A deep dive into Caledonia’s funds pool

Caledonia Investments (CLDN) held a funds spotlight event on 27 January, where its managers gave a detailed overview of its funds pool. This pool is one of three parts of CLDN’s portfolio, sitting alongside investments in public and private companies. It makes up about a third of total assets. The funds pool invests in North America and Asia, which the team see as highly attractive markets with structural advantages. This is especially true when working with skilled and knowledgeable local managers.

This is the third and final report on the different segments of CLDN’s portfolio. The recent funds event highlighted the strong opportunities in North America and Asia and CLDN’s unique access to these markets. Often, CLDN is the only foreign investor in these funds. Over the past ten years, the funds pool has delivered the highest returns of CLDN’s three segments, averaging an impressive 13.3% per year 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.

At a glance

Share Price and discount

The long-term picture for CLDN’s share price discount to net asset value (NAV) has improved slightly since our last note in September, although it has widened recently. We continue to view the significant discount as unjustified. The board and the managers believe that the discount will narrow over time.

Performance over five years

CLDN’s performance is not
benchmarked against an index or peer group, although the fund targets a long-term compounding real return that outperforms inflation by 3-6% over the medium-to-long term, and the FTSE All-Share Index over 10 years. The fund continues to meet both objectives.

Company background

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

This is our third and final note on CLDN’s different investment strategies. We previously covered private capital in April (here) and public companies in September (here). This note looks at the funds pool, and follows the Funds Spotlight event on 27 January 2026. Across all segments, CLDN’s approach is to identify and support high-quality, growing companies.

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

A key to CLDN’s success is its commitment to understanding its investments and their growth drivers. It invests for the long term, carrying out thorough due diligence and holding positions over time.

CLDN aims to grow the real value of its net assets and dividends while managing risk. Its target is to achieve long-term real returns that beat inflation by 3%-6% and outperform the FTSE All-Share index over 10 years.

CLDN has outperformed its performance targets.

Over the past decade, CLDN has exceeded these targets, delivering an annualised NAV total return of 9.8% to 30 September 2025. Few listed investment companies aim to grow both capital and income in real terms, and even fewer have matched CLDN’s consistent results. This track record is due to its long-term focus and willingness to invest only when opportunities are strong, supported by its permanent capital base.

As a self-managed trust, CLDN is not pressured by short-term targets or fixed fund cycles. Its managers can ignore short-term market swings and focus on long-term growth opportunities.

Funds spotlight

The funds portion of CLDN makes up 25-35% of the portfolio and helps diversify the other segments.

Asset allocation

Figure 1: Split by geography as at 30 September 2025

Figure 2: Split by strategy as at 30 September 2025

The fund invests exclusively in North America and Asia, with about two-thirds in the former. Within North America, most investments are in lower mid-market private equity buyout funds. In Asia, the focus is on venture capital and growth capital funds, as well as fund of funds.

Funds strategy

The strategy centres on partnership, as shown in Figure 3 from the recent spotlight event. CLDN’s funds team follows a proven process, working with managers it sees as exceptional in the large markets of North America and Asia. For North America, there is a preference for smaller funds where CLDN can align with managers who are motivated to create value. These funds typically invest in small, profitable companies, often accessing external finance for the first time.

CLDN is often the only European investor in its chosen funds. Indeed, many of these funds usually do not accept investment from outside their home market, giving CLDN unique access. Investments are made with a genuinely long-term view, without trying to time the market.

Figure 3: Partnership-focused

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

Before making a new investment, the team spends considerable time with fund managers. They look for managers who are driven, skilled, experienced and share CLDN’s values, as they believe success depends on backing the right people. The investment approach must be unique, robust, and disciplined. A strong track record alone is not enough—it must also be transparent and repeatable, so the team needs to clearly understand what drives the fund’s 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 has six members with over 100 years of combined experience, 66 of those at Caledonia. Led by Jamie Cayzer-Colvin, head of funds since 2005. Jamie previously served as chairman of the Henderson Smaller Companies Investment Trust, and has extensive senior management experience.

Each region has a dedicated director: Eloise Fox for North America and Min Ong for Asia. Eloise joined Caledonia in 2012 after roles at Candover and KPMG. Min joined in 2011, previously holding VP positions at Nomura and Lehman Brothers. Eloise is supported by Geordie Cox, investment director, and Freddie Buxton, investment executive. Min is supported by Shengying Li, investment executive. Six support staff complete the team.

The team follows Caledonia’s long-term, disciplined investment approach and brings a range of cultural experience. Incentives are linked to Caledonia’s NAV through a long-term plan, ensuring alignment with shareholders.

Investment process

Figure 4: CLDN’s funds pool investment process

The investment process is shown in Figure 4. CLDN, as a limited partner, works with general partners who manage funds. The team started with 2,350 potential GPs, narrowed this to 500 suitable ones and then focused research on a pipeline of about 250. They spend significant time meeting and assessing these managers.

From this pipeline, CLDN currently invests with 46 GPs across about 82 funds, which together hold stakes in over 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 general partner, it commits money to a fund that is gradually drawn down over the fund’s life. These funds usually last at least ten years, and the minimum commitment is normally $10m. CLDN shares give retail investors rare access to these high-quality private businesses.

These ten holdings make up 47.5% of the fund’s total capital.

North America

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

The fund’s North American allocation targets private equity in the US lower mid-market. Over 14 years, the CLDN team has mapped this market, spending about 12 weeks each year across more than 30 US cities. They see a large opportunity, with around 400,000 companies in the US lower mid-market (defined as EBITDA of $2m–$10m). Of the 1,500 managers in this space, CLDN’s research identifies 400 as investable.

Many of the companies held are led by founders, who are often over 50 years old, creating a steady flow of succession-driven deals. The team prefers this market segment for its lower competition, large market and inefficiencies that can be improved. It attracts less capital than larger buyout markets, leading to lower entry prices and more conservative debt levels.

These businesses often have strong fundamentals but lack investment due to limited capital, offering chances to add value through better management, improved systems and operational changes that drive growth and margins. There are usually several exit options, as larger private equity funds and strategic buyers are interested in these firms.

CLDN builds its exposure through long-term relationships with specialist managers who have a strong US presence. The team has met about 1,000 managers, monitors 400, and does deep due diligence on 150, resulting in a focused portfolio of 30 GPs across 45 funds, covering around 200 companies. These are mainly in industrials, consumer discretionary, healthcare and technology. Typical fund commitments are $25m–$30m.

These managers rarely market outside their state, so CLDN’s access gives it an advantage, often securing deals at lower prices. The team invests only in proven managers before they grow too large, keeping incentives aligned and the deal pipeline fresh.

Investments focus on “everyday America” companies with a strong local presence. The best of these deliver essential services, recurring revenue and steady value, such as heating, ventilation, and air conditioning businesses (HVAC), car maintenance and lawn care companies, such as 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-based private equity firm, for 11 years across three funds. CenterOak invested in Turf Masters, an Atlanta company known for high-quality, local lawn care, in 2022. This was Turf Masters’ first partnership with an external investor.

The investment aimed to professionalise the founder-led business and drive growth through better operations and careful expansion. Under CenterOak, Turf Masters doubled its customer base and grew to over 40 locations, using both organic growth and 19 add-on acquisitions. This transformed Turf Masters from a regional operator into a national platform.

The strategy included improving systems, strengthening management, expanding services and integrating acquisitions to boost efficiency and cross-selling. The investment was sold in December 2025 for over three times the original investment, marking CenterOak’s fourth exit in two years.

Case study – New Heritage Capital

New Heritage Capital is a US private equity firm that invests in founder-led lower-middle-market companies, mainly by providing growth capital while letting founders keep significant ownership and control. The firm works with entrepreneurs who want some liquidity but are still committed to growing their businesses, often using a “private IPO” structure so founders can benefit now and from future growth. New Heritage typically invests in business services, healthcare, and specialised manufacturing, aiming for long-term value through operational improvements and continued founder involvement.

This approach aligns with the qualities CLDN looks for in private equity managers, such as strong management teams, market leaders in niche areas and a focus on long-term growth. The funds team engaged with New Heritage early, carrying out thorough due diligence over an extended period to understand the team, culture, and investment process. This early and ongoing engagement helped build confidence in New Heritage’s disciplined strategy and its fit with CLDN’s long-term investment goals.

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, and the exit environment is getting better. These funds have delivered strong positive returns and make up most of the overall returns in the funds pool. Over the three years to 30 September 2025, the annualised return was 2.5% in GBP (8.9% in local currency). Over five years, it was 18.9% (19.8%), and over ten years 16.4% (15.0%).

Asia

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

The funds team sees Asia as offering long-term growth, driven by its large and fast-growing middle class and its rising role in global innovation. CLDN focuses on these two trends. By 2030, Asia’s share of the global middle class is expected to reach two thirds, up from half in 2010. The region’s middle-class spending should also rise from 23% to 60% of the global total, with another billion consumers expected in the next decade.

Asia is fast becoming the global centre of industrial innovation.

Asia is becoming a global hub for industrial innovation, helped by strong domestic demand, increased investment in research and development, and supportive policies. Asian companies are expanding quickly in sectors like electric vehicles, robotics, biotechnology, and advanced manufacturing. China now leads in global robotics patents and is a growing force in biotech research. The structural growth of India’s economy is also strengthening the region’s innovation, with its industrial base expanding and its economy set to become the world’s third largest.

The Asian team conducts extensive research on the ground, having reviewed 850 managers and identified 100 investment opportunities. As of 30 September 2025, the portfolio includes 35 funds managed by 15 managers, giving access to 385 companies. Most investments are in 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 company that provides digital infrastructure and software solutions to online sellers.

China’s consumer economy is growing and changing, and JST helps small and medium-sized businesses manage inventory, logistics, payments, and customer engagement more efficiently across multiple online marketplaces.

JST Group benefits from two major trends: the growth of Asia’s middle class and the shift to digital commerce. As incomes rise, people spend more online, and merchants need better tools to stay competitive. JST makes it easier for sellers to operate and scale, supporting domestic brands that target wealthier, more digitally engaged consumers.

Moonshot AI

Moonshot AI is a Chinese artificial intelligence company developing large language models and generative AI applications. Backed by strong domestic investment, skilled engineers, and a growing digital ecosystem, it reflects China’s shift towards knowledge-driven innovation. As China’s middle class expands and online activity rises, demand for AI services is increasing, positioning Moonshot AI to benefit further. Founded in 2023, the company has grown quickly, with recent fundraising rounds suggesting a multi-billion-dollar valuation.

Bonchon

Bonchon is a South Korean restaurant chain that has grown internationally by tapping into higher disposable incomes, urbanisation and changing consumer tastes in Asia. As people in the region spend more on branded dining and convenience, scalable food and beverage businesses like Bonchon have benefited. Since starting in 2002, Bonchon has opened hundreds of locations in markets such as the United States, Thailand, the Philippines, and Vietnam.

Momenta

Momenta is a Chinese company developing AI software for self-driving and advanced driver assistance systems used in vehicles worldwide. Its technology supports both mass-market assisted driving and future autonomous solutions like robotaxis.

Unlike traditional car suppliers, Momenta focuses on software to improve safety, convenience and efficiency, rather than making its own vehicles. Its systems are already used in over 130 vehicle models from major automakers such as Toyota, General Motors, SAIC-Volkswagen, Mercedes-Benz, and BMW, with deployments in China and abroad.

Annualised 7.9% returns over 10-years from Asia

The weighted average age of companies in the Asian funds is 5.5 years, slightly older than those in North America. The current environment is tough, with limited IPO exits, leading to weaker short-term results: a -8.1% annualised return in GBP over the three years to 30 September 2025 (-2.3% in local currency). However, annualised returns remain positive over longer periods, at 6.2% (6.9% 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

Since our last note in September (data as at 31 August 2025), the share of assets in public companies has fallen by 3%, while there has been a slight rise in private capital allocation.

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 North America allocation has fallen by 4% since August, while its UK allocation has risen by 3%. Sector allocations have changed very little.

Top 10 holdings – whole portfolio

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

There has been little change to CLDN’s top ten holdings since our last update, reflecting its long-term, high-conviction investment approach. Watsco has re-entered the top ten, replacing Oracle, which is still held but at a reduced size after strong gains led to some shares being sold. The recent fall in technology stocks has seen Microsoft slip from sixth to seventh place. Philip Morris has moved into the top five after reaching an all-time high.

Stonehage Fleming remains CLDN’s largest holding. CLDN is set to complete the sale of its 36.7% stake to Corient Private Wealth for £251m in the first half of 2026. An additional £37m will be paid in two instalments, six months and a year after completion, with a possible extra £9m if Stonehage meets revenue targets over three years under its new owner.

Performance

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

CLDN aims to outperform both the FTSE All-Share Index and inflation by 3-6% over the medium to long term. While not formally benchmarked against any index or peer group, the fund’s performance is compared here to the HSBC FTSE All-Share Index Fund and UK CPIH inflation, which includes housing costs.

CLDN has consistently met its targets, as shown in Figures 10 and 11. Its outperformance over inflation has grown, despite recent high inflation. However, outperformance versus UK equities has narrowed in the past two years due to a strong UK market rally.

Although CLDN’s NAV returns remain strong, shareholder returns are still limited by the fund’s wide discount, which we view as unjustified. We discuss this further, along with actions by the board to address it, on page 14.

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.

The discount has improved slightly since our last update, with the 12-month average to the end of February narrowing from 33.6% to 32.6%, and ranging between 28.6% and 38.9%. We still see this discount as too wide, considering the portfolio’s long-term performance and quality. Both the board and managers expect the discount to narrow over time.

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

The CLDN board has taken steps to reduce the discount, including a 10-for-1 stock split in July 2025 and adjusting the balance between interim and final dividends. By raising the interim dividend to about half of the total, income is spread more evenly through the year, making the shares more appealing.

The ongoing “Rule 9 waiver” under the Takeover Code allows the Cayzer family’s stake to rise above 50% without triggering a takeover bid, enabling further share buybacks.

Figure 13: CLDN share buybacks by month

Regular share buybacks are carried out under the programme approved by shareholders at the July 2025 AGM, allowing up to 5.09% of issued shares to be repurchased. Monthly buybacks were slightly lower at the end of 2025 compared to the start, with a total of 1,458,990 shares bought back during the year (adjusted for the stock split). These buybacks support NAV for shareholders and offer liquidity to sellers. We expect the buybacks to continue.

Previous publications

For more information on CLDN, you can read our previous notes listed in Figure 14 or visit our website.

Figure 14: QuotedData’s previously published notes on CLDN

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