduces the impact of the "J-curve" normally associated with private equity fund investments. The visibility of assets makes it easier to identify outperforming funds and likely exit horizons. Furthermore, the write down of early, unsuccessful investments, the reduced impact of early management fees and the shorter time horizon to liquidity provides a number of benefits to the investor. Investors may expect an earlier return of capital on their investments, relatively fewer capital calls and a shorter investment holding period. Reduced Investor Risk Unlike investing in a fund at inception, when it represents a blind pool of capital, secondary investing allows detailed analysis of a fund's assets. Using a rigorous due diligence process, Pantheon evaluates funds on a company-by-company basis. This bottom-up analysis allows Pantheon to determine which companies are critical to a portfolio's success and evaluate their potential value at the time of exit. This transparency may decrease investment risk. Embedded knowledge of portfolios also enhances Pantheon's ability to assess and value portfolios accurately. Pantheon frequently has performance and operational information on the assets for sale in the secondary market due to its position as an advisor or manager to existing investors in the fund, investment in a portfolio company through another fund or previous contact with the fund manager. Discount to Fair Market Value Pantheon undertakes detailed analysis on underlying assets in a portfolio to establish value. Discounts to assessed fair market value may be applied to reflect the quality of the assets, the seller's motivation to divest, market conditions and the illiquid nature of the asset class. In certain circumstances a fund interest may be acquired at a premium to NAV, depending on asset quality and fund manager valuation policy among other factors. Time and Vintage Diversification Secondary investment is a tool which enables investors in private equity to add an element of retrospective vintage diversification to their portfolios by buying into a range of mature funds, typically three to six years into their lives. This additional diversification serves to mitigate private equity investment risk at the portfolio level. Current Outlook The Manager believes that an oversupply of capital to the private equity market from 2006 to 2008 and regulatory changes will continue to provide a stimulus for an attractive market opportunity for secondaries. Furthermore, an emphasis on secondary investing in the coming year will enable the Company to continue to enhance its financial strength by focusing on investments that have a shorter duration than new funds invested through the primary market. 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€º 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€º 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€º 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 The Directors have pleasure in presenting their report together with the audited financial statements of the Company for the year ended 30th June 2011. 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 2011. 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 are set out above. 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"). The Company has received written approval from HM Revenue & Customs ("HMRC") as an authorised investment trust under Section 1158/59 of the Corporation Tax Act 2010 for the year ended 30th June 2010. 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. New regulations for obtaining and retaining investment trust status have been published by HMRC and, subject to finalisation, these are expected to come into force in 2012. Overall these changes should be beneficial for the investment trust industry and no negative impact on the Company is anticipated. An application for approval as an investment trust must be made within 90 days after the end of the first accounting period of the Company following implementation of the new regime. If the application is accepted, the Company will be treated as an investment trust company for that period and for each subsequent accounting period (subject to any subsequent serious breaches of the regulations). The Company's status as an investment trust allows it to obtain an exemption from paying capital gains tax 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. 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 The Company has four-year committed revolving dollar and euro credit facilities with The Royal Bank of Scotland plc and Lloyds TSB Bank plc. As at 30th June 2011 these facilities were undrawn. At 30th June 2011 the Company had borrowings of Â£100.5m in the form of unsecured subordinated loan notes (2010: total 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 (UK) LLP ("Pantheon") as Manager and may be adversely affected if the services of Pantheon cease to be available to the Company. 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 in respect of the Company's quoted equities and bonds. 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 22 to the financial statements. Review of 2010/2011 Net asset value The Company's adjusted total net assets attributable to shareholders increased during the year to Â£733.1m (2010: Â£636.5m). The adjusted net asset value per ordinary share and redemption value per redeemable share was 1,104.12p at 30th June 2011 (2010: 958.71p). The adjusted net asset value per share excludes the derivative asset relating to the Company's standby subscription agreements with certain institutions under which those institutions can be called upon by the Company to subscribe for new redeemable shares in the Company ("Standby Commitments"). Under FRS 26, these agreements need to be included as an asset in the Company's financial statements. The utilisation (such as that which took place on 24th August 2011 in respect of Â£100.5m of the Â£150m standby facility) or expiry of the Standby Commitments (which occurred with the cancellation of the remaining Standby Commitments on 30th September 2011) will lead to a reversal of the asset in the financial statements at such times. The Board considers that the best measure of the Company's economic value to shareholders is the adjusted net asset value per share (see Notes 13 and 16 to the financial statements for details of the adjustment). Results and dividends The results for the year are as set out in the Income Statement below. This shows that the Company's net revenue deficit on ordinary activities before taxation for the year was Â£3.4m (2010: deficit of Â£9.1m) and adjusted capital returns were Â£101.9m (2010: return of Â£133.1m) (excluding the loss on the derivative at fair value through profit or loss). The Directors do not recommend the payment of a dividend in respect of the year ended 30th June 2011 (2010: nil). Key performance indicators The Board and the Manager monitor the following Key Performance Indicators: 1. The net asset value performance PIP's adjusted net asset value per share increased by 15.2% to 1,104.12p in the year to 30th June 2011. The net asset value returns over 1 year, 3 years, 5 years and 10 years and since inception are set out above. The 15.2% increase in PIP's adjusted net asset value per share compares with increases in the MSCI World Total Return (sterling) Index of 22.2% and the FTSE All-Share Total Return Index of 25.6% respectively. 2. The level of discount PIP's ordinary share price during the year increased by 46.9% to 714p (2010: 486p) and the discount narrowed to 35.3% at the year end (2010: discount of 49.3%) based on the adjusted net asset value. 3. The total expense ratio The total expense ratio (calculated using average monthly net assets) of the Company for the year ended 30th June 2011 was 1.45% (2010: 1.63%). Future Developments A review of the year to 30th June 2011 and the outlook for the coming year can be found in the Chairman's Statement and the Manager's Review. Share Capital As at 30th June 2011, the Company had 37,521,013 ordinary shares of Â£0.67 each and 28,871,255 redeemable shares of Â£0.01 each in issue. Subsequent to the year end, on 24th August 2011 the Company drew down Â£100,500,082.88 under commitments to subscribe for new redeemable shares of Â£0.01 each in the capital of the Company from the institutions with whom the Company had entered into Standby Commitments. Simultaneously the Company repaid Â£100.5m of outstanding unsecured subordinated loan notes ("Loan Notes") held by the same institutions. These actions effectively exchanged the full balance of the Loan Notes for new redeemable shares, and 9,102,279 new redeemable shares (with an aggregate nominal value of Â£91,022.79) were issued at a price of 1,104.12p per share, being the adjusted net asset value per share as at 30th June 2011. No shares were purchased by the Company and no shares were held in treasury during the year. Since the year end, 940,000 redeemable shares (with an aggregate nominal value of Â£9,400 and representing 3.3% of the redeemable share capital in issue on 30th June 2011) have been purchased in the market for a total consideration of Â£6.5m. These shares have been placed into treasury. 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: SHARE CAPITAL NUMBER OF % OF TOTAL VOTING AND VOTING NUMBER OF VOTING RIGHTS SHARES RIGHTS RIGHTS AT SHARES ATTACHED TO HELD IN REPRESENTED 4TH OCTOBER 2011 IN ISSUE EACH SHARE TREASURY BY EACH CLASS ORDINARY SHARES OF 37,521,013 1 - 100 Â£0.67 EACH REDEEMABLE SHARES 37,973,534 - 940,000 - OF Â£0.01 EACH TOTAL VOTING 37,521,013 RIGHTS The redeemable shares do not carry any right to speak or vote at general meetings of the Company, including on resolutions authorising the issue or buyback 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. The sanction of holders of redeemable shares is required to various of corporate actions set out in the Articles of Association. There are: no restrictions concerning the transfer of securities in the Company; no special rights with regard to control attached to securities; no agreements between holders of securities regarding their transfer known to the Company; and no agreements which the Company is party to that might affect its control following a successful takeover bid. Further details of the rights attaching to each of the Company's classes of share are included in Note 14 to the financial statements. Amendment of the Company's Articles of Association and the giving of authorities to issue or buy back the Company's shares require an appropriate resolution to be passed by shareholders. Proposals for the renewal of the Board's current authorities to issue and buy back shares are detailed in the Annual Report and Accounts 2011. 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 policies which are set out in the Annual Report and Accounts 2011. These Principles are integrated into Pantheon's investment analysis and decision-making process, as well as during post-investment monitoring. 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. At each Board meeting, the Directors review the Company's latest management accounts and other financial information. Its commitments to private equity investments are reviewed, together with its financial resources, including cash held and the Company's borrowing capability. One-year cash flow scenarios are also presented to each meeting and discussed. 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 operation for the foreseeable future. For this reason, they consider it appropriate to continue to adopt the going concern basis in preparing the financial statements. The full Annual Report contains the following statements regarding responsibility for the Annual Report and financial statements (references in the following statements are to pages in the Annual Report). 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 4th October 2011 NON-STATUTORY ACCOUNTS The financial information set out below does not constitute the Company's statutory accounts for the years ended 30th June 2011 and 2010 but is derived from those accounts. Statutory accounts for 2010 have been delivered to the Registrar of Companies, and those for 2011 will be delivered in due course. The Auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditors drew attention by way of emphasis without qualifying their report and (ii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditors' report can be found in the Company's full Annual Report and Accounts at www.pipplc.com. INCOME STATEMENT YEAR ENDED 30th JUNE 2011 2011 2010 AS RESTATED REVENUE CAPITAL TOTAL* REVENUE CAPITAL TOTAL* NOTE Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Gains on 9b - 100,976 100,976 - 130,815 130,815 investments at fair value through profit or loss** Loss on derivatives - (10,404) (10,404) - (18,190) (18,190) contained in standby agreements at fair value through profit or loss Currency gains on 19 - 911 911 - 2,758 2,758 cash and borrowings Investment income 2 9,986 - 9,986 4,128 - 4,128 Investment 3 (8,836) - (8,836) (8,715) - (8,715) management fees Other expenses 4 (1,115) (37) (1,152) (668) (459) (1,127) RETURN ON ORDINARY 35 91,446 91,481 (5,255) 114,924 109,669 ACTIVITIES BEFORE FINANCING COSTS AND TAX Interest payable 6 (3,427) - (3,427) (3,840) - (3,840) and similar charges / finance costs RETURN ON ORDINARY (3,392) 91,446 88,054 (9,095) 114,924 105,829 ACTIVITIES BEFORE TAX Tax on ordinary 7 (1,920) - (1,920) (1,129) - (1,129) activities RETURN ON ORDINARY (5,312) 91,446 86,134 (10,224) 114,924 104,700 ACTIVITIES AFTER TAX FOR THE FINANCIAL YEAR RETURN PER ORDINARY 8 (8.00)p 137.73p 129.73p (15.40)p 173.10p 157.70p AND REDEEMABLE SHARE ADJUSTED RETURN PER 8 (8.00)p 153.41p 145.41p (15.40)p 200.50p 185.10p ORDINARY AND REDEEMABLE SHARE DILUTED RETURN PER 8 (6.64)p 114.34p 107.70p (12.46)p 140.09p 127.63p ORDINARY AND REDEEMABLE SHARE * The total column of this statement represents the Company's profit and loss account prepared in accordance with UK Accounting Standards. The supplementary revenue return and capital columns are prepared under guidance published by the Association of Investment Companies. ** Includes currency movements on investments. The amounts for 2010 have been restated to reflect the inclusion of a derivative asset relating to the Company's standby commitments (see Notes 13 and 20). 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 2011 OPENING EQUITY 25,428 183,184 26 249,366 192,828 99,861 (50,234) 700,459 SHAREHOLDERS' FUNDS Return for the year - - - 39,424 52,022 - (5,312) 86,134 CLOSING EQUITY 25,428 183,184 26 288,790 244,850 99,861 (55,546) 786,593 SHAREHOLDERS' FUNDS Movement for the year ended 30th June 2010 as restated OPENING EQUITY 25,428 183,184 26 257,729 69,541 99,861 (40,010) 595,759 SHAREHOLDERS' FUNDS Return for the year - - - (8,363) 123,287 - (10,224) 104,700 CLOSING EQUITY 25,428 183,184 26 249,366 192,828 99,861 50,234) 700,459 SHAREHOLDERS' FUNDS The Notes form part of these financial statements. The amounts for 2010 have been restated to reflect the inclusion of a derivative asset relating to the Company's standby commitments (see Notes 13 and 20). BALANCE SHEET as at 30th JUNE 2011 2011 2010 AS RESTATED NOTE Â£'000 Â£'000 Fixed assets Investments designated at 9a/b 815,868 763,304 fair value through profit or loss Current assets Debtors 11 2,440 917 Derivatives contained in 13 53,543 63,947 standby agreements at fair value through profit and loss Cash at bank 18 27,645 6,431 83,628 71,295 Creditors: Amounts falling due within one year Other creditors 12 12,403 6,916 Bank loan 18 - 77,724 Loan notes 12 100,500 49,500 112,903 134,140 NET CURRENT LIABILITIES (29,275) (62,845) NET ASSETS 786,593 700,459 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 15 288,790 249,366 Capital reserve on 15 244,850 192,828 investments held Special reserve 15 99,861 99,861 Revenue reserve 15 (55,546) (50,234) TOTAL EQUITY SHAREHOLDERS' 786,593 700,459 FUNDS NET ASSET VALUE PER SHARE - 16 1,184.77p 1,055.03p ORDINARY AND REDEEMABLE ADJUSTED NET ASSET VALUE PER 16 1,104.12p 958.71p SHARE - ORDINARY AND REDEEMABLE DILUTED NET ASSET VALUE PER 16 1,104.12p 958.71p SHARE - ORDINARY AND REDEEMABLE The Notes form part of these financial statements. The amounts for 2010 have been restated to reflect the inclusion of a derivative asset relating to the Company's standby commitments (see Notes 13 and 20). The financial statements were approved by the Board on 4th October 2011 and were signed on its behalf by TOM Bartlam Chairman Company No: 2147984 CASH FLOW STATEMENT YEAR ENDED 30TH JUNE 2010 2011 2010 NOTE Â£'000 Â£'000 Cash flow from operating activities Investment income received 9,848 4,121 Deposit and other interest received 2 7 Investment management fees paid (8,873) (12,236) Secretarial fees paid (186) (178) Other cash payments (808) (3,382) NET CASH OUTFLOW FROM OPERATING 19 (17) (11,668) ACTIVITIES Servicing of finance Revolving credit facility and (501) (1,804) overdraft interest paid Loan commitment and arrangement fees (1,752) (341) paid Redeemable share commitment fees paid (312) (640) Interest on loan notes paid (1,831) (1,105) NET CASH OUTFLOW FROM SERVICING OF (4,396) (3,890) FINANCE Tax Net tax paid (1,920) (1,129) NET CASH OUTFLOW FROM TAX (1,920) (1,129) Capital expenditure and financial investment Purchases of investments (113,761) (75,857) Purchases of government securities (10,874) - Disposals of investments 167,053 118,188 Disposals of government securities 10,874 - NET CASH INFLOW FROM CAPITAL 53,292 42,331 EXPENDITURE AND FINANCIAL INVESTMENT NET CASH INFLOW BEFORE FINANCING 46,959 25,644 Financing Drawdown of loan 3,755 - Repayment of loan (80,839) (41,094) Issue of loan notes 51,000 - NET CASH OUTFLOW FROM FINANCING (26,084) (41,094) INCREASE / (DECREASE) IN CASH 17 20,875 (15,450) 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 financial 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. Following the recognition of the Company's Standby Commitment agreements as a financial asset and treatment as derivatives in compliance with FRS 26 Financial Instruments - Recognition and Measurement, the figures for 2010 have been restated. Please refer to Note 20 for further disclosures. (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 trust 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 classified as "fair value through profit or loss". As the Company's business is investing in financial assets with a view to profiting from their total return in the form of interest, dividends or increases in fair value, quoted equities and fixed income securities are designated as fair value through profit 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 financial 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 financial markets, fair value is determined using reliable valuation techniques as described below: (i) Unquoted fixed 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 the transaction price. 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 specific investment is considered appropriate. As at 30th June 2011 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 fixed 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 profit 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. (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 first applied to reducing the historical cost of an investment; any gain will be recognised as realised 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) 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 adjusted 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 adjusted 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. (L) Derivatives The derivative is comprised of standby commitments allowing the Company to call upon certain institutions to subscribe for new redeemable shares (see Note 13). It is accounted for as a financial asset at fair value through profit and loss and any gains or losses are analysed within the Income Statement as a capital return. The derivative value represents the difference between the quoted price of the redeemable shares and the adjusted NAV per share multiplied by the number of redeemable shares that would be issued (at adjusted NAV per share) assuming a full drawdown of Â£150m under the standby commitments. The time value is not considered in valuing the asset as its effect is deemed immaterial. 2. Income 30TH JUNE 30TH JUNE 2011 2010 Â£'000 Â£'000 Income from investments Unfranked investment 9,984 4,121 income 9,984 4,121 Other income Exchange differences on 2 7 income 2 7 TOTAL INCOME 9,986 4,128 Total income comprises: Dividends 9,982 4,121 Interest 2 - Exchange differences on 2 7 income 9,986 4,128 Analysis of income from investments Unlisted 9,982 4,121 Listed 2 - 9,984 4,121 3. Investment Management Fees 30TH JUNE 30TH JUNE 2011 2010 REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Investment management 8,836 - 8,836 8,715 - 8,715 fees 8,836 - 8,836 8,715 - 8,715 The investment management fee is payable monthly in arrears at the rate set out in the Directors' Report in the full Annual Report and Accounts 2011. At 30th June 2011 Â£1,506,000 (2010: Â£1,543,000) 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 2011. The basis upon which the performance fee is calculated is explained in Note 1(K) and in the Directors' Report. 4. Other Expenses 30TH 30TH JUNE JUNE 2011 2010 REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Secretarial and 185 - 185 180 - 180 accountancy services Fees payable to the 38 - 38 40 - 40 Company's Auditors for the audit of the annual financial statements Fees payable to the Company's Auditors for other services: - all other services 27 - 27 17 - 17 Directors' remuneration 145 - 145 145 - 145 (see Note 5) Irrecoverable VAT 74 - 74 (274) - (274) Legal and professional 328 37 365 304 459 763 fees Printing 65 - 65 61 - 61 Other 253 - 253 195 - 195 1,115 37 1,152 668 459 1,127 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 30TH JUNE 2011 2010 Â£'000 Â£'000 Bank loan and overdraft 477 1,828 interest Loan commitment and 807 366 arrangement fees Redeemable share commitment 312 541 fee Loan notes interest 1,831 1,105 3,427 3,840 7. Tax on Ordinary Activities 30TH JUNE 2011 30TH JUNE 2010 AS RESTATED REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Withholding tax deducted 1,920 - 1,920 1,129 - 1,129 from distributions Current tax The current tax for the year differs from the standard rate of corporation tax in the UK (26%). The differences are explained below: Net return on ordinary (3,392) 91,446 88,054 (9,095) 114,924 105,829 activities before tax Theoretical tax at UK (933) 25,148 24,215 (2,547) 32,179 29,632 corporation tax rate of 27.5%* (2010: 28%) Non-taxable investment, - (25,159) (25,159) - (32,307) (32,307) derivative and currency gains Effect of expenses in - 11 11 - 128 128 excess of taxable income Unused management 933 - 933 2,547 - 2,547 expenses Withholding tax deducted (1,920) - (1,920) (1,129) - (1,129) from distributions TOTAL CURRENT TAX (1,920) - (1,920) (1,129) - (1,129) * The corporation tax rate applied is based on the average tax rate for the financial year ended 30th June 2011. 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 sufficient future taxable revenue. As at 30th June 2011 excess management expenses are estimated to be in excess of Â£95m (2010: Â£70m). 8. Return per Share 30TH JUNE 2011 30TH JUNE 2010 AS RESTATED REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL Return on ordinary (5,312) 91,446 86,134 (10,224) 114,924 104,700 activities after tax for the financial year in Â£'000 Loss on derivatives - 10,404 10,404 - 18,190 18,190 contained in standby agreements in Â£'000 Adjusted return on (5,312)101,850 96,538 (10,224) 133,114 122,890 ordinary activities after tax for the financial year in Â£'000* Ordinary and 66,392,268 66,392,268 redeemable shares Ordinary and 79,977,748 82,038,292 redeemable shares following issue of new redeemable shares** Return per ordinary (8.00)p 137.73p 129.73p (15.40)p 173.10p 157.70p and redeemable share Adjusted return per (8.00)p 153.41p 145.41p (15.40)p 200.50p 185.10p ordinary and redeemable share* Diluted return per (6.64)p 127.35p 120.71p (12.46)p 162.26p 149.80p ordinary and redeemable share** * The adjusted return excludes the unrealised loss on the derivative (see Note 13) and is directly comparable to previously published return per share figures. ** The diluted return has been calculated on the basis of the total drawdown of Standby Commitments of Â£150m. Using the 30th June 2011 adjusted net asset value per share, the Company would have issued 13,585,480 new redeemable shares and reversed the loss on the derivative asset included in the return on ordinary activities. 9a. Movements on Investments 30TH JUNE 30TH JUNE 2011 2010 Â£'000 Â£'000 Book cost brought forward 571,599 579,787 Acquisitions at cost 130,023 75,857 Capital distributions - proceeds (178,435) (91,575) Capital distributions - realised gains 48,925 7,530 on sales BOOK COST AT 30TH JUNE 572,112 571,599 Unrealised appreciation of investments Unlisted investments 243,756 191,705 VALUATION OF INVESTMENTS AT 30TH JUNE 815,868 763,304 9b. Analysis of Investments 30TH JUNE 30TH JUNE 2011 2010 Â£'000 Â£'000 Sterling Unlisted investments 44,741 37,497 Listed investments - - 44,741 37,497 US dollar Unlisted investments 553,359 562,010 Listed investments 544 470 553,903 562,480 Euro Unlisted investments 200,979 156,402 Listed investments* 5,419 - 206,398 156,402 Other Unlisted investments 10,826 6,925 Listed investments - - 10,826 6,925 815,868 763,304 Realised profits on sales 48,925 7,530 Amounts previously recognised as unrealised (306) 1,630 appreciation on those sales Increase in unrealised appreciation 52,357 121,655 GAINS ON INVESTMENTS 100,976 130,815 * The listed investments denominated in euros are wholly comprised of treasury bills. Further analysis of the investment portfolio is provided in the Manager's Review. Transaction costs incidental to the acquisition of investments totalled Â£nil (2010: Â£nil) and to the disposals of investments totalled Â£23,000 (2010: Â£16,000) for the year. 9c. Acquisition of Investments In June 2011 the Company announced that it had resumed its investment programme with the acquisition of a global secondary portfolio. 10. Fair Value Hierarchy Financial Assets at Fair Value Through Profit or Loss at 30th June 2011 TOTAL LEVEL 1 LEVEL 2 LEVEL 3 Â£'000 Â£'000 Â£'000 Â£'000 Unlisted holdings 809,905 - - 809,905 Derivative asset 53,543 - - 53,543 Listed holdings 5,963 5,963 - - 869,411 5,963 - 863,448 Level 3 Financial Assets at Fair Value Through Profit or Loss at 30th June 2011 PRIVATE EQUITY INVESTMENTS AND DERIVATIVE ASSET TOTAL Â£'000 Â£'000 Opening balance 762,834 762,834 Derivative asset recognised 63,947 63,947 Opening balance as restated* 826,781 826,781 Purchases at cost 113,761 113,761 Sales proceeds (167,561) (167,561) Total gains or losses included in "Gains on investments" in the income statement - on assets sold 48,804 48,804 - foreign exchange gain on 121 121 disposal - on assets held as at 30th June 41,542 41,542 2011 CLOSING BALANCE 863,448 863,448 * The opening balance has been restated following the recognition of a derivative asset (see Note 13). 11. Debtors 30TH JUNE 2011 30TH JUNE 2010 Â£'000 Â£'000 Amounts owed by investment funds 1,086 540 Prepayments and accrued income 1,354 377 2,440 917 12. Creditors: Amounts Falling Due Within One Year 30TH JUNE 2011 30TH JUNE 2010 Â£'000 Â£'000 Investment management fees 1,506 1,543 Investment performance fee 5,057 5,057 Amounts owed to brokers 5,416 - Other creditors and accruals 424 316 Other creditors 12,403 6,916 Bank loan - 77,724 Loan notes 100,500 49,500 112,903 134,140 In June 2011 the Company entered into a new loan facility agreement with The Royal Bank of Scotland plc and Lloyds TSB Bank plc. Under the agreement, which will expire in June 2015, four-year committed revolving dollar and euro credit facilities of $82m and â‚¬57m have been made available. Each individual drawdown bears interest at a variable rate agreed for the period of the drawdown. In addition, the Company has an overdraft facility of Â£5m with The Royal Bank of Scotland plc. At 30th June 2011 the sterling equivalent amount of Â£nil (30th June 2010: Â£77,724,000) was drawn down under the facilities. Terms and Debt Repayment Schedule Terms and conditions of outstanding loan notes were as follows: 2011 2010 NOTIONAL CARRYING CARRYING NOTIONAL AMOUNT AMOUNT INTEREST YEAR OF FACE VALUE FACE VALUE CURRENCY RATE MATURITY Â£'000 Â£'000 Â£'000 Â£'000 Unsecured GBP LIBOR* 2011** 100,500 100,500 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 Company announced its intention to draw down commitments to subscribe for Â£100.5 million of new redeemable shares in the capital of the Company, which would require an equivalent amount of the loan notes to be repaid under the terms of the loan note subscription agreements. The issue of new redeemable shares and the repayment of the loan notes was completed on 24th August 2011. 13. Derivatives 30TH JUNE 2010 30TH JUNE 2011 AS RESTATED Â£'000 Â£'000 Beginning of year 63,947 82,137 Unrealised loss on derivatives (10,404) (18,190) END OF YEAR 53,543 63,947 Between the years 2005 and 2008 PIP entered into standby commitments under which certain institutions agreed to subscribe up to an aggregate amount of Â£150m for new redeemable shares in the Company when called upon by the Company at a subscription price per share equal to the prevailing net asset value per share at the time of subscription. In order to comply with FRS 26, the standby commitments have to be treated as a derivative as the Company has the option to require the institutions to subscribe for shares at a price (adjusted net asset value per share) which is different to the prevailing share price. The derivative is valued as an asset accordingly (see Note 1(L) for more information on the valuation of the derivatives). After the year end the Company announced its intentions to draw down under the standby commitments and issued Â£100.5m of new redeemable shares on 24th August 2011 (see Note 14). The Company terminated the remaining standby commitments of Â£49.5m with effect from 30th September 2011. 14. Called-up Share Capital 30TH JUNE 2011 30TH JUNE 2010 Â£'000 Â£'000 Allotted, called-up and fully paid: 37,521,013 (2010: 37,521,013) 25,139 25,139 ordinary shares of Â£0.67 each 28,871,255 (2010: 28,871,255) 289 289 redeemable shares of Â£0.01 each 25,428 25,428 After the year end the Company announced its intention to draw down commitments to subscribe for Â£100.5m of new redeemable shares of Â£0.01 each. Based on the adjusted net asset value per share of 1,104.12p as at 30th June 2011 (see Note 16) 9,102,279 new redeemable shares were issued and admitted to trading on 24th August 2011. Subsequently 940,000 redeemable shares were bought back in the market for a total consideration, including commission and stamp duty, of Â£6,467,000. These shares are being held in treasury. 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 adjusted net asset value per share, within 60 days following the end of each quarterly net asset value calculation date or within 60 days of any other business day which is determined by the Directors to be a net asset value 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 26 249,366 192,828 99,861 (50,234) Net gain on - - 48,925 - - - realisation of investments Increase in - - - 52,357 - - unrealised appreciation Transfer on - - - (306) - - disposal of investments Loss on derivative - - (10,404) - - - Exchange - - 940 - - - differences on loan and currency Exchange - - - (29) - - differences on other capital items Legal and - - (37) - - - professional costs charged to capital Revenue return for - - - - - (5,312) the year END OF YEAR 183,184 26 288,790 244,850 99,861 (55,546) * Following the recognition of a derivative, the opening figure of the Other Capital Reserve has been restated to include an unrealised loss in relation to the derivative (see Note 13). 16. Net Asset Value per Share The net asset values per share and the net assets attributable at the year end calculated in accordance with the Articles of Association were as follows: 30TH JUNE 2010 30TH JUNE 2011 AS RESTATED Net assets attributable in Â£'000 786,593 700,459 Derivative asset contained in (53,543) (63,947) standby agreements in Â£'000 Adjusted net assets attributable in 733,050 636,512 Â£'000* Ordinary and redeemable shares 66,392,268 66,392,268 Net asset value per share - ordinary 1,184.77p 1,055.03p and redeemable Adjusted net asset value per share - 1,104.12p 958.71p ordinary and redeemable Diluted net assets attributable in Â£883,050 786,512 '000** Ordinary and redeemable shares 79,977,748 82,038,573 following issue of new redeemable shares** Diluted net asset value per share - 1,104.12p 958.71p ordinary and redeemable ** * The adjusted net asset value per share excludes a derivative asset (see Note 13) relating to the Company's standby subscription commitments. The utilisation (such as that which took place on 24th August 2011 in respect of Â£100.5m of the Â£150m standby facility) or expiry of the standby commitments will lead to a reversal of the asset in the financial statements at such times. The Directors therefore consider that the best measure of the Company's economic value to shareholders is the adjusted net asset value per share which is directly comparable to previously published net asset values per share. The Company terminated the remaining standby commitments of Â£49.5m with effect from 30th September 2011. ** The diluted net asset value per share has been calculated on the basis of the total drawdown of standby commitments of Â£150m. Using the 30th June 2011 adjusted net asset value per share, the Company would have issued 13,585,480 new redeemable shares (see Note 13) and the derivative would no longer be held on the balance sheet. 17. Reconciliation of Net Cash Flow to the Movement in Net Debt 30TH JUNE 2011 30TH JUNE 2010 Â£'000 Â£'000 Increase / (decrease) 20,875 (15,450) in cash in year Non-cash movement - foreign exchange 339 1,960 gains CHANGE IN NET DEBT 21,214 (13,490) Net debt at beginning (120,793) (148,988) of year Loans drawn down (3,755) - Loans repaid 81,479 41,685 Loan notes (51,000) - NET DEBT AT END OF (72,855) (120,793) YEAR 18. Analysis of Net Debt AT 30TH JUNE AT 30TH JUNE 2011 2010 Â£'000 Â£'000 Cash at bank 27,645 6,431 Bank loan - (77,724) Loan notes (100,500) (49,500) (72,855) (120,793) 19. Reconciliation of Return on Ordinary Activities Before Financing Costs and Tax to Net Cash Flow from Operating Activities 30TH JUNE 2011 30TH JUNE 2010 AS RESTATED Â£'000 Â£'000 Return on ordinary 91,481 109,669 activities before financing costs and tax Gains on investments (100,976) (130,815) Loss on derivative 10,404 18,190 Currency gains on cash (911) (2,758) and borrowings Increase / (decrease) 124 (6,143) in creditors (Increase) / decrease (139) 189 in other debtors NET CASH OUTFLOW FROM (17) (11,668) OPERATING ACTIVITIES 20. Prior Year Adjustments Following the recognition of the Company's Standby Commitments as a derivative and inclusion as an asset (see Note 13) the figures for the 2010 financial year have been restated. An additional asset of Â£63,947,000 for 2010 has been included, changing the net asset value as at 30th June 2010 to Â£700,459,000 from Â£636,512,000. The value of the derivative represents the benefit to the Company of being able to issue shares at adjusted net asset value rather than the Company's share price, which in 2011 and 2010 was lower than the adjusted net asset value per share. Due to the value of the derivative being dependent on the adjusted net asset value per share and the price of the redeemable shares as at the year end, an unrealised loss of Â£18,190,000 (see Note 13) has been included in the capital column of the income statement for the year ended 30th June 2010, representing the reduction in the value of the previously unrecognised asset as the gap between the Company's share price and its net asset value narrows. As a result, the total return on ordinary activities after tax for the year ended 30th June 2010 has been restated to Â£104,700,000 from Â£122,890,000. Further disclosures for 2010 that have been restated include the Reconciliation of Movements in Equity and Shareholders' Funds and Notes 7, 8, 10, 13, 15, 16, 19 and 22. 21. Contingencies, Guarantees and Financial Commitments At 30th June 2011 there were financial commitments outstanding of Â£242.8m (2010: Â£331m) in respect of investments in partly paid shares and interests in private equity funds. 22. 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 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 (see Note 21 for outstanding commitments as at 30th June 2011) 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 revolving dollar and euro credit facilities with The Royal Bank of Scotland Plc. In June 2011 a new agreement was signed due to expire June 2015, which replaced the facility due to expire in May 2012. Under the new agreement the size of the facility has been reduced to $82m and â‚¬57m (down from $117.4m and â‚¬85.9 million respectively). At 30th June 2011 the amount drawn down was the sterling equivalent of Â£nil (30th June 2010: 77,724,000) (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. Total available financing as at 30th June 2011 excluding Standby Commitments terminated in September 2011, stood at Â£130.1m, comprising Â£27.6m in cash balances, Â£102.5m (sterling equivalent) in undrawn bank facilities. The available financing along with the private equity portfolio exceeded the outstanding commitments by 3.9 times (2010: 2.8 times). Interest Rate Risk The Company may use gearing to achieve its investment objectives and manage cash flows and uses a multi-currency 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 or EURIBOR + 2.75%, dependent on the currency drawn. The interest rate is then fixed for the duration that the loan is drawn down. At 30th June 2011 there was the sterling equivalent of Â£nil funds drawn down on the loan facilities (30th June 2010: Â£77,724,000). 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 2011 there were Â£100.5m funds drawn down on the loan notes (30th June 2010: Â£49.5m). 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. Interest on the Â£150m standby subscription agreements is payable semi-annually in arrears at a fixed rate of 0.5% on the proportion not drawn through unsecured subordinated loan notes. As at 30th June 2011 interest was incurred on Â£49.5m (2010: Â£100.5m). The Company terminated the remaining Standby Commitments of Â£49.5m with effect from 30th September 2011. Non-interest rate exposure The remainder of the Company's portfolio and current assets are not subject to interest rate risks. Financial assets for 2011 and 2010 consisted of investments, cash and debtors (excluding prepayments). As at 30th June 2011, the interest rate risk and maturity profile of the Company's financial assets was as follows: FIXED INTEREST NO MATURES MATURES AVERAGE MATURITY WITHIN AFTER INTEREST TOTAL DATE 1 YEAR 1 YEAR RATE 30TH JUNE 2011 Â£'000 Â£'000 Â£'000 Â£'000 % Fair value interest rate risk financial assets Sterling - - - - - US dollar - - - - - Euro - - - - - Other - - - - - - - - - - Fair value no interest rate risk financial assets Sterling 100,062 46,519 53,543 - - US dollar 569,063 569,063 - - - Euro 218,092 212,673 5,419 - - Other 10,923 10,923 - - - 898,140 839,178 58,962 - - The interest rate risk and maturity profile of the Company's financial assets as at 30th June 2010 was as follows: FIXED INTEREST NO MATURES MATURES AVERAGE MATURITY WITHIN AFTER INTEREST TOTAL DATE 1 YEAR 1 YEAR RATE 30TH JUNE 2010 AS Â£'000 Â£'000 Â£'000 Â£'000 % RESTATED Fair value interest rate risk financial assets Sterling - - - - - US dollar - - - - - Euro - - - - - Other - - - - - - - - - - Fair value no interest rate risk financial assets Sterling 101,539 37,592 63,947 - - US dollar 567,353 567,353 - - - Euro 157,900 157,900 - - - Other 7,430 7,430 - - - 834,222 770,275 63,947 - - As at 30th June 2011, 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 2011 Â£'000 Â£'000 Â£'000 Â£'000 Loan - - - - Loan notes 100,500 - 100,500 - 100,500 - 100,500 - 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 - Financial Liabilities At 30th June 2011, the Company had drawn the sterling equivalent of Â£nil (2010: Â£77,724,000) of its new four-year committed revolving dollar and euro credit facilities, expiring June 2015, of $82m and â‚¬57m respectively with The Royal Bank of Scotland plc and Lloyds TSB Bank 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£nil (2010: Â£24,000) was accruing. At 30th June 2011 the Company had unsecured subordinated loan notes worth Â£100.5m (2010: Â£49,5m) 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 (2010: Â£nil) was accruing. After the financial year end the Company announced its intention to draw down commitments to subscribe for Â£100.5m of new redeemable shares in the capital of the Company, which would require an equivalent amount of the loan notes to be repaid under the terms of the loan note subscription agreements. The issue of new redeemable shares and the repayment of the loan notes were completed on 24th August 2011. 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 2011 or 30th June 2010. At 30th June 2011 and, with the exception of the loan notes, at 30th June 2010, 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. The method of valuation of the derivative included in the Standby Commitments is described in Note 13. If the investment portfolio fell by 20% from the 30th June 2011 valuation, with all other variables held constant, there would have been a reduction of Â£189,473,000 (2010 as restated based on a fall of 20%: Â£179,811,000) in the return before taxation. An increase of 20% would have increased the return before taxation by Â£179,556,000 (2010 as restated based on a 20% increase: Â£169,308,000). In relation to the derivative, if the share price of the Company's redeemable shares fell by 20% from the 30th June 2011 closing price, with all other variables held constant, there would have been an increase of Â£19,291,000 (2010 based on a 20% fall: Â£17,211,000) in the return before taxation. Similarly, an increase of 20% would have had an equal and opposite effect. 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 2011, realised exchange losses of Â£38,000 (2010: Â£205,000 gains) and unrealised gains relating to currency of Â£339,000 (2010: Â£1,459,000 gains) 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 2011, it would have the effect, with all other variables held constant, of increasing equity shareholders' funds by Â£2,382,000 (2010: decreasing by Â£7,925,000). If there had been an increase in the sterling /dollar and sterling/euro exchange rate of 10% it would have the effect of decreasing equity shareholders' funds by Â£1,949,000 (2010: increasing by Â£6,484,000). The calculations are based on the financial assets and liabilities and the exchange rate of 1.60545 sterling/dollar and 1.1073 sterling/euro as at 30th June 2011. 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 2011 2011 2010 2010 ASSETS LIABILITIES ASSETS LIABILITIES Â£'000 Â£'000 Â£'000 Â£'000 US dollar 15,163 - 4,982 41,127 Euro 11,694 5,416 1,416 36,597 Swedish krona - - 505 - Norwegian 98 - - - krona 26,955 5,416 6,903 77,724 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. As at 30th June 2011 the Company had bank debt facilities and commitments by institutional investors ("Standby Commitments") to subscribe for redeemable shares against part of which subordinated loan notes had 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 Finance section of the Manager's Review. On 24th August 2011 the Company drew down commitments to subscribe for Â£100.5m new redeemable shares and repaid the outstanding subordinated loan notes (see Notes 13 and 14). Subsequently, the remaining Standby Commitments of Â£49.5m were terminated with effect from 30th September 2011. 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. 23. Related Party Transactions The Manager, Pantheon Ventures (UK) LLP, 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, a parent undertaking of the Manager. 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 22nd November 2011 at 12 noon at the offices of Pantheon, Norfolk House, 31 St James's Square, London SW1Y 4JR. CLASS MEETING OF REDEEMABLE SHAREHOLDERS A separate meeting of the holders of redeemable shares relating to a proposed amendment to the articles of association will be held on 22nd November 2011 at 12.30 pm (or as soon thereafter as the Annual General Meeting has been concluded or adjourned and Pantheon's presentation to shareholders, scheduled to immediately follow the Annual General Meeting, has been concluded) at the offices of Pantheon, Norfolk House, 31 St James's Square, London SW1Y 4JR. NATIONAL STORAGE MECHANISM A copy of the Annual Report and Financial Statements and the Notice of Class Meeting of Redeemable Shareholders will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at: www.hemscott.com/nsm.do ENDS Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.

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