Investment activity

Selective investment into high conviction opportunities

Year ended 31 January 2019

We invested a total of £158m in the year, up from £142m in the year to January 2018. Half of new investment was into our high conviction portfolio, up from 42% in the year to January 2018. Investments sourced through the ICG network accounted for 27% of capital deployed, including two co-investments and a secondary investment, totalling £22m, sourced from three of the in-house teams we partner with. We also completed three co-investments and a secondary alongside our third party managers, totalling £35m, all of which were US based.

Co-investments have always been a feature of our strategy and have performed strongly over multiple cycles. Over the last three years we have increased capital deployed in individual co-investments, allowing us to increase deployment, while at the same time not being any less selective.

Our focus remains on defensive growth businesses with high cash flow conversion which have demonstrated resilience to economic cycles. The investments with the ICG Europe and Asia Pacific subordinated debt and equity teams also feature a combination of investments across the capital structure which provides an element of downside protection. While defensive growth and structural downside protection are our key areas of focus, we also remain alert to opportunities where we can find relative value in the current challenging market, usually as a result of unusual transaction dynamics. Relative value is a feature of investments made by the ICG Strategic Equity team which completed five transactions in the year at an average entry multiple, significantly below the market average.

The three largest new investments made in the year were:
• Minimax (a global provider of fire protection systems and services) alongside ICG Europe, in which we invested £17m. ICG has a 12 year history with this business and is the sole institutional equity provider in the most recent management buyout
• IRI (a market leading provider of “must-have” data and predictive analytics to consumer goods manufacturers) co-investment alongside New Mountain Capital, in which we invested £11m
• Endeavor Schools (a US schools operator) co-investment alongside education investment specialist Leeds Equity Partners, in which we invested £8m

10 new commitments to both existing and new manager relationships

We completed 10 new fund commitments in the year totalling £162m. In addition, we committed £20m to a new ICG Strategic Equity transaction, and a number of other commitments relating to co-investments and secondaries, taking the total of new commitments in the year to £185m.

Three of the new funds, totalling £73m, are managed by ICG including the addition of a fourth ICG strategy to our Portfolio with a $10m commitment to ICG’s North American Private Debt II, ICG’s. The fund invests in subordinated debt and equity of US private equity-backed mid-market companies, targeting gross annualised returns of 13% to 17% with low downside risk. We also committed €40m to ICG Europe VII and $40m to ICG Strategic Equity III, strategies the Company has backed since 1989 and 2016 respectively.

Of the seven third-party fund commitments, three are to European managers we have invested with for many years (Graphite Capital, Bowmark Capital and Bain Capital). We also added four new manager relationships of which three are focused on the US mid-market (The Jordan Company, Tailwind Capital and Five Arrows Capital Partners) and one on the European mid-market (Five Arrows Principal Investments). The Portfolio is increasing geographically diverse; of our 28 core manager relationships, nine are US managers and over the medium term we expect our weighting to the US market to increase to
30% - 40% of the Portfolio.

Four of the 10 new funds have already led to co-investments or secondaries highlighting the effectiveness of our strategy of leveraging manager relationships for high conviction investments.

The £20m committed alongside ICG Strategic Equity is part of a $1bn transaction backing the spin-out of Standard Chartered’s private equity team in Asia and comprising a diversified portfolio of over 30 companies. This transaction is expected to complete in the first half of 2019.