ICG Enterprise (ICGT) trust’s first year under new management has seen it outperform its benchmark as well as set out a clearer investment path.
The £594 million private equity fund-of-funds trust has reported its first annual results under Intermediate Capital Group, which took over the running of the closed-ended fund following its acquisition of Graphite Capital’s private equity business at the end of 2015.
Formerly known as Graphite Enterprise, the trust was first launched in 1981 as part of the F&C Investments group. Graphite Capital later spun off on its own but for many years the trust remained available through F&C's savings scheme, until the sale to ICG last February.
Despite the changes, the trust has been run by the same management team, led by Emma Osborne, who is one of the longest-serving female fund managers having overseen the fund since launch.
ICG Enterprise reported a total return of 23.4% from its portfolio for the 12 months to the end of January, versus the 20.1% return from the FTSE All-Share index.
Over the same period, the share price jumped 31.6% as the discount - or gap between the price and its underlying net asset value (NAV) - narrowed from over 25% a year ago. After reaching as low as 12.3%, the shares currently trade 21.6% below their NAV.
Osborne has increased the proportion of the portfolio invested in ICG funds over the past year, with a quarter of new investment in the 12 months represented by ICG direct investments.
A record number of new investments, totalling £127.8 million, were made in the year, including in ICG Recovery Fund, HgCapital 8, and Oak Hill Capital IV.
She has also increased US exposure, which has risen to 21%, with a medium-term target of up to 40%.
Osborne said the scope for realisations, or sales, was ‘favourable despite some macro uncertainties’ and they should ‘underpin future growth in value given the uplifts that tend to be achieved on sale’.
‘Against this backdrop, investing at reasonable valuations is more challenging, but our strategy gives us the flexibility to adapt the mix of investments according to where we see the best relative value and the move to ICG is providing access to a broader range of opportunities from which to select,’ said Osborne.
Osborne said she could not predict a potential downturn but has focused on ‘relatively more defensive companies’ and avoiding emerging markets, new managers and riskier private equity strategies in order to withstand a possible downturn.
Numis analyst Charles Cade said the new ICG management has made the trust more attractive as he felt it had ‘been struggling to find an identity’ with a hybrid approach of European fund of funds and direct investment in Graphite Capital funds.
He said it had been ‘caught between the major diversified listed private equity funds and the direct investment vehicles’.
‘In our view, there is now a much clearer strategy for the fund,’ said Cade.
Jefferies analyst Matthew Hose said the trust’s 20% discount ‘looked too cheap against its listed private equity peer group’.
‘A rare case of net investment across the year has helped reduce the fund’s perennial cash drag,’ he said.
‘The Micheldever [tyre services company] sale has also materially lowered the portfolio’s exposure to pre-crisis investments.’
Hose said the trust was making headway towards becoming fully invested ‘as in the past it has held average cash balances of around 20%’.