ICG Enterprise Trust/Intermediate Capital Group: Friends with benefits

This note analyses the unique advantages that Intermediate Capital Group (ICG plc) has brought to ICG Enterprise Trust plc (LON:ICGT) since becoming the manager in 2016 and contributing to the average constant-currency portfolio return of 21% since FY17. We note i) access to ICG plc funds/co-investments where ICGT is the only way for retail/small institutional investors to obtain this exposure, ii) access to a wider range of third-party funds/co-investment opportunities by virtue of its global network and reputation, iii) insights from investment teams at ICG, which cover the whole capital structure, and iv) wider benefits from the leveraging ICG plc’s central platform.

  • Access: ICG plc brings geographical spread and relationships that wants a one-stop financing solution. This brings enhanced returns with more co-investment opportunities (ICG plc/ICG Enterprise Trust’s co-investments are over 6x the proportion of the portfolio they were in 2017) and a bigger pool of PE funds in which to “fish”.
  • Market insight: ICG plc’s scale and active presence across the whole capital structure give it insights into PE managers from a range of perspectives. Many are already ICG plc relationships, or transact with them. This gives an angle to manager / investment selection unavailable to most PE houses.
  • Valuation: NAV valuations are conservative (uplifts on realisations averaging 35% long term). The ratings are undemanding, and the carry value against cost modest. The 18% discount to NAV is anomalous, we believe, with defensive market-beating returns, and is above the levels seen pre-COVID-19. The yield is 1.8%.
  • Risks: PE is an above-average cost model, but post-expense returns are market-beating. Even though actual experience has been of continued NAV outperformance in economic downturns, sentiment is likely to be adverse. ICGT’s permanent capital structure is right for unquoted and illiquid assets.
  • Investment summary: ICG Enterprise Trust has consistently generated superior returns, by adding value in an attractive market, having a defensive growth investment policy and exploiting synergies from being part of ICG since 2016. Valuations and governance appear conservative. It has an appropriate balance between risks and opportunities. The risks are primarily sentiment-driven on costs and cyclicality, and the underlying assets’ liquidity. As noted, it seems anomalous to have a consistent record of outperformance and to trade at a 18% discount to NAV.

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