ICG Enterprise Trust PLC (ICGT) Earnings Call Transcript & Summary

Good morning, and welcome to ICG Enterprise Trust full year results for the 12 months to 31st of January 2024. I'm joined today by Oliver Gardey and Colm Walsh, who will discuss our investment performance and activity in more detail over the course of this presentation. The slides of the presentation, along with the accompanying results announcement are available on our website. As a reminder, we will have time for Q&A at the end of this presentation. [Operator Instructions] With that, Oliver, over to you.

Thank you, Chris, and thank you for all of your time this morning. We are -- as Chris mentioned, pleased to announce today our full year results for the 12 months of 31 January 2024, where the ICG Enterprise Trust NAV per share grew by 2.1%, and our share price rose by 9.6%. After 14 continuous years of double-digit growth, we were not able this year to deliver another year of double-digit growth in the portfolio NAV. However, as you will see later in the presentation, we are happy with the performance of the portfolio and the slower NAV growth rate last year is mainly due to a significant drop in the share price, FX impact and fee realizations than our historic norm. Those realizations usually give us a significant uplift or growth in our However, we are very confident that we will normalize back to our historical NAV growth due to the strong underlying growth of our portfolio and a more dynamic private equity market. And we'll talk about this more, and we'll discuss this more in detail later in our presentation. As you know, private equity is a long-term investment, and therefore, we hold ourselves accountable to deliver long-term returns for our shareholders. And if you look at over the last 3, 5 and 10 years, we have delivered double-digit NAV per share total return growth. And analyzed over the last 5 years, we have recorded an NAV per share total return of 14.6%, which far exceeds the FTSE L share index total return, which delivered 5.5%. And over the next 30 to 40 minutes, we'll take you through how we achieve these returns and dive deeper into our fiscal year '24 results activity. But before we do that, I wanted to start off describing our investment strategy as a reminder for those unfamiliar with us. The ICG Enterprise Trust invests in profitable cash generative private companies in North America and Europe with the aim of generating defensive growth over the long term. And as you see here on the slide, there are 5 pillars on the left-hand side. And as you know, private equity is an asset class, which has some risk. But it has been the best performing asset class amongst all asset classes looking at from a long term. So what our strategy is very much defined and designed is to take risk out of the asset class without compromising the returns. And here, this slide provides a little bit of that secret sauce and how do we do that. First of all, we only invest in buyouts, which have significantly lower loss rates than venture capital or growth equity. We invest in developed markets. We only invest in the U.S. and in Europe, and we include in Europe also in the U.K. And that -- the reason for that is because those markets are deep in regards to experience of managers, in terms of deal flow pipeline as well as in terms of liquidity, which is a key risk factor within private equity. And so those markets provide us with those -- with that infrastructure. And then we only invest in mid to large managers because those managers, private equity is all about transforming good assets to world-leading global market leader market-leading companies. And in order to do that, that takes a lot of resources, which mid to large companies or firms usually have the ability and make capital and the strength to have those resources in place. And that's why we like to invest in mid- to large funds. And then the last 2 pillars you see here is really how we generate alpha and how we generate returns. First of all, we invest only in top-tier managers -- there is a big dispersion between top-tier managers and bottom quartile managers. But due to our experience, having been in the market for a very long time, we're very much part of the DNA of the private equity industry in the U.S. and Europe. And therefore, our access is exemplary. And we get access to the top managers, as you can see in the list of our managers we've invested over the years. And the last part of the pillar is that we have a very -- we have a dedicated investment team. So we pick our best ideas amongst our managers. We only -- 50% is invested in managers and the other 50% is discretionary where the investment team has the ability to select the best ideas and coming from our managers through co-investments and allows us to actively construct our portfolio with defensive growth characteristics. And you will see as we go through the presentation, what that means. Moving on to the next slide. How does that -- if the previous slide you can think of was the input, you can think of this slide as really the output and the results of our active portfolio construction. As you know, we are constantly striving to find the right balance between reducing risk. We do that through diversification and through the pillars we talked about in the previous slide, and picking the best ideas from our fund managers in order to create strong risk-adjusted returns. And our portfolio today is comprised of over 500 private companies, which provide the portfolio and our investors a high degree of diversification. However, on the other hand, as you can see here on the top -- our top 10 companies represent about 18% of the total portfolio value. The top 30 companies represent almost 40%, and our top 50 are just below 50% of the total portfolio value. An interesting stat for you is that all companies in the top 30 with the exception of Leaf filter are co-investments or secondary transactions, which the ICG investment team selected at their discretion. And I think this provides a great data point and proof that the ICG at the Enterprise Trust portfolio has a high degree of active portfolio construction done by a dedicated investment team. As shown by the bottom 3 graphs, we have built a broad and well-diversified portfolio across geography, investment type and sectors. And we are continuing to -- we like very much that competition, and we continue to follow that as a very clear investment guideline. And on the bottom right, whilst we do not pursue a sector-specific investment strategy, we're looking for companies with defensive growth characteristics, but you see that has created a portfolio that currently the top 3 sectors in our portfolio are well spread across technology, consumer and business services. Moving on to the results. And the next few slides will take you through the fiscal year '24 results. There are really 4 key takeaways. First, our underlying portfolio companies continue to report strong operational performance. We're recording 11.6% revenue growth and 14.2% EBITDA growth over the last 12 months. And this underlying robustness of earnings is crucial in the growth of our portfolio companies, which in turn will result, as you know, in the growth of net asset value for the Enterprise Trust. Secondly, our portfolio companies continue to being sold at significant uplifts. This continues a long continue -- this is a long continuous trend of selling portfolio companies at an uplift to carrying value. And we believe this is a very good evidence and data point demonstrating the robustness of our valuations. And thirdly, our investment strategy, our strong relationships and our well-capitalized balance sheet allow us to maintain our investment program through cycles, and we will dive into those 3 components throughout this presentation. And finally, as we look forward, -- we expect a measured increase in transaction volumes this year, both in terms of quantity and exit activity and also larger-sized companies exiting. With interest rates peaking, we see the capital markets being a lot more active. And therefore, a more active private equity market will help to refire the sector, thereby improving realizations and supporting valuation levels. Let's put the year into numbers. Our portfolio grew on a local currency basis, 5.9% and on a sterling basis, 3.2%. That has translated in a share price total return of 9.6% over the year, helped by a robust performance, investor sentiment proving across the private equity sector. The shareholder returns were supported by a dividend of 33 per share, which is an increase of 10% year-on-year and the 11th consecutive year of ordinary dividend per share increases, and this is also supported by our long-term share buyback program, which delivered over $13 million capital returns in fiscal year '24 and which we intend to continue on a long-term basis. Furthermore, the Board has -- is also announcing today an opportunistic share buyback program to take advantage of current trading levels, and Chris will discuss this in more detail. And finally, as I mentioned before, our 38 full exits in the last year were exited at an average uplift of 30%, which should give shareholders additional confidence in our portfolio valuations. On this slide, I'd like to -- on the next slide, I'd like to outline some of the key operational financial metrics of the underlying portfolio, which demonstrates the resilience of our managed portfolio. The top row represents our 30 top 30 companies, and the bottom row covers what we call the enlarged perimeter where amongst our peer group, we give you the most detailed look through into our portfolio. Our enlarged perimeter covers 2/3 of the total portfolio value, and we introduced this last year on the back of shareholder feedback. As you can see here, they're broadly consistent and reflecting broad-based growth -- broad-based growth across the portfolio. Our portfolio company are growing revenues at 11.6% and on EBITDA in terms of 14.2%. As I mentioned before, we're quite happy with this performance considering the tougher macroeconomic environment in the past 12 months. And we believe the strong performance points to the defensive growth profile of our portfolio and what we have actively constructed. Let's touch on valuation metrics. The weighted average EBITDA multiple was 14.6%, while average net debt stayed constant at 4.6%, which we think is prudent, both in the context of the wider private equity market as well as in light of the operational growth the portfolio is delivering. However, you might ask yourself, why does this strong underlying portfolio performance does not quite translate into double-digit NAV growth or better NAV per share performance this year last year. And in order to solve this disconnect, we thought it makes sense to show you on the next chart in more detail the effects on our portfolio return. And there are 3, as you see on the next slide, there are 3 notable impacts. First is currency, which impacted our returns by 2.7%, our portfolio return on a local currency basis was 5.9%. And as you can see, negative foreign currency movements reduced that number to a portfolio return on a sterling basis of 3.2%. I may add that we do not expect much foreign currency impact for Q1 this year since the dollar on the euro on a sterling basis have remained roughly stable.. Let's talk about the portfolio more if we unwind our portfolio some more and look at the left-hand side, you will note 2 other effects this year. First is the decline of the public share price of Chewy. And then the second is the secondary sale we executed in December 2023. Let's talk about those 2 impacts on Chewy. The share price has fallen over 60% over the financial year, even though it has continued to grow revenue. It now represents only 1.4% of our portfolio. We're obviously disappointed with this development, but we remain happy with the investment. Chewy PetSmart delivered the 3x investment cost at the current share price, which is at its historical row. On the secondary side, once in short term, this reduces our portfolio in this case by 1%, we expect to see that over the long term, redistributing the GBP 68 million gross cash proceeds received into investments with higher go-forward returns. And this will, over the long term, more than make up the 1% effect on NAV and it makes our balance sheet very strong to capture the interesting investment opportunities we see. So if you combine those 3 effects, foreign currency, Chewy in the secondary sale, they show that absent these effects, we estimate our portfolio return on a local currency basis to be 8.7% as the remainder of the portfolio continues to perform well and as we noted on the previous slide. With that, I will hand over to Colm to go through more detail.

Thanks, Oliver, and good morning, everyone. In the next few slides, we're going to take a look at what happened over the last year in the portfolio as we got used to higher interest rates, greater global instability and enhanced pressure on consumers. This chart shows you the life cycle of private equity investments and hopefully fairly intuitive. We're going to use it as a framework to break down this year's activity. So what are other phases? Well, 3 of them are common to most asset classes, new investments, growth over our holding period and ultimately selling. And one which is specific to private equity is making new commitments to funds. And this board step allows us to continue to invest alongside the world's best managers. And of course, they're interdependent. -- proceeds are used to support new commitments to make new investments and in turn, these are used to feed future realizations. And this year, as Oliver mentioned, the COGS turned a little slower global M&A volumes responding to more volatile and higher rates as well as macroeconomic volatility meant that overall M&A volumes fell, although as Oliver also mentioned from where we stand today, there are some signs of return to more normal levels of activity. Our activity in the year on all fronts was relatively strong despite the market backdrop. Good companies were still sports and sold, great managers still raised funds. And as Oliver has outlined, our companies continue to grow. So let's now have a look through some of the underlying activity. Turning first to new commitments, sowing the seeds for our future investment program. During the year, ICG Enterprise Trust made GBP 153 million worth of new fund commitments. Now the global buyout fundraising market in the year was very skewed. Much of the campus we raised was for larger funds. And as a result, the average fund size increased average fund size was based increased, but the number of funds raised reduced. And what that meant in practice for the vast majority of general partners or private equity managers, it remained a difficult fundraising environment. Now this benefits investors like us. We have an evergreen capsule structure. We have a well-capitalized balance sheet. It means that we can continue to access the highest quality managers in the size we want and also allowed us to gain more favorable terms. And looking ahead, this is going to improve our opportunity set for both direct and secondary investments as underlying managers seek to become more investor-friendly in a crowded market and as investors search for liquidity. Now our commitments this year, you can see the logos on the side, give us access to an extremely attractive selection of managers, most of which are not household names unless you happen to live in the woods or guard households. We introduced 2 new managers to our portfolio, ALDA and Genstar, as you can see from the Astrixes and both of which we've been tracking for a very long time. And both also have a very strong connection to the ICG to other parts of the ICG platform. And being on the ICG platform is really helpful to us as an investment team to help us access and also to assess new managers as they come on board. Among existing manager relationships, these are top-tier managers with long track records of delivering resilient returns across multiple economic cycles. And most of these will also offer us co-investment opportunities. It's worth noting, too, that they are long-standing partners to enterprise trust. We first invested alongside ICG 35 years ago, Sinvan 18 years ago, Bomarc 20 years ago. So a very long-standing and successful partnerships. Now all of these new commitments, we will expect -- we expect them to be drawn down over the next 3 to 5 years. And as I said, they plant the seeds for the next cycle of investments. And as we move on from the recent macroeconomic challenges, we believe this could be a good time to allocate capital. So having looked at recent activity, I actually wanted to take a little bit of a step back and look at a case study covering our primary program, I'm conscious it's all too easy to focus on new investments and never update you on the performance of recent decisions. I'm sure when I was delivering this equivalent webinar 2 years ago at a time, just to remind you, when the Ukraine war was breaking out, inflation was worsening. I probably also said it was a good time to be allocating capital, and I probably also talked about these commitments selling the seed to future growth. And naturally, at the time and subsequently, there's been quite a bit of investor trepidation about what was the company's commitments, and we're frequently asked what we think about that investment activity. But as you can see from this slide, these commitments made 2 years ago, they're now 70% call, that's broadly in line with what we would expect. Though currently marked at almost 1.4x cost with plenty of scope for future growth given their relative immaturity and they have a 23% net IRR. And this resilience is performance over a turbulent 2 year period is testament to the quality of our pool of managers, resulting in a strong portfolio with that theme of defensive growth running through it. And much like this year, you can see, too, was a combination of continuing to back existing managers, long-standing managers like TJC and BC. But in that year, we also identified some new names such as Bregal GI and GHG. So now looking into the DeLorean, back to the future, we'll actually more like the recent past to our recent new investments. So in fiscal year '24, we deployed GBP 137 million, and that was spread across all 3 of our core routes to market being primary, direct and secondary. Now that's a lower amount than the record years in fiscal year '22 and '23. But as you can see from the bar chart, it's broadly consistent with years '20 and '21, and it reflects the global slowdown in M&A. What we sought to do is to balance prudent balance sheet management as well as share buybacks with the ongoing evolution of our investment program. You can see the largest underlying new investments in the period and the panel to the right, and they're really strong examples of the kinds of companies we like to invest in, and they are all with the exception of PerkinElmer direct investments. So just to give you a little bit of a flavor in terms of the largest underlying new investments. We have Archer, which is a developer of governance, risk and compliance software. That's alongside Cinven, one of our very long-standing managers, which I referenced earlier, we have Ping Identity, which provides in the jargon intelligent access management solutions, more simply software, which keeps company systems secure, safe and accessible. That's alongside Tamabravo, a relatively recent addition to our pool of managers and a really acknowledged market domain leader in this space. And Atlas Technical Consultants another quite -- because it's a boring company, but what it does is it provides professional testing, inspection, engineering and environmental services tick in the jargon. And that's alongside another recent manager of addition in GI Partners based in San Francisco. These are all quite different businesses, but they have many things in common. They have strong defensive business models. They have strong market positions, and we believe that they will continue to have the ability to grow even in difficult economic environments. And that's largely because the underlying demand is driven by strong external growth factors or secular growth factors. And they're also alongside high-quality managers, each of which has got demonstrable domain expertise in these sectors. Now they're all off to a good start. We remain confident in the respective investment thesis. And we hope you will see in the years to come to extend the gardening analogy, but they will continue to bloom. So the commitments have been made, the cash has been deployed and now to discuss growth and value creation in the portfolio. And as you can see, ICG Enterprise Trust portfolio grew by GBP 83 million over the 12 months to 31st January 2024. This growth was broad-based across primary, direct and secondary. Direct and secondary slightly outperforms our primary program, and that shows the benefit of having that active fund management approach, which Voliva has outlined. Companies that did particularly well in the year include Newton, Minimax crucial learning. You'll see those in our top 30. And all of these top performers, again, benefit from strong underlying growth trends, and that allows them to continue growing even in a relatively difficult economic environment. And again, these were all direct investments where we've been able to increase our concentration in our managers' best ideas through direct investment. Just to pick on one example, I mentioned crucial learning. It's a really good example of the private equity model in action. It went into COVID back in 2020 as an in-person training business. So you have to physically go to their training seminars. They're a training provider. And unsurprisingly, that was not sustainable through the 2-, 3-year period of disruption which followed. So working alongside leads equity, its manager, the company was able to pivot into being a digital business. And that in force shift expedite the change, which the company expected to happen over a much longer time period. But the good news is it leaves us with a much more resilient business with greater growth prospects and higher quality of earnings. It's a really good example of how private equity helps to grow the transition businesses. As you can see on the chart, there were some negative FX movements in the portfolio a sterling appreciated slightly against both the U.S. dollar and the euro. And in terms of portfolio cash flow, investments of GBP 137 million, total proceeds of GBP 239 million meant net-net cash of GBP 102 million, leaving the portfolio value of just under GBP 1.35 billion at the 31st of January 2024. Now as a reminder, when we joined ICG back in 2016, 8 years ago, that portfolio value was just GBP 428 million, so a significant change in the scale of the portfolio since. Moving on to the fourth and final phase, realizations, so harvesting those seeds that were planted to extend the terrible gardening analogies. During the period, ICG Enterprise Trust received total proceeds of just under GBP 240 million, and that includes GBP 68 million of cash proceeds from the secondary sale, which was mentioned earlier. As stripping this out, the underlying realization proceeds were GBP 171 million. Note -- it's been well documented across the industry and just more generally, that the exit environment has been {indiscernible]. And that meant that our realization proceeds over our opening portfolio value. It's the metric we look at to assess the level of realization activity is significantly below our 5-year average. It's not ICG Enterprise Trust specific, and you will see this trend reflected in global M&A volumes. And we are, however, as Oliver mentioned, cautiously optimistic about the exit environment over the next 12 months. We are beginning to see some green shoots, particularly reflected in some realisations of the larger companies. You can see some of the logos of our exits on the right of the slide, Endeavour Schools which you probably heard us talking about in the past, a provider of Montessori schools in the U.S. That was our largest underlying realization in the year, having been our third largest portfolio company at the beginning of the year. Other realizations, WCT, which supplies outsourced clinical research services, Signify Health, which provides technology-enabled health care payer services, really a good example of a company acquired by CBS, a large U.S. strategic buyer, sort of a company that was able to attract a premium valuation even in a really difficult market. And finally, Brightline, which many of you will be aware of, not which manufactures luxury watches that was sold by CVC to Partners Group. So lots of different sectors, lots of different business models, but a core theme this year that was that whilst transaction activity was low, high-quality companies were still sold and our long track record of achieving significant uplifts on exit was maintained, which is a really good segue into the next slide. And we appreciate the concern investors often have over valuations. There are, of course, ultimately estimates. We continue to have high confidence in the institutional strength and the rigorous approach implemented by the kinds of managers that we back. But nevertheless, we accept that one of the best proof points is the performance on exit. In the year, we completed 38 full exits at a weighted average uplift to carrying value of 30%. And as you can see from the chart, that continues a long-term trend of realising companies at a significant premium to the previous carrying value. And not only of these companies delivered a significant uplift, they've also delivered a weighted average multiple to cost of 3.5x, crystallising very strong returns, as I say, in a weaker economic environment. Now this is a slightly higher multiple than what we've historically experienced. And it does reflect what I said a second ago. This was a period where there was a high degree of selectivity with very high-quality companies sold at premium valuations. And as you can see, taking a step back, this is a 12-year track record of consistent uplift to carrying value and consistent strong multiples. We believe this demonstrates the quality of our investments, which, as I say, continue to find buyers even in challenging markets. So with that quick tour through the year. I'm going to pass back to Chris, who's going to discuss how we aim to deliver for shareholders.

So turning now to how we, as manager and also the Board think about delivering shareholder value. We can progress together in 4 pillars as it were, broken down into 2 parts. First of all, optimizing the NAV return and then secondly, aligning the shareholder experience as closely as possible to that NAV return. So to start with the investment strategy, delivering defensive growth through cycles. And Oliver and Colm have spoken about that already today. Secondly, cost base. We recognize that we need to be efficient from a cost perspective to minimize the gross to net spread. And this year was the first year where our fee cap or capping management fees at 1.25% of NAV was in place. And we also had an enhanced cost sharing arrangement between ICG PLC as manager and ICG Enterprise Trust. In aggregate, we estimate that those 2 initiatives have saved shareholders almost GBP 2 million in FY '24. Then moving on to capital allocation. Thus far, we have had 2 components of returning capital to shareholders, firstly, a progressive dividend policy; and secondly, a long-term share buyback. Today, the Board is also announcing a new third component of shareholder distributions for FY '25, which I will speak about in more detail later. And then fourthly, a real focus on effective messaging and shareholder engagement. We have enhanced our shareholder relations function. We have improved our communications, and we have increased the portfolio transparency in recent quarters, and we are actively meeting many more of you up and down the country. This more frequent engagement, we believe, is integral first of all, to talk more generally about private equity to explain our investment proposition and then to talk about how ICG Enterprise Trust may fit within your and your clients' portfolios. So focusing specifically on shareholder distributions. This year, we have returned GBP 35 million of cash to shareholders through dividends, which have totaled GBP 22 million and GBP 13 million in buybacks. We recognize that capital appreciation is likely to be the core driver of long-term growth for shareholders invested in ICG Enterprise Trust. But clearly, there is an increased focus on ensuring that capital allocation between reinvesting in the portfolio and returning cash to shareholders is thought about in a deliberate and effective manner. So focusing firstly on our progressive dividend policy, which has been in place since 2017. Today, we are announcing a fourth quarter dividend of GBP 9 per share, which brings the total dividend for FY '24 to GBP 33 per share. This is a 10% increase on the prior year dividend and is the 11th consecutive year of ordinary dividend per share increases. Secondly, as you can see on the right, the bottom right box on this page, our long-term share buyback program, we were early movers in our sector when we announced a long-term buyback approach in October 2022. And since then, we have been in the market for over 115 separate occasions, buying back nearly 2 million shares or GBP 22 million worth of shares at an average discount of nearly 40%. We spoke then about the aim for it to be to support liquidity in our stock and to increase the effectiveness of the share trading. We believe it is achieving those aims and is being executed successfully. Both the progressive dividend policy and the long-term share buyback program are being maintained. In addition, we're announcing a third component to date for FY '25, an opportunistic share buyback program of up to GBP 25 million. This will run alongside our progressive dividend policy and long-term share buyback program and will enable us to take advantage of current trading levels, where the opportunity to purchase shares in meaningful size and that a significant discount present themselves. These 3 components taken together alongside our thoughtful approach to investing in new opportunities, new investment opportunities, we believe are an attractive form of shareholder return, a deliberate approach to effective allocation of capital and also demonstrate a nimble approach to how we think about reacting to changing market environments. With that, and just talk about our balance sheet and to wrap up, I'll pass back to Oliver.

As we near the end of our presentation, I just wanted to make sure that we cover also our balance sheet and I'll give you an idea how well capitalized it is. In terms of total available liquidity, we have a net cash position of GBP 11 million, and this is supported by a credit facility of GBP 185 million, which was renewed last year and matures in 2027. And this means we have a total available liquidity of GBP 196 million. We also have a low over-commitment ratio of 28%, which has been pretty consistent with our 5-year average of mid- to high 20s, but is significantly lower -- is a significant lower over commitment than our peers in the sector. And then finally, our net gearing is just below 0 is about minus 1%, is much lower also than most of our peers in which we believe this leaves us in a good place to benefit from our pickup in the investment activity levels as well as allows us to effectively support our share buyback program. So in summary, we think our balance sheet is incredibly well capitalized and enables us to maintain the investment program through cycles as well as, as I said before, support the share buyback programs we announced in October, and we announced today. Let's wrap up. Fiscal year '24 has been another year showing defensive growth in action and where our portfolio companies have delivered compelling operational performance, and we continue to realize assets a meaningful uplift to carrying value, which gives us a lot of comfort and confidence in the value and the quality of our portfolio. Given all this, we believe we offer a very compelling shareholder proposition here. Let me summarize which is, I think, summarized well in those 5 points, but let me highlight 3 points in particular. First of all, private equity is a very attractive market, and it has been the best performing asset class over the long term. And therefore, private equity continues to grow with large institutions and sovereign wealth funds increasing their allocations to the asset class. And furthermore, looking at the outlook for the private equity investment environment remains very positive as interest rates seem to peak and the economy in the U.S. and Europe continue to show robust growth. And this has really translated in an increase in deal activity, which is very noticeable already, and we're very confident that realizations will improve over last year. I would like to also highlight that our dedicated investment team allows us to actively construct the portfolio with the strong defensive growth characteristics we talked about. And we constructed a defensive growth portfolio, giving you access to mature, profitable cash-generative companies, which we believe have the sufficient underlying fundamentals to allow the portfolio to grow in good times as well as in bad times. We have -- and just to highlight again, we have no exposure to more risky assets such as venture capital and growth equity. And finally, there is strong alignment. All members of the Enterprise Trust investment team are personally invested in the trust. Our Board members and the employees of ICG plc hold over 0.25 million shares in the ICG Enterprise Trust. And therefore, we believe strongly that the ICG Enterprise Trust is an excellent way to tap into one of the most important and best-performing asset classes with the additional benefit of the daily liquidity of a publicly listed company. And with that, I'd like to now conclude the presentation, and I'd like to thank you all for your time today. And Chris, Colm and I will now take questions. Chris, do you want to -- over to you, Chris.

Marvelous. Thank you very much.[Operator Instructions]. Firstly, on outlook, you mentioned a couple of times that you expect to see an increase in activity over the coming quarters. Could you give some more color on what's driving that thinking whether expecting a rapid pickup and how we should think about that increased activity flowing through to your investment portfolio and your investment activity in the coming quarters. Oliver, do you want to take that?

Yes, sure. So we don't see it -- we don't expect a dramatic increase. We're thinking more of a measurable -- definitely measurable increase we are not expecting or we are underwriting that we're going to get back to historical loans. But we certainly -- we're very confident that we'll be above the 12% to 13% and approaching closer to 20% of NAV. What drives it? First of all, and most importantly, is just overall confidence in the environment and the economy, particularly driven by the interest rates peaking, which gives our fund managers and sellers as well as buyers more confidence in terms of underwriting their companies and they're having more visibility and pricing in the capital -- the cost of capital. And that's kind of what really is driving it. And we're seeing that the capital markets are a lot more active in particularly where we're seeing good green shoots is that the -- if we look at what is in process being sold already has liquidated in Q1, Q2 is significantly higher than it was last year at this time. That is -- that's what -- those are kind of the main factors giving us confidence.

Perfect. And flowing on to that and maybe another one for you or Colm, are you seeing either in the investment company -- either in the portfolio company performance or in the investment landscape, a difference between the U.S. and Europe? And if so, how is that -- or is it impacting your allocation, your investment decisions today?

We do see a slight difference. We do see U.S. being just overall as a market more robust, more robust from -- for a couple of reasons. One is from a macroeconomic perspective, it's more robust and growth is stronger. And we -- but at the same time, you're probably seeing there's a little bit more of an inflation risk. What we also see, and this is why we always have -- our ambition has been over the -- since we joined ICG over the last 5, 6 years is to really grow our U.S. allocation. It's also that -- and the reason for that is not just because it's an attractive macroeconomic environment, but it's also the market with the deepest expertise of our managers and just a lot more liquidity in selling and buying and more activity and selling and buying companies than in Europe. That does not mean that we are down on Europe. We see some excellent companies coming out of Europe and great opportunities. It's just less dynamic than the U.S. for many of the reasons, macroeconomic reasons you're probably aware of.

Maybe Colm one for you. In terms of the new transactions that you're underwriting are seeing and being under act today, a period of higher interest rates, when you're looking at the expected return profile of new investments, are you seeing -- are you expecting other go-forward returns from investments you're making there in a higher rate environment compared to what you're making 3 or 4 years ago before the rate cycle turned?

That's obviously a very good question. Of course, as private equity investors, we would much rather rate had stayed at close to 0 forever, obviously. What I would say, though, is I think we've been able to broadly maintain our target expected returns. {Indiscernible] you are obviously losing something from rates getting higher, there continues to be a number of sources of growth from a lot of the investments we're looking at. So if you take sectors like cloud-based software, actually, and listen, no presentation this day and age is complete that mentioning AI. But I am going to mention it because it is a source of growth, which, to some degree, compensates you for what you're losing from the higher rates. So what we're seeing is, if you're able to pick the right sectors, there's still significant innovation on the technological front that's able to drive lower margins or higher margins, which means that we can still to a large degree, maintain target returns. So we remain very confident. And actually, we're seeing at the moment, as I mentioned, it's a very good market for private equity investment because on the direct side, we're getting much more opportunity from managers wanting to preserve their funds for longer because of the difficult fundraising environment and also more generally wanting to be more LP friendly.

There have been a couple of questions on buybacks, which maybe I'll take and then Oliver feel free to jump in. The first one is around capital allocation between buybacks and investing in our current portfolio and our future commitment coverage. So the first observation I'd make on that is just to reinforce what Oliver said, around the strength and robustness and well capitalized nature of our balance sheet. So we obviously spend a lot of time thinking about the economic benefit of the short-term benefit of buybacks versus the longer-term benefit of investing in making new investments and continuing to grow the portfolio. We have relatively low net gearing, very comfortable over commitment ratio today, which gives us confidence that we can add this extra GBP 25 million of opportunistic buyback program alongside our dividend policy and the ongoing buyback without using without having to grow back our investment program, our investment program. So we view this -- we have a benefit of this strong balance sheet that's enabling us effect do more today than historically. The second question is just to clarify the difference between the long-term buyback program and the opportunistic program. I think that's a very, very good question. The long back buyback, the long-term buyback program is designed to have relatively small tickets relatively frequently. As I said earlier, we've been in the market over 115 times since we announced it. And we stated when we announced it, then it was at any discount to NAV. And that's continuing for the for the foreseeable future. The opportunistic program that we're announcing for FY '25 is really to make it clear to the market and to be there in the market if there is an opportunity for us to purchase a substantial number of shares at a meaningful discount to NAV. So you would expect us, if we use it to use that program less frequently and in bigger size, Clearly, there are -- there will be transactions where it's gray around which one it goes into, but it's designed to be bigger numbers, less frequently to take advantage of the discounts that we're seeing today and to invest in our very attractive portfolio at meaningful discounts in inside. The final question so far is around visibility on increased activity and Oliver made for you to wrap up on. Do we see this increased activity focused on direct and secondary investments? Or do we see it more coming from calls of primary mental commitments that we've already made.

We see it actually from all 3 areas. So we do see on the primary fund side, we see more transactions being in the market to be sold. And there is also quite a lot of pressure on the fund managers to kind of come back to their historical levels of realisations. As the last 12 months to 24 months were obviously at a historical at a fairly below historical norms. So there's pressure on the managers to create realisations. At the same time, we're seeing capital costs going up. And on co-investments as Colm mentioned we're seeing a lot more common investments as the fund managers are trying to be more investor friendly as well as preserving their fund sizes for a longer period. And on the secondary side, we see -- continue to see a good pipeline as on the other hand, the LPs, the investors in private equity. They want to continue to invest in private equity, but their allocations have gone up because of -- as a percentage of the overall assets because lower realizations and valuations staying strong. And therefore, in order to continue to invest in private equity, a lot of those investment managers or limited partners, investors in private equity are trying to find ways to reduce and restructure -- not restructure necessary, but in terms of reallocate their NAV invested in private equity through secondary transactions. So we see it really from all 3 areas, an increase in activity.

Perfect. Thank you very much. Thank you all for your time as there seems to be no further questions. That concludes today's session. And we hope -- we look forward to speaking to many of you in the coming days and weeks and to see as many of you as possible for our shareholder seminar on the 18th of June. Many thanks.