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Upcoming Event | Hardman & Co: Bank North management presentation and Q&A

In our note, ICG’Ts steps to value-adding portfolio construction, published on 22 February 2021, we showed how ICGT’s active portfolio construction and management added value to its investors. ICGT has a stringent filtering process narrows down investments to buyouts, in developed markets, mainly in the mid-market/larger deals and through leading PE managers. Investments must show defensive growth characteristics. Third-party manager relationships are leveraged to generate high-conviction, high-return ideas. This has led to an 11% NAV total return over 9M’20 and 202% over 10 years. Despite this performance, ICGT is trading on a 21% discount to a conservative NAV.

  • 3Q update: Key points from the 4 February 2021 update are i) strong underlying investment gains (+12.1% local currency portfolio return), ii) high-conviction investments (HCI) up 17.6%, iii) third-party funds up 7.6%, iv) £72m realisations and sales (invested £30m, 42% HCI), and vi) a stable 5p dividend in the quarter.
  • Market news flow:  News flow across PE has been positive. Pantheon, and OCI results highlighted the outperformance of PE-backed businesses through downturns. NBPE reported a 2.6% total NAV return in February while SLPE reported its end-February NAV was 507.6p, up 5.8% on end-January.
  • Valuation:  Valuations are conservative (medium-term uplifts on realisations averaging 30%+ to the latest book value). Ratings are undemanding, and the carry value against cost is modest. This gives confidence that the accounting date NAV is realistic. The 21% discount to NAV is above pre-COVID-19 historical levels.
  • 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: ICGT has consistently generated superior returns, by adding value in an attractive market, with a defensive growth investment policy, and exploiting synergies from being part of the ICG family. The valuations and governance appear conservative. It has an appropriate balance between risks and opportunities. Risks are primarily sentiment-driven on costs and cyclicality, as well as the underlying assets’ liquidity. It seems anomalous that a business with a consistent record of outperformance is trading at a 20% discount to NAV.
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