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High Conviction Investments High Conviction Investments underpinned by investments in leading Third Party Funds
Our strategy is focused on investing in mid-cap and larger companies that have leading market positions, strong management teams and attractive defensive growth characteristics. We believe they will generate the most consistently strong returns through the cycle. Our Portfolio combines investments managed by ICG and those managed by third parties, in both cases directly and through funds.
High Conviction Investments represented 48% of the Portfolio value (31 Jan 2021: 51%) and we anticipate these investments will represent 50% - 60% of the Portfolio in the medium term.
Our High Conviction Investments, which include 24 of our Top 30 companies, allow us to proactively increase exposure to companies that benefit from long-term structural trends and therefore have the ability to grow even in less benign economic environments. We are able to enhance returns and increase visibility on underlying performance drivers, and we mitigate the more concentrated risk through a highly selective approach and a focus on defensive growth companies. Over the last five years, this element of the Portfolio has generated a local currency return of 25% p.a.1
Third Party Funds represent 52% of total Portfolio value and were valued at £527m (31 Jan 2021: £468m). This element of the Portfolio provides a base of strong diversified returns as well as deal flow for direct and secondary investments. The underlying funds are focused on mid-market and large-cap European and US private equity managers. Over the last five years this element of the Portfolio has generated a local currency return of 18% p.a.1
ICG managed investments (27% of the Portfolio)
We invest in five of ICG’s 21 strategies. A key strategic advantage for ICG Enterprise is the proprietary access we have to deal flow from ICG, and the ICG portfolio is broadly split between funds and co-investments. Many of our investments include a mixture of subordinated debt and equity, targeting returns broadly in line with our usual equity investments, but the subordinated debt element significantly reduces the overall risk.
Third party co-investments (15% of the Portfolio)
These are investments directly into a company alongside a private equity fund. These opportunities enable us to proactively increase exposure to companies we have a high conviction will outperform through the cycle.
Secondary fund investments (6% of the Portfolio)
This is when we acquire an existing interest from a seller in a private equity fund that is already substantially invested. We favour funds that are at a stage when the underlying assets’ performance is visible.
All data at 31 July 2021 except where specified otherwise
1Annualised return for five year period ended at 31 July 2021