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Our note, Spotlight on secondaries, published on 2 March, highlighted ICGT’s strong NAV growth in the quarter to October 2021, and that one highlight was secondary fund investments. We reviewed the attractions of that market and why ICGT was increasing its allocations to it. Looking forward, the full-year results to January 2022 are expected in early May, and we expect a continuation of the strong trends reported in recent quarters, notably i) good underlying company EBITDA growth, ii) continued strong realisation and investment activity (especially in secondary for the latter), iii) a modest rise in YoY debt/EV and EV/EBITDA multiples, and iv) a small rise in overall commitments.

  • IRI to merge with NPD: In terms of news flow during the month, on 13 April, ICGT announced the merger of its 2018 vintage co-investee company, IRI (2.9% of 31 October portfolio). Closure of the deal is expected in 2H’22. For investors, the comment was “The merger represents a strong return on invested capital for ICGT”.
  • 3Q details: High-conviction investments (48.9% of the portfolio) generated local currency returns of 9.3% during the quarter. Third-party funds (51.1% of the portfolio) generated local currency returns of 7.3% during the quarter. The 27 full exits were at a 4.2x multiple to cost. £75m new investments were made.
  • Valuation: NAV valuations are conservative (uplifts on realisations averaging 35% long term). The ratings are undemanding, and the carry value against cost modest. The 30% discount to NAV is anomalous, we believe, with defensive market-beating returns, and is greater than the pre-COVID-19 levels. The yield is 2.0%.
  • 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 consistently generates superior returns, by adding value in an attractive market. ICGT’s focus on identifying companies with defensive characteristics means it is well-positioned to deliver resilient growth. It leverages ICG family synergies. Valuations/governance appear conservative. 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 30% discount to (October 2021) NAV.
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