ICG Enterprise Trust Newsletter – January 2024

How will 2024 play out: interest rates, economic growth and geopolitics? What are the consequences for private equity and ICG Enterprise Trust?

Good morning. It’s great to be back writing the first ICG Enterprise Trust newsletter of 2024. 
Two things are on my mind right now: first, how will 2024 play out – interest rates; economic growth; geopolitics? Second, what are the consequences for private equity, and therefore what is the read-across for how we should be managing ICG Enterprise Trust?
On the former, it’s probably obvious to you all that it’s impossible to be certain. The announcement by the Fed in December made the market think that rate cuts in the US could come sooner than previously expected, cue some quite dramatic price movements in rates-sensitive assets. Will that come to pass? Perhaps. It’s also possible that we will see a divergence in interest rates next year or so, with some economies holding the “higher for longer” line more than others. 
ICG’s house economist, Nick Brooks, makes the point that the impact of rate rises could have a lag, meaning the economic consequences of 2023’s rises may continue to be seen into 2024. The result? Potentially sluggish economic growth. He also sees significant geopolitical risk, as well possible upsides to growth coming from a pick-up in manufacturing activity, and / or more proactive monetary and fiscal easing in China providing a boost to the global economy. You can see his latest analysis here: Outlook 2024: A resilient global economy – but geopolitical risks abound.
While there does feel to be a more positive bias in the outlook (in particularly in the US), I see uncertainty and volatility as being themes that could well continue from 2023 into 2024. 
One obvious consequence of that is to reiterate our focus on “defensive growth” and our geographic diversification targeting 50/50 exposure between North America and Europe. We see them as being key attractions as we aim to be the go-to vehicle for those seeking long-term compounding returns in listed private equity.
I also came across this short note from Vanguard, published in April, Potential in persistence: Staying the course with private equity commitments. It’s an interesting and quick read and the commentary still holds today. Vanguard spends a bit of time talking about the fact that “private equity has performed well in volatile markets”. There are two quotations that particularly struck me: “a consistent private equity commitment strategy that allows investors to stay invested through all market cycles, rather than sitting on the sidelines, is critical to supporting an investor’s success”; and “research also supports an investment strategy that focuses on selecting top-performing managers, which may provide greater potential for enhanced performance than a strategy based on timing private equity commitments”.
This chimes very well with our approach: being thoughtful about our strategic asset allocation (primary / directs / secondaries and geographic split); focusing on top tier managers; and ensuring we have sufficient resources to invest through cycles. As we said in our full year results for the financial year ending 31 January 2023, released in May, “[The commitments made] have sown the seeds of our primary and direct investment program in the coming years, in what could be a very attractive vintage for private equity.” 
I’m pleased with how our portfolio is positioned today, and expect an interesting year to come. We look forward to sharing it with you, to working with the broader ICG Enterprise Trust to navigate it on behalf of our shareholders, and to speaking with you in the coming months.

All the best,
Oliver & Colm