November 2021 Investor Forum

Defensive growth leads to reliable outperformance

ICGT gives all investors a liquid, managed option to replicate the above-market, compounding returns and risk diversification that institutional managers get by accessing PE. An investment in ICGT, made on the period-end date in any of the past 20 years, would have outperformed the FTSE All-Share Index (Total Return) if still held on 31 July 2021. To that date, it saw 247% 10-year share-price growth, outperforming the index by 156%. It has consistently delivered superior returns across cycles (five-year NAV per share total return 16% p.a., with only two down quarters in past 20 years). In our view, the discount to NAV (15%) offers additional value.

• Why PE?: PE today is about investing in growth, tech-enabled businesses with through-cycle resilience. It adds value with i) access to committed capital, ii) strategic optionality, iii) operational, financial and market expertise, iv) a long-term focus, and v) good governance. Recent sector changes enhance resilience.
• Why ICGT?: ICGT’s policy is “defensive growth” ‒ focusing on well-established businesses with strong competitive positions in a structural growth market, recurring revenues, high margins, strong cashflows and low customer concentration. This has delivered both growth and also downside protection.
• Valuation: NAV valuations are conservative (uplifts on realisations averaging 35% long term). The ratings are undemanding, and the carry value against cost modest. The 15% discount to NAV is anomalous, we believe, with defensive market-beating returns, and is above pre-pandemic levels. The yield is 1.8%.
• 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 strategy and ICG family synergies. The valuations and governance appear conservative. It has an appropriate balance between risks and opportunities. Risks are primarily sentiment-driven on costs, cyclicality and the underlying assets’ liquidity. It seems anomalous that a consistent record of outperformance is trading at a 15% discount to NAV, which sees consistent uplift to carrying value on exit.