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We believe the key value opportunity in 2021 will come from ICGT completing on the strong pipeline of “High Conviction” co-investments. Current market conditions offer lower valuations, more willing sellers and greater value being given to a strong backer such as ICGT and are likely to see above-average returns. The concentrated “High Conviction” portfolio has delivered superior returns while the diversified third-party fund investments enable good access to the secondary and direct investments markets. ICGT has shown active portfolio construction, including the secondary sales of historical Graphite positions.

  • Why more willing sellers: We think there are more willing sellers, reflecting: i) weaker competition seeking stronger financial backers; ii) family owners unwilling to face challenges again; iii) non-core disposals strengthening group balance sheets; and iv) more realistic price expectations post share price falls.
  • Still a balanced book: ICGT offers investors a balance between a concentrated portfolio of co-investments and third-party fund investments. In addition to diversification, the latter is a source of ICGT’s high-return co-investments alongside the third-party managers, as well as secondary transactions.
  • 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 20% discount to NAV is above 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 22% discount to NAV.
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