Pension Insurance Corp (PensCorp), a niche financial services company based in the UK, must now rank as one of the Rupert family’s best investments.
That’s not something to be said lightly. The Ruperts have made some stunning investments over the past six decades. Initially via the old Rembrandt (now Remgro) and Richemont, they have invested in best-selling tobacco brands, financial services, luxury, private hospitals, cellular services and technology.
PensCorp, though, has become the standout in Reinet Investments — which has been a bit of a Cinderella compared with Richemont and Remgro. But PensCorp, which specialises in insuring defined pension funds, could see a major value unlock shortly.
Recent reports suggest that at least three large private equity firms — Apollo, Carlyle and KKR — are keen to buy into the pension insurance business. These rumours surfaced in mid-December, but since then no new speculation has popped up.
Whether Reinet would contemplate selling out all or part of its PensCorp stake is not clear. The group is certainly not trading under a cautionary, which would be required if such a sizeable transaction was being considered.
What is discernible, though, is a marked narrowing of the discount the market traditionally placed on Reinet’s shares. The FM calculates the current discount to intrinsic net asset value (iNAV) at about 24%, considerably better than the 32% applied in June last year and the 40%-plus discount applied in recent years.
More intriguingly, Reinet without PensCorp would cast a more critical light on the numerous fund investments tucked away in the portfolio
Reinet could really do with some pepping up. Its latest NAV of €5.7bn reflects a steady but hardly spectacular compound growth rate of 8.5% a year in euro terms since March 2009 (including a first dividend payment).
Much of that capital gain stems from PensCorp, in which Reinet has invested €1.315bn for 49.5% of the company. That investment has now grown to almost €3.2bn (with recent dividends added back).
It means PensCorp has now long displaced Reinet’s significant minority stake in British American Tobacco (BAT), initially the backbone of its portfolio. At end-December, PensCorp made up 54.4% of its investments, against BAT at 22.3%.
This has been a remarkable shift considering that not even half a dozen years ago, BAT — which initially accounted for more than 85% of iNAV — was still comfortably the biggest holding.
The most recent interim performance by PensCorp was most impressive, with new business premiums of £6.5bn (2022: £2.4bn) after the record buy-in of two schemes sponsored by RSA Group.
Adjusted operating profit before tax came in significantly higher at £506m (2022: £152m) on the back of higher new business profits and expected returns on surplus assets.
PensCorp has already insured 339,900 pension scheme members and had £44.9bn in financial investments, yet there still seems plenty of room for growth.
CEO Tracy Blackwell says there is “potential for over £200bn of demand over the next three years” from the UK pension risk transfer market.
Still, Reinet has not got heaps of praise from the market for its decision to invest in PensCorp — probably because the pension insurance business is unlisted and is a fairly complicated business model to grasp. Clearly, the market has erred on the side of scepticism in Reinet’s own valuation.
So what if a sale does go through? Reinet without PensCorp, or with a diminished stake, is an interesting proposition. It would focus attention back on BAT, which isn't a terrible thing considering the cigarette maker’s strong quarterly dividend flows.
The Ruperts have made some stunning investments over the past six decades.
More intriguingly, Reinet without PensCorp would cast a more critical light on the numerous fund investments tucked away in the portfolio. At end-December these “private equity and related partnership” investments, collectively worth €1.1bn, made up about 19% of Reinet’s iNAV. Yet the market accords very little (if any) value to the fund investments.
Still, if PensCorp was stripped out, the fund investments would probably make up about 40% of the net portfolio value.
While the market is not totally enamoured of any of these assets, the FM has previously pointed out that most of the funds that Reinet has invested in have performed satisfactorily over the longer term. The €515m invested into Trilantic Capital Partners (which was salvaged from Lehman Brothers in 2009) shows a near doubling in total realised and unrealised gains (TR&UG) to €1.029bn.
Reinet invested a not insubstantial €304m in TruArc Partners (“private equity for the middle market”), which has yielded TR&UG of €539m. The trio of Asia-aligned funds, with a strong focus on China, has seen investment of €234m and TR&UG of €341m. The NanoDimension Fund, which invests in disruptive technologies, has been a little more pedestrian, with the €124m invested yielding €157m.
Additional cash has also been committed to the new Coatue funds, which focus on funding technology investments, and this segment now stands at €75m.
In the latest management report, Reinet chair Johann Rupert reiterated that the group sought, “through a range of investment structures, to build partnerships with other investors, specialised fund managers and entrepreneurs to find and develop opportunities for long-term value creation for its shareholders”.
Should cash flow into Reinet from a possible sale of PensCorp, there is no doubt shareholders would prefer the investment committee — after considering a special dividend — to shy away from making more fund investments.
The problem is that finding another low-risk gem such as PensCorp won’t be easy.
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