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ICG Enterprise Trust PLC
24 January 2019
ICG Enterprise Trust: New research
24/01/2019
-- Differentiated access to an asset class that continues to outperform
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Market volatility, concerns around a trade war and worries over
a slowing global economy have led to falls in markets during the
latter half of 2018. Market sentiment has clearly changed since the
summer. In the world of investment trusts this has led to discounts
widening. The listed private equity sector has shared in this, but
no-where has this de-rating been more heavily felt than in the fund
of fund sub-sector. Discounts have widened considerably this year,
but most especially from the position in May 2018.
In the case of ICG Enterprise, the discount has widened from 9%
in May 2018 to 21% at the end of December 2018 - yet the portfolio
continues to perform and fundamentals of the drivers of ICG
Enterprise's returns remain unchanged. With an approach that has
produced strong returns through the cycle, we take a closer look at
the trust which moved to appoint ICG as manager three years
ago.
The investment team believe the trust's strategy provides
shareholders with the "best of both worlds" in terms of having a
relatively concentrated investment portfolio, with the
diversification benefits of a third-party funds portfolio.
The managers' choice of ICG as a home nearly three years ago is
relevant at the current stage in the economic cycle. ICG's flagship
funds are aiming for private equity type returns, but with lower
volatility. The team aims to increase what they term "high
conviction" investments - co-investments and ICG originated deals -
where they (or the wider ICG investment team) has made the
investment decision to invest in the underlying company.
Indeed, the team have increased their deployment rate into
co-investments to c. 2.5% of NAV per investment (versus c.1% whilst
at Graphite). We expect the top 30 holdings to increase to perhaps
55-60% of NAV (currently 47%). Over the past 12 months 39% of all
capital deployed has been invested in and alongside ICG as the team
take advantage of the proprietary deal flow the trust now benefits
from.
Given the backdrop of the past year or so, the team believe that
a highly selective approach is key and remain cautious. As such,
and across the portfolio and the recent investments, three themes
dominate. The team have been investing in companies which in their
view exhibit defensive growth (recurring revenue, quality earnings,
barriers to entry), structural downside protection (including
investing in the debt and equity of deals), and relative
value(where deal dynamics has facilitated investment at very
attractive valuations).
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