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In our note, Putting the discount into perspective, we noted that ICGT’s discount, like most of the listed PE sector, is well above historical averages. To put this into perspective, we considered i) the improved risk/reward opportunity this presents to new investors compared with the past, ii) potential misperceptions, noting that, in our view, the NAV is realistic and resilient going forward, and iii) how PE managers aim to achieve unchanged target returns despite higher rates. We reviewed how the triggers to a potential re-rating have evolved and are likely to evolve in the near future. While many of these factors apply across the PE industry, we explained how ICGT’s position, portfolio and strategy mean it is uniquely well-positioned in this environment.

  • Share buybacks: ICGT has been actively buying back shares (70k in March on six trading days to 25 March). The programme is a long-term one where ICGT is regularly in the market. It is part of the overall capital return, which also includes a progressive dividend (current intention 32p for FY’24E, yield 2.7%)
  • Trading update: ICGT’s 3Q update noted i) NAV p/sh 1,959p (31 July 2023: 1,904p), ii) NAV p/sh total return 3.3% in 3Q and 3.8% over the LTM (five-year CAGR 15.4%), iii) portfolio return const. ccy 0.1% (4.8% on an LTM basis, five-year CAGR 17.5%), iv) realisations £39m, investments £29m, v) average uplift on exit 33.7%.
  • Valuation: ICGT’s NAV valuations are conservative (realisation uplifts). The ratings are undemanding, and the ongoing carry value against cost is modest. The 39% discount to NAV is anomalous, we believe, with defensive, market-beating returns, and is above the levels seen pre COVID-19. The 2024E yield is 2.7%.
  • Risks: PE’s post-expense returns are consistently market-beating, but this is an above-average cost model. Even though actual experience has been of continued NAV outperformance in economic downturns, sentiment is likely to be adverse. We believe 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, having a strategic focus on defensive growth and exploiting ICG synergies. Valuations appear conservative, and governance is strong. ICGT focuses on delivering resilient, risk-adjusted returns. The risks are primarily sentiment-driven on costs and cyclicality, and on the underlying assets’ liquidity. It seems anomalous to have a consistent record of outperformance and to trade at a 39% discount to NAV.
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