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We reviewed the most recent results to Oct’22 in our note, 3Q’23: continued growth and resilience, ICGT reported another strong quarter, with an NAV per share total return of 3.6% in 3Q’22 and a portfolio return of 13.8% (local currency) for the past 12 months. Total proceeds and new investments for the quarter were strong, at £63m and £60m, respectively. Disciplined net investment continues, capitalising on attractive opportunities. ICGT saw an average 33% exit uplift. It has a progressive dividend policy, is doing share buybacks and has a new, reduced management fee. ICGT’s investee companies offer good risk-adjusted returns and defensive characteristics, giving investors both growth and resilience.

  • Defensive growth, long-term-value: ICGT’s strategic approach has given investors market-beating returns and just two down quarters out of 27 since the manager was appointed. In both good and bad years, the model has consistently proved that it can deliver resilient returns, driven by underlying company EBITDA growth.
  • Management fee and cost reduction: ICGT has negotiated a tiered cap to management fee, effective from 1 Feb’23. If this had been effective over the past year, it would have saved over £1m. The manager is now absorbing various costs, saving 25%-30% (we estimate £0.5m p.a.) of ICGT’s other expenses.
  • Valuation: ICGT’s NAV valuations are conservative (realisation uplifts). The ratings are undemanding, and the ongoing carry value against cost is modest. The 41% discount to NAV is anomalous, we believe, with defensive, market-beating returns, and is above the levels seen pre-COVID-19. The 2023E 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 41% discount to NAV.
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