ICG Enterprise Trust plc (LON:ICGT) is the topic of conversation when Hardman & Co’s Analyst Mark Thomas caught up with DirectorsTalk for an exclusive interview.
Q1: Mark, I want to talk to you today about ICG Enterprise Trust but before we do, your report, it sits behind the disclaimer. Can you just remind us why that’s there?
A1: It’s a very standard disclaimer that many investment companies have. In essence, for regulatory reasons, there are some countries, like the US, where the report should not be read. In the UK, because private equity is not seen as a simple asset class, it should be looked at by professional and qualified investors. Page two of the report gives all the details, but it’s a very standard disclaimer and nothing to worry about.
Q2: Now, your report on ICG Enterprise Trust, it’s called ‘FY’26 results: look to future realisations.’, could you just give us a brief summary of that report?
A2: As expected, ICGT’s results to the end of January 2026, which showed the benefit of its defensive growth strategy, which focuses on high-quality companies, which in turn attracts through-cycle interest from buyers, see good operating company EBITDA and revenue growth through all economic conditions. It also means that the software exposure is relatively modest in size and is focused in areas that may benefit from AI adoption, rather than be threatened by it.
Now, multiple market dynamics are structurally favourable to further exits and while there may well be some quarterly noise around global uncertainties, medium-term realisations look good. That’s really critical to creating value and generating returns which are made to investors.
The discount appears anomalous to us with its performance, a conservative NAV, and the outlook.
Q3: Now, you say that it’s well positioned for future realisations and that ICGT’s defensive growth investing companies attract through-cycle interest. What is the outlook for exits?
A3: I’ll split it into two. So, medium-term realisations look like to be very strong. Industry-wide dry powder is very high, following large fundraisers of a few years ago and relatively modest deployment since. Now, those funds have to be deployed or returned to investors over the next few years. Importantly, the dry powder is concentrated in larger funds who are the natural buyers of ICGT investments. GPs seeking liquidity because their investors want it.
In our view, AI efficiency gains means that many more deals may now meet hurdle return target rates, whereas in the past they wouldn’t have been able to achieve them. PE has a very good track record of implementing digitalisation and the effective implementation of AI technology is a core incremental benefit that PE managers could bring to investing companies.
Specifically looking at ICGT, its defensive growth characteristics mean its investments are more likely to generate through-cycle cash, which this in turn makes them more attractive to larger PE buyers. You can see this in the FY’26 realisations, which at 25% of the opening portfolio were above the five- and 10-year average realisation rates of 22% and 19%, respectively.
Q4: What can you tell me about the exit uplift?
A4: Exit uplifts are a key element in terms of generating NAV growth and in FY’26, they were just over 10%, which is well below average uplift. By way of example, the average from FY’12 to FY’26 was over 30%. Now, this low level of uplift reflects market uncertainty, the impact of continuation vehicles as an exit route and they typically see exit at or around NAV itself. The inclusion of the unusually high 2020-21 tech-driven exits, the impact of interest rates and some very specific sector rating compression, such as in the software space.
Now, looking forward, a number of these factors are expected to unwind, and we expect exit uplifts to increase significantly, but probably not to the 30% level that we’ve seen in the past.
Q5: Could you give us a few words on the strategy delivering superior operating company EBITDA growth?
A5: In our note, we have a chart which shows ICG Enterprise Trust’s investing companies, private markets, and the FTSE All-Share EBITDA growth since FY’14. Now, ICGT’s investing companies have delivered 15% growth, that’s nearly twice the average level of the private company average and 2.5 times that achieved by the FTSE All-Share.
Our note goes into details how this has been achieved through the defensive growth strategy, which leads to investments in resilient cash generation, structural growth, and proven managements and how the portfolio is also managed in order to optimise these benefits.
Q6: Can you tell me about the risks with ICGT?
A6: There are always risks with investments. Most of the private sector is trading at a discount. As investors have been worried about the realism of the NAV and the prospects for PE in a higher rate environment and then a recessionary environment.
Now, we’ve addressed those concerns directly in previous notes, believing the NAV to be realistic, resilient, and explaining how the model adds value through all economic conditions. PE is an above-average cost business model, but post-expense returns remain consistently above private public markets. ICGT’s permanent capital structure is, in our view, right for its unquoted and illiquid assets.
