With a mission to democratise private equity investments, ICG Enterprise Trust’s Head of Private Equity Fund Investments, Oliver Gardey, explains that the firm aims to broaden access to and awareness of private equity.
Gardey has worked in the private equity arena since 1997, investing directly in funds and secondaries and then joining ICG Enterprise Trust in 2019.
The trust has around GBP1.35 billion assets under management, as at 31 July 2022. “Our mission is to democratise private equity and make it more easily accessible for everybody from small institutions to family offices, who like private equity and want an allocation to the asset class but can’t put an allocation together themselves.”
The minimum direct investment in these funds would usually be in the region of GBP5-10 million which, with diversification considerations, implies an investment pot of GBP150 million, meaning that access is only available for a small group of private investors, Gardey explains.
“Listed investment trusts allow investors to get exposure to an otherwise inaccessible asset class and have an immediate allocation to private equity. Altogether we have been investing in the asset class for 40 years, so we have the reputation and the tools,” he says.
“We have a clear investment strategy. We only do buyouts because we believe that it is less risky than venture, which has a loss ratio of over 60 per cent, making it a bit of a roulette wheel, while buyouts have a loss ratio of 10-15 per cent.”
The firm doesn’t invest in emerging markets either, focusing only on US and European buyout managers with top tier funds who have the resources in place to create value-add in their portfolios.
“Private equity is attractive because you can make a good company a better company, but you need resources,” he says. “We find fund managers, who have the track record, the expertise, the tool box and the resources to transform companies. We create relationships with those fund managers in order to invest with them and their best ideas. People like us as an investor because we are evergreen capital, long-term investors and partners with good access to top tier fund managers.”
Gardey explains that the Trust invests specifically in high-quality US or European buyout funds for 50 per cent of the portfolio, while the rest comprises co-investments alongside the fund managers in the best companies across the portfolio.
“What we try to focus on is defensive growth characteristics in companies,” he says.
“Our top 30 companies have a defensive growth characteristic – they are companies that are not cyclical and which are market leaders in their space. They typically have a business model which makes them defensive, either through technology or brand or market positioning.
“For example, this could include software companies where you have a client base on a subscription that constantly renews because you are providing something that no one else can do,” he explains. “It’s highly defensive but we also want to see businesses that are growing.”
The long-term performance of the fund stands at 16.9 per cent per annum return over the last five years on average. “We typically generate mid to high teen returns on a very resilient basis,” Gardey says. The broader economic backdrop has proved challenging, but Gardey says the fund was up just over 10 per cent in the first half.
Over 45 per cent of the portfolio is in companies which have achieved over 25 per cent EBITDA growth in the first half of the year, despite the recent market volatility and the drawdown.
ICG Enterprise Trust also tends to be conservative on its valuations and on average generates a 30 per cent uplift to carrying value at exit.
“We have no exposure to venture or high-flying technology companies which have been hit hard this year – we only look at companies that are cash flow positive, high-quality and display defensive growth characteristics,” Gardey says.
“In general, we are well placed for institutions and family offices. As private equity knowledge increases and people become aware of the industry’s long-term outperformance vs listed markets, more investors will want to get access to private equity.”
