A deep dive into Caledonia’s funds pool

Caledonia Investments (CLDN) hosted a funds spotlight event on 27 January, during which its managers presented in detail on its funds pool. This pool is one of three elements of CLDN’s portfolio; it sits alongside separate pools of investments in public and private companies, and represents around a third of overall assets. The funds pool invests in two markets, North America and Asia. In both cases, the team believes there are structural advantages that make these geographies highly attractive, particularly when working alongside local managers with appropriate skills and knowledge.

This note is the third and final of our reports on the different segments of CLDN’s portfolio. The recent funds event strongly illustrated the opportunities available in both the North American and Asian markets, and the unique position CLDN is in to access these. In many cases, CLDN is the only investor from outside a fund’s home market. The funds pool has the highest rate of return of CLDN’s three segments over the past ten years, with an impressive average annual return of 13.3% per annum (to 30 September 2025).

Inflation-beating returns

CLDN’s aim is to generate long-term compounding real returns that outperform inflation by 3%-6% over the medium-to-long term, and the FTSE All-Share Index over 10 years.

Source: Bloomberg, Marten & Co.

Company background

Investors may wish to consult the trust’s website at www.caledonia.com

This is our third and final CLDN note specifically focused on one of the fund’s three strategies. Last April we wrote about private capital (here) and in September we covered public companies (here). The focus of this note will be the funds pool, following the Funds Spotlight event on 27 January 2026. Generally, the trust applies the same strategic approach to each of these segments: identifying and backing high-quality and growing companies.

CLDN buys to hold, has a long-term time horizon, and undertakes extensive due diligence

Crucial to CLDN’s success is its ability to invest time in understanding these companies and their return drivers. It buys to hold, has a long-term time horizon, and undertakes extensive due diligence on its investments.

CLDN has a strategic objective to grow the real value of its net assets and dividends, while managing investment risk for long-term wealth creation. It has set itself the target of generating long-term compounding real returns that outperform inflation by 3%-6% over the medium-to-long term, and the FTSE All-Share index over 10 years.

CLDN has outperformed its performance targets.

Over the past decade, the company has comfortably outperformed these targets, generating an overall annualised NAV total return of 9.8% (to 30 September 2025). Few listed investment companies have an explicit objective of growing shareholders’ capital and income in real terms, and fewer still have been able to deliver these types of returns on such a consistent basis. This success has been built on CLDN’s ability to focus on a long-term investment horizon and invest only when it sees the best opportunities, underpinned by the permanent nature of its balance sheet.

As a self-managed trust, CLDN is not constrained by a need to meet short-term performance objectives or comply with fixed-life fund cycles. Without external pressure, the managers can ignore the gyrations of fickle markets, exploiting secular growth rather than short-term cyclical opportunities.

Funds spotlight

The funds portion of CLDN has a strategic allocation of 25-35% and provides diversification from the other segments of the portfolio.

Asset allocation

Figure 1: Split by geography as at 30 September 2025

Figure 2: Split by strategy as at 30 September 2025

The funds pool provides exposure to two geographies: North America and Asia, with roughly two-thirds to the former. Within North America, most exposure is to lower mid-market buyout funds, while Asia is split between venture & growth and fund of funds.

Funds strategy

The strategy is focused squarely on partnership, as illustrated in Figure 3, which is taken from the presentation at the recent spotlight event.

CLDN’s funds team has a proven process, based on working with managers it considers exceptional, in the deep markets of North America and Asia. Within the North American allocation, there is a clear preference for smaller funds, where CLDN can be aligned with managers motivated to share in the value created. These funds in turn generally invest in small but profitable companies, which in many cases are accessing external finance for the first time.

CLDN is often the only European investor in the funds it holds. Indeed, many of the funds ordinarily will not allow investment from outside of their home market, meaning CLDN has a unique opportunity set. The investments are made on a genuinely long-term basis, without reference to market timing.

Figure 3: Partnership-focused

The funds team believe in detailed, on-the-ground research.

Before a new investment is made, members of the team will seek to spend significant time with the fund managers. They are looking for managers who are hungry, skilled, and experienced, with a culture aligned with CLDN’s own; ultimately, the team considers that it is backing people. The investment thesis must be differentiated, robust and disciplined. The fund needs to do more than just offer a strong track record, this record must be transparent and repeatable; therefore, the team must feel very comfortable that it understands what drives underlying results.

Funds team

The funds pool team comprises six members: three for North America, two for Asia and the head of funds.

The funds team comprises six members, with cumulative experience of over 100 years, 66 of which have been at Caledonia. The team is led by Jamie Cayzer-Colvin, head of funds since appointment in 2005. Jamie previously served as chairman of the Henderson Smaller Companies Investment Trust, and has extensive senior management experience.

Each of the segment’s two geographies has its own specific director: Eloise Fox for North America and Min Ong for Asia. Eloise joined Caledonia in 2012, having previously held roles as investment manager at Candover and as a financial due diligence specialist at KPMG. Min joined in 2011, having previously held VP roles at Nomura and Lehman Brothers.

Eloise is supported by Geordie Cox, investment director, and Freddie Buxton, investment executive for North America. Min is supported by Shengying Li, investment executive for Asia. The team is completed by a support staff of six.

The funds team operates with the same long-term, disciplined approach that defines Caledonia’s wider investment philosophy. The team has diverse cultural experience and expertise. Members are fully aligned with shareholder outcomes, with incentives linked to Caledonia’s NAV under a long-term incentive plan rather than carried interest structures.

Investment process

Figure 4: CLDN’s funds pool investment process

The investment process is illustrated in Figure 4. CLDN, as a limited partner (LP), works with a series of general partners (GPs) that manage funds. The CLDN team has identified 2,350 GPs as potential partners, which has been winnowed down to 500 seen as suitable for CLDN’s investment universe. This is further reduced to a pipeline of around 250 GPs, on whom research is focused. This research is extensive, with significant time spent on meeting and getting to know the managers. From this pipeline, CLDN currently invests in 46 GPs across around 82 funds, which in turn hold stakes in more than 600 companies. In most cases, CLDN has a seat on the fund’s advisory board.

Top 10 holdings

Figure 5: 10 largest holdings in funds pool as at 30 September 2025

When CLDN invests in a GP, it makes a commitment to a fund that draws down over its lifetime. A typical fund life is ten or more years, and the minimum commitment is typically at least $10m. CLDN shares offer retail investors a rare opportunity of access to these high-quality private businesses.

These ten holdings represent 47.5% of the total capital of the funds pool.

North America

The North American exposure is focused on the US lower mid-market.

The funds pool’s North American allocation focuses on private equity invested in the US lower mid-market. Over the past 14 years, the CLDN team has systematically mapped the market, spending time on the ground (an average of 12 weeks per year) in over 30 different cities across the US. It believes the opportunity set in this space to be vast, with an estimated 400,000 companies in the US classified as lower mid-market; that is, with an EBITDA of $2m-10m. There are 1,500 lower mid-market managers investing in the space, of which CLDN’s research suggests that 400 are investable opportunities.

Many of the underlying companies are founder-owner operator led businesses, while a significant proportion are more than 50 years old, creating both a founder-owner operator led mindset and a consistent pipeline of succession-driven transactions.

The team favours this portion of the market due to its positive dynamics, specifically less competition, a large addressable market and inefficiencies that can be unlocked. It attracts less capital than larger buyout markets, resulting in lower entry multiples and more conservative leverage.

The underlying businesses generally have solid fundamentals, but can suffer from underinvestment due to limited access to capital, presenting clear opportunities for operational value creation. This is generally through the professionalisation of people, systems and processes, operational improvements leading to revenue growth and margin enhancement, and sometimes acquisitions. There are generally multiple post-investment exit opportunities, given the appetite of larger private equity funds and the presence of strategic buyers.

CLDN has built its exposure through long-term relationships with specialist managers with significant on-the-ground presence in the US. The team has met around 1,000 managers, actively monitors roughly 400, and conducts deep due diligence on approximately 150, resulting in a concentrated portfolio of 30 GPs across 45 funds. These funds provide exposure to around 200 companies, which are generally from one of four sectors (in descending order of portfolio weighting): industrials, consumer discretionary, healthcare and technology. Typical commitments range from $25m to $30m per fund.

These managers typically do not market outside of their home state and are therefore underfollowed. CLDN’s access therefore gives it an edge of access to more deals, often at lower entry valuations. Moreover, the CLDN team will only invest in managers that are proven, but before they become too large. This ensures incentives are aligned, and a constantly renewing pipeline.

Underlying investment is in “everyday America” companies with a strong local, domestic focus. The best such firms deliver essential services, recurring revenues, and compounding value. They include heating, ventilation, and air conditioning (HVAC), car maintenance and lawn care companies – in the case of the latter, the Atlanta-based Turf Masters.

Case study – Turf Masters

Investment in Turf Masters is through CenterOak Partners.

The funds pool team has invested with CenterOak Partners, a Dallas, Texas private equity firm, for 11 years, across three funds. CenterOak first invested in Turf Masters in 2022.

Founded in 2002 in Atlanta, Georgia, Turf Masters has built a trusted regional brand based on high-quality, “local service” lawn care, with differentiation through its customer-centric model. The CenterOak investment marked the first time Turf Masters had partnered with an external investor.

The investment thesis centred on professionalising a strong founder-led platform and accelerating growth through operational enhancement and disciplined expansion. Under CenterOak’s ownership, Turf Masters doubled its customer base and significantly expanded its branch footprint, growing to more than 40 locations.

This was achieved through a combination of organic growth and 19 add-on acquisitions, transforming the company from a regional operator into a scaled national lawn care platform. The strategy focused on strengthening systems, enhancing management depth, broadening the service offering and integrating acquisitions to drive efficiency and cross-selling opportunities.

The investment was exited in December 2025 for more than 3x invested capital, representing CenterOak’s fourth exit in two years.

Case study – New Heritage Capital

New Heritage Capital is a US-based private equity firm focused on investing in founder-owned lower-middle-market companies, typically providing growth capital while allowing founders to retain meaningful ownership and operational control. The firm specialises in partnering with successful entrepreneurs who want liquidity but remain committed to growing their businesses, often through its “private IPO” structure which enables founders to realise some value while continuing to participate in future upside. The strategy typically targets businesses in sectors such as business services, healthcare, and specialised manufacturing, where the firm believes operational improvements and continued founder involvement can drive long-term value creation.

This focus on aligned management teams, niche market leaders and long-term growth opportunities is consistent with the characteristics CLDN seeks when selecting private equity managers. The funds team began engaging with New Heritage well before committing capital, conducting extensive due diligence over a prolonged period to build conviction in the team, their culture, and their investment process. By starting the diligence process early and maintaining an ongoing dialogue with the manager, the team was able to gain confidence in New Heritage’s disciplined strategy and alignment with CLDN’s long-term investment approach.

Annualised 16.4% returns over 10-years from North America

The weighted average age of the companies held in the North American funds is 4.3 years, with the exit environment improving. Overall, these funds have generated strong positive returns, and indeed the bulk of the returns across the funds pool. Over three years to 30 September 2025, the annualised return over three years was 2.5% in GBP (8.9% in local currency), over five years was 18.9% (19.8%) and over ten years was 16.4% (15.0%).

Asia

The key to the attraction of Asia is the rapidly growing middle class.

The funds team believes that the case for investing in Asia is based on long-term structural growth exposure to one of the largest and fastest growing regions in the world. CLDN specifically invests in two megatrends: the large and growing middle class and the region’s increasing role in innovation.

According to CLDN, the proportion of the global middle class in Asia is set to increase to two thirds by 2030, from half in 2010. And over this time, the proporb tion of total spending accounted for by the global middle class should increase from 23% to 60%, with 1bn consumers added in the coming decade.

Asia is fast becoming the global centre of industrial innovation.

Asia is becoming the global centre of industrial innovation. Rising domestic demand, sustained investment in research and development and supportive policy frameworks are combining to shift the centre of gravity in industrial innovation towards the continent.

Across multiple high-value sectors, including electric vehicles, robotics, biotechnology and advanced manufacturing, Asian companies are scaling rapidly and increasingly setting the pace of technological progress. For example, China now accounts for a dominant share of global robotics patents and is emerging as a leader in biotech research. India’s structural growth story is reinforcing the region’s innovation credentials, with its economy projected to become the world’s third-largest and its industrial base broadening.

As with North America, the Asian team spends considerable time on the ground in the continent. It has identified 850 managers, with 100 realistic investment opportunities. This research has led to a current portfolio (as at 30 September 2025) of 35 funds run by 15 managers, providing exposure to 385 underlying companies. The majority of this exposure falls into the following four sectors (in descending order of weight in the portfolio): healthcare, consumer discretionary, information technology and industrials.

Case studies

The following companies are all currently held by a fund within the funds pool.

JST Group

JST Group is a leading Chinese e-commerce software as a service (SaaS) company providing digital infrastructure and software solutions to online merchants. As China’s consumer economy continues to expand and evolve, JST enables small and medium-sized enterprises to manage inventory, logistics, payments, and customer engagement more efficiently across multiple online marketplaces.

JST Group sits at the intersection of two structural trends: the rise of Asia’s middle class and the digitisation of commerce. Rising disposable incomes are driving higher levels of discretionary spending and online consumption, while merchants require increasingly sophisticated tools to compete in a fast-moving digital environment. By lowering operational barriers and improving efficiency for sellers, JST supports the scaling of domestic brands that cater to more affluent and digitally engaged consumers.

Moonshot AI

Moonshot AI is a Chinese artificial intelligence company focused on developing large language models and generative AI applications. Supported by strong domestic investment, a deep engineering talent pool and an increasingly sophisticated digital ecosystem, the company is a clear example of the country and the region’s move to knowledge-intensive innovation. As China’s middle class grows, rising incomes and increasing online engagement are accelerating demand for AI-powered services, with Moonshine AI set to continue benefitting. Although only founded in 2023, the company has experienced rapid growth, with a series of fundraising rounds implying a multi-billion-dollar valuation.

Bonchon

Bonchon is a South Korean restaurant chain that has expanded internationally by capitalising on rising disposable incomes, urbanisation and shifting consumer preferences across Asia. The region’s spending patterns are evolving towards branded dining, convenience, and experiential consumption, supporting scalable food and beverage concepts. Since its launch in 2002, the company has expanded to hundreds of locations in multiple markets, including the United States and major Asian economies including Thailand, the Philippines and Vietnam.

Momenta

Momenta is a Chinese autonomous driving technology company developing AI-powered software that serves as the “brain” for self-driving and advanced driver assistance systems (ADAS) integrated into vehicles worldwide. Momenta supports both mass-production assisted driving and next-generation autonomous mobility solutions such as robotaxis.

The company exemplifies China’s rapid ascent in industrial innovation. Unlike traditional automotive suppliers, Momenta focuses on software that enhances safety, convenience and efficiency for millions of drivers and future autonomous passengers without building its own vehicles. Its technology is already integrated into over 130 vehicle models from major automakers including Toyota, General Motors, SAIC-Volkswagen, Mercedes-Benz, and BMW, with deployments spanning China and international markets.

Annualised 7.9% returns over 10-years from Asia

The weighted average age of the companies in the Asian funds is 5.5 years, so a little older than for North America. The short-term environment is challenging, with constrained IPO-led exit activity, and short-term performance has been somewhat disappointing, with -8.1% annualised GBP return over the three years to 30 September 2025 (-2.3% in local currency). However, annualised returns have still been 6.2% (6.9% in local currency) over five years and 7.9% (6.8%) over ten years.

Asset allocation – whole portfolio

Figure 6: Split of portfolio by type as at 31 January 2026

Compared to our last note in September (using data as at 31 August 2025), the proportion of assets in public companies has decreased by 3%, with a small increase in the allocation to private capital.

Figure 7: Split of CLDN portfolio by geography as at 31 January 2026

Figure 8: Split of CLDN portfolio by sector as at 31 January 2026

CLDN’s allocation to North America has decreased by 4% since August, while the allocation to the UK has increased by 3%. Within sectors, any changes have been very minimal.

Top 10 holdings – whole portfolio

Figure 9: CLDN’s 10 largest holdings as at 31 January 2026

There has been limited change to CLDN’s top ten holdings since our last note (which used data as at 31 August 2025). This is in line with our expectations, given the buy to own philosophy and the long-term, high conviction approach. Watsco was briefly out of the top ten last year, but has re-entered at the expense of Oracle. Oracle is still held, but at a lower position size. The stock had previously rallied very strongly, and the position was top sliced, resulting in a lower allocation.

The fall in technology stocks also accounts for the slippage of Microsoft from sixth to seventh position. Philip Morris has climbed into the top five, with the shares recently hitting an all-time high.

Stonehage Fleming remains the largest holding overall. CLDN remains on track to complete the sale of its stake, which equates to 36.7% of the multi-family office. The buyer is the Miami-based Corient Private Wealth, who will pay CLDN £251m when the deal closes later in the first half of 2026. A further £37m will be paid in two tranches, six months and a year after completion. Another £9m may be received if Stonehage hits three-year revenue targets under its new owner.

Performance

CLDN aims to outperform the FTSE All-Share Index, and inflation by 3-6%.

CLDN is not benchmarked against an index or peer group. However, the fund has a target of generating long-term compounding real returns that outperform inflation by 3-6% over the medium-to-long term, and the FTSE All-Share Index over 10 years. For the purposes of this report, we have used the HSBC FTSE All-Share Index Fund Class C accumulation units, which seek to track the returns of the FTSE All-Share Index. As a measure of inflation, we have used UK CPIH, which is the consumer prices index including owner-occupiers’ housing costs.

CLDN continues to comfortably meet both of its objectives, as illustrated in Figures 10 and 11. The level of outperformance over inflation has continued to grow over time, which is particularly impressive given the heightened price rises experienced over much of the past few years. The overall level of outperformance versus UK equities has reduced over the last two years or so, largely due to the strong rally in the UK market.

Whilst CLDN’s NAV returns have been very strong, those to shareholders continue to be held back somewhat by the fund’s discount, which we believe to be unjustifiably wide. We explore this in more detail, including measures the board are taking to reduce the level, on page 15.

Figure 10: CLDN NAV total return performance relative to HSBC All-Share tracker and UK inflation (CPIH) over 10 years ended 28 February 2026

Figure 11: CLDN total returns for periods ending 28 February 2026

Discount

We believe CLDN’s discount to be unjustifiably wide.

There has been a small improvement in the discount position since our last note in September. The 12-month average to the end of February has narrowed from 33.6% to 32.6%, with a range of 28.6% to 38.9%. We continue to view this discount as much too wide, given the long-term performance record and the quality of the holdings across the different segments of the portfolio. We believe the discount will narrow over time, which is a view supported by both the board and managers.

Figure 12: CLDN discount over five years ended 28 February 2026

The board of CLDN has continued to take a number of measures to address the discount. We have previously discussed the 10-for-1 stock split in July 2025 and the change to the balance between the interim and final dividends. By increasing the interim dividend to be closer to 50% of the total, income is more evenly spread during the year, which should increase the attraction of the shares.

The ongoing “Rule 9 waiver” under the Takeover Code allows the Cayzer family’s share of the trust to increase above 50% without the family’s being obliged to make a takeover bid, allowing further share repurchases to be made.

Figure 13: CLDN share buybacks by month

Regular share repurchases are made, as outlined in Figure 13. This is under the programme mandated by shareholders at the Annual General Meeting in July 2025, which authorises the repurchase of up to 5.09% of the issued share capital. Monthly repurchases were generally slightly smaller at the end of 2025 than the beginning, with a total of 1,458,990 shares repurchased over the year (with post-stock split repurchases adjusted to ensure compatibility). This enhances NAV for shareholders and provides liquidity to those wanting to sell. We fully expect these repurchases to continue.

Previous publications

Readers interested in further information about CLDN may wish to read our previous notes listed below. You can read them by clicking on the links in Figure 14 or by visiting our website.

Figure 14: QuotedData’s previously published notes on CLDN

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