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Good year for ICG Enterprise helped by bumper period for third party fund investments

ICG Enterprise Trust  has published results for the 12 months ended 31 January 2022. Over the period, the company generated an NAV total return of 24.4% and a return to shareholders of 27.1%. Dividends total 27p, up 12.5% on the previous year.

The report is jargon-heavy. ICG Enterprise’s new investment activity was skewed towards what it calls high conviction investments. These are:

  • direct investments in private equity situations originated and managed by the manager ICG;
  • direct investments in private equity situations originated and managed by third-parties where the fund has invested at the time of the original transaction (these could also be called third-party primary investments); and
  • direct investments in private equity situations originated and managed by third-parties but where ICG bought its stake in the secondary market from someone who had participated in the original transaction (secondaries).

61.1% of total new investments were designated as high conviction investments in the year to make them 48.9% of the portfolio at the year end. The trust’s North American exposure was in line with its target range of 40 – 50%. During the year, the board determined that the manager should target allocating 15 – 25% of the portfolio to secondary investments, and the manager lifted exposure to secondaries to 17.9% of the portfolio.

New direct investments included Ambassador Theatre Group, DomusVi (retirement homes operator), Planet Payment (integrated payments services focused on hospitality and luxury retail), Ivanti (software), and Davies Group (outsourcing services for the insurance sector).

The other half of the fund is invested in limited partnership private equity funds managed by third parties.

On a sector basis, the portfolio is weighted towards Technology (24.1%), Healthcare (16.6%), Business Services (11.0%) and Education (5.1%) – this 56.8% of the portfolio is described by the manager as defensive growth. It feels that these are particularly attractive sectors, benefitting from structural growth trends. Within the exposure to the Consumer and Industrial sectors (20.8% and 8.3% respectively), there is a bias to companies with more defensive business models, non-cyclical growth drivers and high recurring revenue streams. The portfolio has relatively low exposure to the Financials and Leisure sectors (5.5% and 3.9% respectively).

Drivers of returns

Over the year, the high conviction investments returned 23.1% (in local currency terms) and the third party fund portfolio returned 36.0% (in local currency terms). Key contributors to the performance included IRI (a provider of mission-critical data and predictive analytics to consumer goods manufacturers) and Visma (a provider of business management software and outsourcing services).

Returns were driven by a strong period for realisations (sales of investments and other distributions from portfolio companies) – these totalled £342.9m, comprised of £333.5m of realisations from individual companies (either held directly or through funds) and £9.4m of proceeds from sales of stakes in funds. The realisations included 54 full exits from portfolio companies at an average multiple of cost of 2.6x, and an average uplift to the previous carrying value of 36.3% [reconfirming the conservative nature of NAV valuations in the private equity sector].

The largest exit was Telos, the second-largest investment in ICG’s portfolio at the start of the financial year. This holding was exited through a sale of shares in the quoted business, following Telos’ IPO in 2020. The exit was completed at a slight uplift to the 31 January 2021 carrying value and generated a 33.0x return on invested capital. In September 2021, Graphite Capital completed the trade sale of U-POL (previously ranked third in the trust’s holdings), to US-listed Axalta Coating Systems. This transaction generated proceeds of £22.9m, representing a 4.5x return on invested capital. Other notable realisations included the exit of Supporting Education Group, an ICG investment, which was the 10th largest underlying portfolio company at the start of the year, and Cognito, an investment that had been made alongside Graphite Capital.

ICGT : Good year for ICG Enterprise helped by bumper period for third party fund investments

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