ICG ENTERPRISE: Private equity management does not have a good reputation – but this trust isn’t an asset stripper
Private equity management does not have a particularly good reputation, given its ruthless pursuit of profits – often at the expense of people’s jobs. But it is an image Colm Walsh wants to dispel.
Walsh, part of the investment team that manages the £600 million private equity trust ICG Enterprise, believes private equity is often a force for good, enabling companies not listed on the stock market to access finance that enables them to expand and in time become more profitable.
‘As an industry, we are not good at articulating what we do,’ says Walsh. ‘As a result, there is a lot of negativity about us being asset strippers. But that is not what we are all about.
‘We are interested in investing in cash generative businesses – often companies that are not that exciting from the outside and quite defensive – and then at some stage exiting, hopefully making a gain on our investments in the process. Good for the business and good for our shareholders.’
The trust is one of a number of funds run by Intermediate Capital Group, a FTSE 250-listed company that manages assets of £35 billion across equities, private equity and credit.
Its performance record is more than respectable with shareholder returns over the past five years of 63 per cent, in excess of the 34 per cent gain registered by the FTSE All-Share Index.
Typically, the trust’s approach is to invest in private businesses via private equity funds managed by specialists such as TDR Capital (UK based), New York-based Leeds Equity Partners, PAI Partners and Advent International.
The funds target the companies they want to invest in. ICG Enterprise then often supports this indirect fund investment with a direct stake in the business themselves.
So through TDR, it owns a slice of successful health and leisure business David Lloyd while via Leeds, it has a holding in Endeavour, an operator of private schools in the United States. It also has separate stakes in both businesses.
‘David Lloyd is a business in growth mode,’ says Walsh. ‘It is expanding operations across Europe and is thriving on the back of a boom in good health.’
He adds: ‘Endeavour is benefiting from the growth in private pre-school education in the US. Both businesses are resilient, are growing as a result of demographic change, and are capable of expanding through economic cycles. They are also not start-ups which means the risk of failure is lower than say in a venture capital fund.’
The big profits, as far as ICG Enterprise shareholders are concerned, come when the trust can realise some of its investments, maybe as a result of a business either seeking a listing on the stock market or being sold.
Potential investors need to be aware of two other key facts.
First, the trust pays a quarterly dividend, equivalent to a modest annual income of 2.5 per cent.
Secondly, the trust’s shares are currently trading at a sizeable 17 per cent discount to the value of the underlying assets, a reflection of the fact that private equity is seen as a risky asset class.
The trust’s ongoing annual charge is 1.4 per cent and its board is chaired by Jeremy Tigue, former manager of the world’s oldest investment trust Foreign & Colonial.
When launched in 1981, the trust was known as F&C Enterprise before F&C’s venture capital arm was bought out by management and it was rebranded Graphite Enterprise. Graphite – the wider business –was then bought by ICG in late 2015, resulting in the trust being renamed ICG Enterprise.