ICG Enterprise 01 March 2022
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by ICG Enterprise. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
To provide shareholders with access to the attractive long-term returns generated by investing in private companies.
Intermediate Capital Group
Association of Investment Companies (AIC) Sector
12 Month Yield
Dividend Distribution Frequency
Latest Market Capitalisation
Latest Net Gearing (Cum Fair)
Latest Ongoing Charge Ex Perf Fee
(Discount)/ Premium (Cum Fair)
Daily Closing Price
The managers of ICG Enterprise (ICGT) aim to give shareholders access to the best risk-adjusted returns available within the private equity industry. They do so by employing a unique strategy, harnessing the deep experience and significant network of the individuals within the dedicated ICGT team.
High conviction investments now represent c. 50% of the portfolio, and the team continue to progress towards the long-term target of c. 60%. A particular development this financial year has been a significant increase in exposure to secondary investments, a particular specialism for Oliver Gardey, who took over as lead manager in 2019, which now represents 17% of the Portfolio.
Oliver aims to make secondary investments that offer prospective returns of ‘high-teens’ IRRs, which compares favourably to the trust’s other potential investment avenues, particularly on a risk-adjusted basis. Because secondary investments are in mature portfolios, they tend to start returning cash quickly and are therefore complementary to primary commitments to third party funds, which tend to tie up capital for much longer. The managers believe they also enhance the quality of the portfolio by removing some ‘blind-pool’ risk inherent within primaries, without reducing diversification.
ICGT has a strong and consistent long term track record. The recent Q3 NAV suggests the trust is on track to deliver 13 consecutive years of double-digit portfolio growth (i.e. including management fees, but not including the effects of cash drag or FX changes).
Over the last five years, shareholders have seen a substantial increase in the level of Dividends being paid. The board have recently reaffirmed a full-year dividend target of at least 27p per share, which would represent a 12.5% year-on-year increase and a yield at the current share price of 2.4%.
ICGT sits in a unique place in the listed private equity (LPE) peer group in taking a hybrid approach to investing – with a majority of investments made directly by the team, complemented by a diversified portfolio of third-party fund investments.
The ICGT team have the ambition to continue to generate double-digit portfolio returns on a consistent basis, which, if achieved, would be well in excess of the historic long term returns from the UK stock market. As we discuss in Performance, NAV total returns over the past five years have been impressive.
ICGT represents a very active exposure to private equity, which has the potential to deliver higher returns than highly diversified or passive exposures to private equity. The evolution towards a majority of the Portfolio representing high conviction investments should ensure ICGT’s ‘growth engine’ continues to fire.
We believe investors should focus on potential NAV growth rather than invest based on the hope that a discount will narrow. Having said that, if ICGT’s discount of 31% was to narrow on a sustained basis, it would provide a strong tailwind to returns. As ICGT continues to differentiate itself from the peer group, this could be a catalyst for the market to justify a premium rating relative to peers. ICGT’s current discount could therefore be viewed as an attractive entry point for investors seeking exposure to a truly actively managed exposure to private equity.
|Portfolio increasingly tilted towards high-conviction investments
||Private equity valuations lag markets, so precise level of discount is hard to determine
|Benefits of move to ICG over five years ago increasingly showing
||Gearing in underlying companies will magnify valuation movements
|As ICGT increasingly differentiates itself, the higher the potential for a sustained discount narrowing relative to peers
||If sentiment towards risk assets changes, the discount may widen, potentially dramatically