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

Welcome. Love this room. Great bad view, so if you get bored, you have a nice view year to look at. Thanks for your interest, and thanks for coming to our Shareholders' Seminar. We thought we'll do this year something slightly different, something a little bit more interactive around the table and give you a market update on private equity in general, Enterprise Trust. But we also are very excited to pick up 2 very specific topics. One is Mark will talk -- my colleague, Mark from ICG. He is one of the senior executives of the private credit team and will talk about private credit and the financing markets and private equity. So I thought that was particularly addressing questions around capital -- cost of capital and how refinancing -- how big the refinancing risk is within private credit -- sorry, within private equity. So Mark will dive deep into that topic. So we're very excited about that. And then I will talk about secondaries because that's also a key focus of a lot of the meetings we've had with shareholders. So we thought those are 2 topics where it makes sense to kind of dive in more deeply. I'm also joined by my 2 colleagues, Liza and Colm, who will discuss more about the Enterprise Trust, where we are, our strategy, strategy at work. And then Jane will give -- our Chair, Jane, will give an introduction. Before we -- a couple of housekeeping things before we kick it off. We'd like to do this interactive usually, but because we're doing a hybrid, we have people online, what we would like to do is go through the presentations pretty quickly. There's a lot of content. We'll try to get it through within 1 hour and then have a Q&A for everybody open, so that also online, our investors and people who are participating online can join us. With that, I will -- let's start off with the first slide. You have a book bundle in front of you. I just want to talk a bit quickly about the key takeaways before we start with Jane's introductions. And I'd like to highlight 5 key takeaways, which hopefully, during the presentation, as we're diving a little bit deeper on those topics, we will come away with understanding how we feel about private equity first of all, then we have a very differentiated investment team, a differentiated investment strategy, but most importantly, that we have a dedicated investment team which really helps us to construct a portfolio, and we'll talk about that in a second. Our goal is to provide compounding growth for our investors in a very consistent and constant way. Having that kind of dedicated investment team allows us really to construct that portfolio, which gets us to the second point, so our operational performance. And we're very -- quite happy with the portfolio we've picked and we'll share some data with that. Mark will talk about the debt markets. But the good news is it looks like debt and cost of capital has been -- is peaking. And we're starting to see actually that the pricing is reducing. I hope you'll see that the benefits from the ICG platform is flowing through the quality and types of companies and the types of deals we do. And then lastly, that our Board has been very focused, very active and deliberate in the approach to kind of generate shareholder value in an environment, as we all know, we're frustrated with the discounts, and we think it's quite anomalous. And so quite happy to see the Board being quite active on that. But with that, I'll hand over to Jane to give her introductory remarks.

Well, thank you all very much for coming. Many familiar faces, so thank you. So what's the opportunity I see here? We've got a portfolio of companies that typically are between GBP 0.5 billion and GBP 1 billion in size. So that they're in a sweet spot in terms of ability to grow from here. They are mature businesses, profitable, cash generative. They're often mission critical. Very healthy margins. And they've got good pricing power. So it's a portfolio with wide spread and the opportunity to compound returns from here is great. And the Board focus on, obviously, compounding returns over the long term. And we've done 14.6% annualized NAV over the last 5 years. So compounded potential priority, but distribution is also important to us. And we think -- and we and the management think this can be done without hindering the returns. Our distribution is fixed on 3 things. There's the progressive dividend policy, which we've been doing since 2017. In the last 5 years, we've increased by nearly 10%. There's the ongoing buyback, which is effectively day-in, day-out money with Numis so they can facilitate that market and be a [indiscernible]. And I mean it's useful for locking up our savings scheme, DRIP. And the third is that we've instigated recently, which is the opportunistic buyback, which we put GBP 25 million this year towards. We've used GBP 7 million of that already. And that is really -- us, the managers, it's an opportunity for us to make some money, shows our confidence in NAV and seeing the discounts and opportunity. So that's where we focus. Compounded returns, distributions and discipline that those distributions give. And I'll hand over to the team now. But before -- just before I do hand over to the team, I want to reinforce to you all how ICG -- I joined in 2019. And as you know, it was ratified before ICG. ICG have really put money on the table to back this fund. The team has huge depth of knowledge and experience. They've also capped their fees this last -- the first full year we've had of it and so, just under GBP 2 million. They've taken the vast bulk of the sales and marketing budget. So we've had huge commitment from our managers of this fund. So over to the team.

Thank you, Jane. Why don't we kick off the presentation, to put some context behind private equity on Page 8. Put a broader context here. Well, just to -- we put the slide together just to kind of step back and why is private equity performing so well? And what is really -- what are the kind of key ingredients here in terms of the underlying performance? And maybe I thought I'd share a short story about my background and why I came actually to private equity. I used to -- many people probably don't know this, but I, in 1994, I bought a company out of bankruptcy because the company was bankrupt, needed no money. And in my youthful exuberance, I thought I could easily turn around this company. I went through 2 or 3 years of very difficult times, but managed then to actually create a market share leader in the U.S. We were doing aircraft galley equipment, which is a fancy word for trolleys for the beverage and for the food. And as you can imagine, there was a lot of wear and tear on those. And so make a long story short, after year 3, 4, I managed to get -- became the market share leader in the U.S. and had about 70%, 80% market share, and we were growing very fast, big orders coming in. But I had no capital. I had no working capital. I couldn't do -- I couldn't finance the growth. I went out. No banks who would finance me. Private credit market didn't exist. Private credit -- private equity market hardly existed. So it was very difficult for me to have capital. My biggest competitor was private equity-backed. And so I sold my company into a private equity bank company because they had the growth, they have the capital. They were able -- they had the expertise to help the team to kind of build the business. So that's why I decided that this makes a lot of sense and there is a great market here. So I joined -- so I set up in '96, '97 a private equity business together with an old friend of mine from business school. And I think why I'm telling you the story is because what private equity brings to the economy is exactly what happened to me then. And I think that is fundamentally the key driver of returns, is transforming good companies to better companies. And that's why -- and this value creation, as you see here on the slide, comes from many ways. Some firms are better in certain areas. Some firms are better in other areas. But it's not all about cost cutting and leverage; it's really about value creation. And as you see here on the middle part of the slide, the job creation in the private equity market far exceeds what you see in the overall average growth in the European economy. And I think the other important message from this slide is we have to always constantly understand that 80% or close to 90% of the U.S. economy of companies above $100 million are actually private. So that in order to access the real economy, you really need to be in the private markets and the public markets are becoming less and less really representative of the economy. And I think the big institutional investors recognize that. So as you see on the next slide, the allocation to private equity has dramatically increased over the last 10 years, 15 years. And that's really for 2 reasons. One is because of the superior returns, but also getting access to the real growing economy. And some of the most sophisticated investors, such as GIC, New York State, CalPERS, they continue to increase the allocation to private equity. So they still believe that despite a lot of people saying because the cost of capital has changed, private equity is going to be more difficult, the actually big, sophisticated investors actually think differently. They continue to increase the allocation. The other interesting development in the private equity market is and you probably picked this up, and particularly in the U.S., there's a big trend to offer private equity to the private wealth platform. So you see an emergence of a lot of what they call it semiliquid funds or RIC 40 Act, by the RIC 40 Act. So you see Blackstone, Apollo, all the big private market asset management firms offering those kind of semiliquid products. And it's a huge trend in the private equity market. And the irony is that here in England, the trusts have actually performed and have actually put a structure together, which is 100 years old, which addresses the liquidity and the ability for the wealth for private investors to access private equity. So therefore, you would think that at some point in time, people recognize this, that this is actually a superior structure over the semiliquid structure. So we're hoping that some of that flow and some of that excitement we're seeing in the semiliquid structures, people start to all realize and find interest also in the trust structure. If you go on to the next slide, some of the headwinds we've had over the last -- to address some of the headwinds and discuss some of the headwinds we've seen over the last couple of years. It has been a very challenging fundraising environment. And the reason for that is there was less liquidity coming back out of the private equity portfolio. So the investors were a bit stuck, plus there was a denominator impact where the public market assets dropped significantly in value and people were overallocated to private equity. So there was a lot of -- it was quite a challenging environment, which for us actually was -- as an investor into funds, was actually quite helpful, because that widened our already pretty good access or very good access to private equity. So particularly Liza and Colm have done a fantastic job getting us into managers, where they have been oversubscribed for many, many years, and we were 1 of 3 or 4 new investors coming into their funds. So the -- so that such as like a Thoma Bravo and Genstar. So that has been helpful for us. The slowdown in deal activity is -- obviously has been a struggle and a challenge for private equity investors as less -- as a lot of capital has been kind of built up or drying, there's not a -- and the valuations had to be addressed and adjust from -- particularly from a peak in '21, '22. However, for us, it actually worked out quite well. Because of the challenging fundraising environment, we were able to come alongside some of the bigger managers and find some interesting deal opportunities. So we picked some good companies, I think, or we'll talk about that in a second. Certainly, picked some very interesting businesses. You see that realizations have been significantly down over the last -- and we've been impacted by that too. Typically, our realizations are somewhere around the low 20s as a percentage of NAV. Last year, we were at 12% to 13%, and the industry average was around 9%. So significantly drop in realizations. However, we feel good about that we have a portfolio still attracts sales and exits, and that's why we were above our peers. But what has been missing for us are the top 10 exits or top 30 exits, big event exits. Despite that, we had enough flow through the portfolio that we were getting 13%. So it was ticking over. That environment has improved. Not dramatically, but definitely improved over the last year. So we're expecting some -- a better result out of the top 10 or top 30 assets being exited in the next 12 months. The next slide, many people -- many of you have already seen this slide, so I will go very quickly through. What is our goal for our investors is to really -- well, let me step back. As you know, private equity long term has been the best performing asset class. However, private equity has 2 issues. One is the liquidity and the second one is the risk. If you -- particularly, when you look at from the dispersion between the bottom quartile funds and the -- sorry, top quartile funds to the bottom quartile funds. And that dispersion is bigger than in any other asset class. So what we're -- our investment strategy is really designed to provide private equity type of returns, but with better liquidity and much less risk. And the way how we do that is really about this slide. This really kind of describes well of our investment strategy. So we're very focused on preserving private equity returns, but taking risk out of the portfolio. How we take risk out is the first 3 columns. We only do buyouts because they have much lower loss ratios. We only do developed markets because that's where the deep expertise sits and where the best liquidity is, U.S. and Europe only. And we do mid-market large deals because that's where the fund manager have the resources to transform companies, but have not gone too big where you get some organizational challenges or putting capital to work. We have some exceptions in that area. But in general, that's where we would like to live, in the mid to large market. How do we drive returns? It's really making sure we have access to the best managers. As we said, top quartile, if you get access to the top-tier funds, you can really outperform. And then we overlay the selection around picking defensive growth companies and managers who have, in their strategy, we can see the defensive growth selection in their funds. And that's kind of how we try to provide you with a portfolio of compounding growth, with higher liquidity and much less risk. Maybe a couple of words on defense growth. Everybody, you will hear that word a lot today. What does that actually mean? What that means is we're looking for companies, sectors, fund managers who have the ability to pick companies or find companies, they are -- who perform well in good times as well as in bad times. And some of the key selection criteria, you see here on this page. So these are companies we're looking for who have either a strong -- have a strong market position, have mission-critical services, pass on price increases and have high margins. And you'll see some of the examples here. Maybe some of the -- we have covered many of those companies in the past presentations. Maybe just a couple of words on some of our newer investments like PingIdentity. PingIdentity, is a Thoma Bravo investment. We coinvest a lot with Thoma Bravo. It's one of the leading cybersecurity companies. What they do is they provide access management and identity management. So many of you probably don't realize they are -- actually, you're constantly using this every day. So when you go into a website or an app and you get a text message back or an e-mail with a code to dial in to or get access to your files or servers, that is usually done by PingIdentity over there. This is a market very much driven. Ping is the 1 out of 2 pure players in that market. Credible company. Has been growing EBITDA the last 12 months by 15%. We were able to buy this business at a substantial lower valuation than, for example, the Hg portfolio is traded on an average. Growing very strongly. And the base case is at a valuation of 17x EBITDA, which is significantly less than what we've seen in the market for cybersecurity companies. So we feel really -- we're very excited about this business and it's performing well. Then we've bought a business in -- co-investment in the business in 2021, 2022 called Newton alongside the ICG Middle Market Fund. What they do is operational improvement consulting. What that means is they go into big companies, particularly into public services or in the public sector, so for example, the English Defense Ministry, and help automating and designing processes to be more efficient. And what's unique about them is they actually go in and sell themselves how much savings and how much improvement efficiency they can bring in, quantify it and their fees, and therefore, it's basically dependent on the performance of that and the ability to deliver on that. So it's a highly performance-based model, which makes them very unique and obviously very popular. The LTM growth in revenue was 41% last year, the last 12 months, and EBITDA grew 42%. And in addition to that, we have a downside protection security in here. This is a pref equity. So we're sitting on the -- right after the debt, above management and other investors. So has been a very nice business picked and found by our colleagues at ICG, in the ICG Middle Market Fund. The last slide I'd like to kind of cover is really about giving you another view and a perspective on the portfolio. What we've done here is we've taken the rolling 5-year average EBITDA growth of our portfolio of our top 30, which represent about 50% -- 40% to 50% of the total portfolio, and compared it to the ICG European Private Company Index. So ICG, Nick Brooks kind of leads that effort, has a database put together over the last 10, 15 years and compiles big data on 1,500 private companies in Europe. And then we compared it to the FTSE All Share EBITDA growth. And you'll see here that our portfolio has performed -- that general private companies have outperformed in terms of growth, vis-à-vis the FTSE. But we have even outperformed the European private companies by selecting. And these are the top 30, so all these -- most of these companies, with the exception of one, I think, all are selected by us and the investment team through the co-investment program we do alongside our fund managers. Why did we do the rolling 5-year average? Because there is some distortion, obviously when you look at from the COVID 2020 years, between '20 and '22, are quite distorted. So that's why we took the 5-year average to kind of get the best intention of that data. Now talking more about the portfolio and more about our investment strategy, I'll hand it over to Colm and Liza. Oh sorry, it's Mark's turn. Sorry about that. Mark, you're next.

Thank you very much, Oliver. And good morning, everyone. By way of a very quick introduction, my name's Mark Richmond. I'm Managing Director in ICG's Private Credit Strategy, Senior Debt Partners, which has been providing predominantly senior secured debt to private equity-backed companies since 2012. To set the scene, I'll quickly highlight the main value creation [indiscernible] in an average buyout. So on the left-hand side of the page, revenue growth, margin improvement, multiple expansion and financial leverage. And for the remainder of my slides, I'll focus on the latter. I think the ability to put an appropriate sustainable capital structure on a company is a key driver of success for private equity. It is our responsibility as a lender also to work side by side with private equity to do the same. Turning on to Slide 16. While the graph on the left is illustrative, it highlights the multiple potentials of sources of debt in a buyout. If we think about the last couple of years, we've seen a continuing retrenchment from banks due to regulatory pressures on bank balance sheets. The public markets have reopened. So we talk about the term loan B, leveraged loan market and all high-yield bond market, which closed post Russia-Ukraine. The private credit has continued to take share overall. I think one clear difference between the GFC and the Russian-Ukraine situation is that private credit was able to step in to support borrowers this time around when the public markets were shut, which is clearly a positive structural shift. Moving on to Slide 17, I'll just quickly take you through some high-level debt market perspectives before going into a bit more detail on each. But the key messages that I'd like you to take away today are clearly, firstly, both public and private credit options are currently available to borrowers, so debt is freely available. The increased competition between the 2 markets as well as other technical factors is bringing down the cost of debt. Credit quality remains high. So while we've had higher financing costs in the last couple of years, these have been addressed by a reduction in leverage and higher equity checks, while underlying credits continued to perform. And finally, with the way that repricing activity, that I'll come to, and proactive maturity extensions, refinancing risk has been reduced and default rates remain low. Moving on to Slide 18. The availability of debt from public markets is clearly increasing. The righthand side of the page, you can see that in Europe, for example, Q1 2024, we've seen over EUR 20 billion of new CLO issuance, well ahead of prior year. And absent that material M&A volumes, this has enabled borrowers to extend maturities, thereby reducing refinancing risk. Slide 19, coming to Oliver's other point, debt pricing is also coming down. So an improving technical backdrop, seeing spreads tightening in the leveraged loan and high-yield markets in both Europe and U.S. We continue to see demand for opportunistic transactions, such as maturity extensions of 2 to 3 years and downward repricings of 75 to 100 basis points in the public markets, and this trend has continued well into Q2. On Slide 20, just to talk through private credit, which has increased the through-cycle availability of debt. Deals under EUR 300 million now account for a very small proportion of leveraged loan and high-yield issuance in the public markets. As mentioned earlier, one of the key differences between the GFC and the Russian-Ukraine situation is that private credit was able to step in when banks retrenched and the public markets were closed. Moving forward to today, competition from the broadly syndicated market and high levels of private credit dry powder has seen tightening in direct lending also. Moving on to Slide 21. The higher financing costs over the last couple of years have really been addressed by a reduction in leverage and higher equity checks, which you can see in both Europe and the U.S. on the 2 graphs. According to Deloitte, sponsors have continued to focus on resilient and cash-generative credits in 2023, with TMT, business services, health care and financial services accounting for nearly 70% (sic) [ 50% ] of all deals in Europe, for example. Leverage across these sectors in 2023 versus 2022 declined by 0.5 turn year-on-year on average. On Slide 22, while looking ahead, base rates are likely to remain higher for longer, strong balance sheets leave corporates well positioned until their cost of capital comes down. On the left, I just wanted to highlight also that GFC default rates show the PE-backed companies were more resilient than non-sponsored companies. In the current environment, the surplus of private equity dry powder should also lead to lower defaults as sponsors look to protect their equity. The chart on the right shows that leverage and interest cover metrics remain healthy and stronger than pre-GFC also. So how do our teams work together and how does ICG Enterprise Trust benefit from having in-house debt experience? I'll talk to the lefthand side of the page before handing over to Colm. So ICG Senior Debt partners, where I said is the largest European direct lender focused purely on senior secured debt, we launched the strategy in 2012 and have raised 4 vintages to date with the balance of close. Given our size and our ability to provide loans of EUR 100 million to EUR 800 million, we get to look at the majority of deals in the mid-market and the upper mid-market, and have closed 175 transactions since inception. We have a team of 21 and can leverage off the wider ICG investment team, including a further 21 sector-specific research analysts. We sit back to back with Oliver and his team. Over to Colm.

Thanks, Mark. And I think actually, the relationship that we have with the ICGT Senior Debt Team is a really good example of one of the many benefits of the ICG platform for Enterprise Trust. And ICT has a very collegiate culture. We sit next to each other. We -- I think you can tell a lot about the debt markets just overhearing the tone of the conversations. But the platform advantage we have specifically from having access to Mark and his colleagues, we get tremendous early insights into the debt market. The team have tremendous domain expertise and we're working at the moment on a very -- on a company which has a very specific business model. It's one of those companies that if I told you what it did, you would know the company. But we've been able to tap into their knowledge and get up the curve really quickly. I think a lot of the time that really helps us as well to screen out deals because, I'm sure it's the case with Mark's team, some of the best decisions we make are the things you don't see, the things we don't do. And it really gives us too an extra depth with our managers. It really helps us to grow and build relationships with our managers because they see us very much as coming from one organization with similar values and a similar approach. Just before we go on to look at the portfolio, just on the next slide, just wanted to spend a little bit of time looking at debt in the context of the ICG Enterprise portfolio. And I think the main takeaway from this is that we feel that we're very well positioned, both in terms of our leverage levels, so around 80% of the portfolio is levered below 6x. I appreciate that's very high from a public market perspective, but we feel very comfortable, particularly given the strong quality of earnings within the portfolio. We've got very good interest cover, that's even with the higher interest rates despite what we saw in the last few years. And we have limited refi risk. And I think as Mark has addressed, we think, overall, the risk from refinancing is diminished, but we have 12% coming up in the next year. So we're very, very comfortable with that. And as I say, particularly in the context of the quality of the portfolio and given some of the characteristics of the companies we invest in, which Oliver has just outlined. I'd like to move on now to have a look at our portfolio alongside Liza. So first of all, and again, this is one of those many slides where those of you who've listened to us before may have heard this, but I think it's worth recapping on how we access the market. So fundamentally, we're investing in those defensive growth strategies and companies, which Oliver has just outlined. We invest in top-tier managers. So across the board, those things are common denominators, the quality of the company, the quality of the managers. But we access them in 3 different ways: primaries, secondaries and directs. So first up are the primaries, around 50% of our portfolio. You can see from the cash flow profile, this is where we commit upfront, this is to a fund. We have outflows to begin with. And then we have what's called a harvesting period, which kicks in typically at around year 5 as the manager begins to start its realization program. Why do we like primaries? First of all, we get a really strong bedrock of stable returns, strong, stable returns. It's highly diversified, which, of course, minimizes our risk. And critically, it gives us access to the world's best managers. So by having a primary relationship that helps both our secondaries and our direct programs. Now, secondaries, that's essentially -- you're going to hear a lot more about secondaries in a second from Oliver. But in very simple terms, that involves buying what was historically a primary fund. But typically, as it's approaching its harvesting period, so years 4, 5, 6. Why do we like secondaries? Well, first of all, you can diligence the underlying assets. Remember, in a primary, we're committing upfront. But with the secondary, we get to see what we're investing in. We like the cash flow profile. So you can see from the chart on the slide, there is an earlier payback period. And secondaries generate very strong IRRs if executed correctly, if we pick the right assets. And finally, direct investments. Relatively simple, this is where we just invest in one company. We invest alongside one of our existing managers. So we typically have exposure both directly, but also through a fund. And the reason we like direct is that we get, very simply, to invest more in the deals we like, in deals that really have those very strong defensive growth characteristics. We have a very strong platform at ICG to be able to diligence those assets, and that obviously reduces risk and improves our performance. And co-investments have historically generated outsized returns. And we think of our top 30 assets, which are mostly co-investments, have really strong outsized return potential as we look at them today. So this approach behind these 3 different access points, we think it's got tremendous advantages not least of which is that the markets often move in different directions. And at different points in the cycle, primary, secondaries, directs may have compelling characteristics. At the moment, because of the difficult fundraising environment, which is actually a positive for us as investors, we think that actually all 3 markets have got really strong fundamentals. Now I won't steal Oliver's thunder on the secondaries front. But suffice it to say that, of course, when managers are struggling, all else equal, to fund raise, we're able to access better managers. We're also able to access managers in the size that we want to. And it also yields more direct opportunities, as managers will put less of the deal equity into their funds and offer more to their investors, both as a risk management technique, but also as a way of being more investor friendly.

And [indiscernible] to ask questions on the [ bidding ], the housekeeping.

At the end, please teams. Thank you. Moving on Slide 27, very briefly just on the performance this approach generates. This chart shows the split between our primary, our secondary and our direct program. You can see evidence here of our performance over those critical 5-, 10-year periods in our secondaries and directs, which is what we would expect. There is a benefit to being able to diligence the underlying assets and having a more active approach to portfolio company selection. But what really matters, of course, is our total performance. It very much is a holistic strategy. You can see that over the last 5 years, we have generated 19% per annum performance. That's 140% overall. And we are very pleased with the historical performance. We also think the portfolio we have today has got very good potential for the future. But with that, I'm going to pass it over to Liza just to give you some insights too. [ Over to you ], Liza.

Yes. Thank you, Colm. So turning to Slide 28. On this slide, we wanted to provide an update on the primary commitments which we made in full year '22, which effectively referred to our 2021 vintage year funds given our January year-end. We're also asked about the performance of our 2021 investments and whether we have any regrets given the macro turmoil which began in early '22, start of the Ukraine war, and rising inflation. I'm pleased to say that those investments are off to a good start with deployment in line with expectations, and current valuations implying a return of 1.35x net and 23% net IRR, with significant upside remaining. As a recap, we committed to 9 funds, including 5 existing and 4 new managers. The re-up commitments included 2 ICG funds, as well as new commitments to THB (sic) [ THL ], BC Partners and TJC. We also identified a number of attractive new managers, such as Bregal and GI Partners, with strong track records, differentiated market positioning and co-investment potential. We often talk about the importance of primaries in accessing co-investment deal flow, and this is evidenced here by the 20 co-investments we were offered from our 2021 vintages, of which we completed 10. Move to the next slide, Page 29, this provides an update on the performance of our co-investments over the last 2 years. We've completed 11 co-investments diversified across sector and geography. Furthermore, these co-investments were completed alongside 10 different managers, which demonstrates the breadth of our co-investment relationships. All these businesses are either market-leading and/or have defensive growth attributes and are backed by sponsors with deep, relevant sector experience. While still early, the performance looks promising, with an aggregate return so far of 1.2x net and all investments are marked at or above cost. To further illustrate the characteristics we typically look for in a co-investment, I wanted to provide more color on European Camping Group, one of our largest co-investments. Firstly, ECG has a market-leading position, is the #1 operator of mobile home campsites in France and #3 in Europe. Operating a fleet of over 50,000 mobile homes across 560 campsites sites, mainly in France, Italy and Spain. ECG has demonstrated resilience through economic cycles, growing at 5% during the GFC period. Although significantly impacted by COVID, it bounced back quickly in 2021, and has continued to grow bookings over the last 2 years despite the tougher macro environment, with 2023 bookings up 11% versus the prior year. This has been driven by a combination of price increases, around 8%, and also improved occupancy levels. Lastly, and potentially most importantly, is the deal alongside PAI, one of our strongest co-investment partners, with a strong track record in the sector having done attractive deals in Roompot and B&B hotels. Since our initial investment in October '21, we've invested additional equity to fund this transformational acquisition of Vacanceselect in February 2023, which is expected to be highly synergistic. So to summarize, the investment is marked well above cost, and we expect to generate an attractive return for the trust. Moving to Slide 30. This provides a high-level intro to the third pillar of our strategy, secondaries. Again, not wanting to steal Oliver's thunder, so I'll just sort of talk very briefly on this slide. Secondaries are highly complementary to our primary and co-investment programs with key benefits including access to a mature portfolio of assets, i.e., no blind pool -- blind pool risk; accelerating liquidity; and PE style returns with less risk. Over the last few years, we've increased our exposure to secondaries from 13% in full year 2019, to 18% in full year 2024, with a target allocation of 25%. However, given the relatively quick return of capital, [ where our ] exposure has been somewhat more challenging than with primaries or co-investments. So over to you, Oliver.

Thanks, Liza. Maybe to set the scene on secondaries, a lot has happened over the last decade in terms of secondaries and the market looks very different today than it was 10 years ago, or certainly, very different to when I did my first secondary in '98. Those days, it was a tiny little market, less than 0.5 billion, and you had to kind of work with the GPs to find the transaction or one of their investors to sell. Today, this market has exploded. It is now 110 million to 150 billion in size. And to no surprise, the market has changed also in terms of what kind of transactions they are, and there's a whole plethora of different types of transactions from the more traditional and classic buying position from an LP. So from another investor in a fund, so buying a fund position, which is what we call an LP stake, portfolios of LP stakes. More recently, you probably picked up in the press, you see also GP-led deals, which has effectively become a new liquidity channel for the private equity fund managers. So what a fund manager does if they like a portfolio, a company in their portfolio, and they like to instead of selling it as an IPO or sell it to the next private equity firm, what they like to do is carve it out and put it into a continuation vehicle and then continue to manage it for another 4 or 5 years. That's the -- that's called the continuation vehicle or what you call it also GP-led deals. So the market has exploded and there's all kinds of transactions. But the interesting thing is that if you look at the market today, it's still dominated by the big generalists who do everything under one roof. So they do with the same team, the same fund structure, co-investments, GP-led deals, LP-led deals, although we at ICG fundamentally believe that those are very different types of deals and therefore need a different approach to the industry. So what we started about 7, 8 years ago at ICG is really rethinking about the market, and we pioneered the secondaries market by being the first ones out there with 2 dedicated teams and 2 dedicated fund structures, pure plays on the GP-led and on the LP-led deal. And that's what you see on the first slide, our approach and our strategy. So -- and the ICG Enterprise Trust benefits from this because the ICG Enterprise Trust is invested in both those funds. The ICG Strategic Equity Fund, which is entirely focused on GP-led deals; as well as the ICG LP Secondaries Fund, which is entirely focused on LP stakes. And that's how we approach the market. And that has also created for the Enterprise Trust great co-investment deal flow from strategic equity as well as from LP secondaries. Now what we want to do today is focus more on the LP secondaries side and why that is an interesting space for the Enterprise Trust to be exposed to. And what we have done here in that market, giving some -- a little bit more content around that market. So why do we invest in LP secondaries? Because to our mandate and what we're trying to do as an investment strategy is providing our investors private equity type of returns with much higher liquidity and lower risk. The LP secondaries fits very much that kind of investment strategy. And why? So if you look at the slide below that represents a cash flow curve of a buyout fund, and what the LP secondaries, what we try to do as a team, is to invest in a fund in the year 4, year 5. Why? Because that is the sweet spot where you actually can analyze a portfolio, you understand what's in the portfolio, you have the -- you can analyze it, you have that data. But at the same time, you have 4 years so you reduce the risk because you can already see the losers and the winners. And usually, the losers are already written down or written off. The winners have been written up, but not to the same extent as you usually see at exit. So -- and at the same time, you're 4 years to 5 years closer to exit. So therefore, you're getting higher liquidity because you're 4 to 5 years closer to exit. Typically, you can do the life or the investment period of a -- sorry, the exit period and holding period of the secondaries -- LP secondaries fund is 1/2 of a buyout fund. And at the same time, you see you have already the portfolio, you can analyze it, and that's why you have also a lower risk. And on top of that, because we're buying portfolio stakes, so LP stakes, it's very diversified. So typically, an LP secondaries fund, we will have over 1,000 companies. So it's highly diversified. And there's constant cash flow coming out because every week, there's a company being exited or sold. So it is a great way and a great fit for the Enterprise Trust to provide private equity type of returns, but with much lower risk and higher liquidity. Now looking at that, at the data, is that actually really true what I'm saying and looking at the data? So we commissioned Josh Lerner from Harvard Business School, who teaches private equity at the Harvard Business School. We commissioned his team to kind of look at the risk/return profile of LP secondaries. He went into the databases of -- he had access to as well as some of the other big data banks, such as Preqin and Burges and all that, and consolidated, brought all the data together, and looked at the years from 1980 to 2018 and looked at from a risk/return perspective. What didn't surprise us is the graph on the lefthand side. When you look at the risk/return of secondaries, vis-à-vis buyout and growth, you basically get similar returns to buyout, but -- from a TVPI perspective, but with a much lower risk factor, you're actually more in the credit space from a risk factor. And that is measured by standard deviation in the TVPI between the different transactions and the secondary deals. What did surprise us, how liquid and how fast the capital returns back to investors, particularly compared to the credit space. And that's where you see that here on the righthand side, some of the data. So it kind of confirmed that this is a nice way to play private equity but with less risk and higher liquidity. Going on to the next page, just a couple of words on the current portfolio, what have we done. We've really started with -- I joined in 2019, 2020. As many of you know, I've had -- worked for and built secondary funds for several alternative asset managers. And so I joined in 2020, 2019, and that's when we really started to kind of focus more on the secondaries side, also for the Enterprise Trust. There are 4 transactions we've done. These were all co-investments alongside the enterprise -- sorry, alongside the LP secondaries fund or specifically picked for the Enterprise Trust. And you'll see here, we made our first commitment to the secondaries fund in 2022. That was a $60 million commitment, and then we did these 4 direct transactions, so co-investment transactions alongside ICG, the LP Secondaries Fund. You'll see here that gives diversification, so it reduces risk. That gives Enterprise Trust exposure to 62 funds. It's all in Europe and the U.S. And you see on the righthand side, the returns have been very strong out of the gate. And particularly, when you look at THE DPI, we feel very good about that the strategy is working. So it gives cash back very fast and creates good liquidity for the ICG Enterprise Trust Fund. With that, I'd like to conclude on the next slide, then we can open it up to Q&A. I hope you have a good -- I hope the presenters and the presentation gives you a good idea that we're very focused on generating private equity returns, but take the volatility and the risk out and improve the liquidity for our investors. And having a dedicated investment team really allows us to actively construct that portfolio. I think the top 30 is a great example in terms of -- because with the exception of one company, all of those companies in that top 30 are effectively co-investments that we've done alongside our managers. And you saw their earnings and the strong growth of that portfolio. That shows the strength of having a dedicated investment team to pick deals and actively construct a portfolio, but also shows the benefit we have with the ICG platform, which gives us that background and that connection and interplay with the credit team, with the other private equity teams, and as well as what the secondary team's generating some good returns out of the secondaries. With that, I'd like to close the presentation and open it up for Q&A.

Thanks, Oliver, and thanks to all our presenters today. So we've wrapped up the presentation within the hour. We have about 25, 30 minutes now for Q&A. James, I know you had one.

Happy for others to go first. But yes, I've got a couple of questions. Just a few questions then. Just wondering more about the LP secondaries. And clearly, the Board has been active on the buyback. So I guess that kind of partly answers this question. But just interested in discounts you're seeing for buyouts in that market and just to contextualize the discount that we see on ICG Enterprise? And then 2 other questions, Colm. Obviously, ICG Enterprise must be a fairly unique vehicle when you're going to talk to managers, this kind of permanent or quasi-permanent kind of capital. So just interested to kind of know what kind of response you get when talking to managers. And is it that unique? And then lastly, just also probably to you, Colm and to Mark. Just -- and Mark and Jane talked about being part of intermediate and that ecosystem there. I mean has there ever been a lead from Mark's team into a manager that you weren't aware of and a relationship struck up there? So a few questions there.

Yes. Let's take the secondaries first. So -- and this is what made -- which just flabbergasts me every time I look at our discount. So we're trading at a discount of 35%. I'm buying top-tier buyout portfolios at 10% discount. Our LP secondaries fund, over the last 2 years, the average discount has been 17%. And that was probably at one of the probably steepest discounts in the market. That pricing has now tightened up to about 10% discount. And the reason for that is not because there's tons of capital in the market. Actually, it's the LP secondaries market is still under capitalized. Just to give you an idea, 170 million to 180 billion of dry powder, which is a lot of money, but in a market which is -- has consummating transactions of about 110 million to 150 billion a year. You have only 1.5 years of dry powder left. So the tightening of the discount is less of the capital in the market. It's also about looking forward in terms of the lower cost of capital, the strong performance of the portfolios. As you know, our portfolio has grown. We came out with the data last quarter, is growing at 14% EBITDA. So people are much more confident to step up in the secondaries market. And that's why we're seeing for top-tier funds, discount closing to high single digits and low double digits.

Maybe just to take James' question about the attractions to our managers of the structure that we have. I think it's fair to say that amongst managers, that evergreen structure is very attractive because we don't have to raise -- so probably a lot of limited partners, other limited partners with different structures, maybe they're coming out of large diversified investment pools, their allocations to PE are changing all the time. So they're not always very reliable. You've got the traditional fund of fund managers who have to raise capital themselves. So they're always having to go engage in their own fundraising. So our model, where we're entirely devoted to buyout investment, and we have an evergreen structure is very attractive to those managers. And many of the U.S. managers, well they hear we're listed, they worry that we're going to be publishing all of the confidential information they give us in our accounts. We would love to be able to do that, but we can't. But then once they get happy with how the structure works in practice, they find it a really -- it's actually very, very helpful for us to be able to access managers because they realize that we have the ability to be able to grow with them. And I think it's pretty unique. In terms of, James, your question about whether we ever have any leads from -- that come from our debt teams. The answer is we do. I think it's fair to say within Europe, we have a more established manager base. So very often, the real value add in terms of talking with Mark and his colleagues is around referencing managers. Because Mark and his colleagues, they are dealing with managers through deals. They get to see how they address risk, how they conduct themselves and how they think about capital structures. And that's really, really valuable insight, which we think is pretty differentiated relative to our peers. We have had, in the U.S. where we -- of course, we started our U.S. investment program back in 2016, and obviously, we're adding more new managers. And we did -- we have had 1 or 2 occasions where our U.S. colleagues introduced us to managers we didn't know. And in particular, probably the one to highlight is Gridiron Capital. Gridiron's third fund, which we committed to in 2017, has gone on to be one of the best-performing buyout funds of the last decade. And that access came through an introduction from our colleagues in New York. So there's so many benefits that we get from it. And hopefully, it's a symbiotic relationship and that Mark's team benefit too I think.

With the benefit -- particularly with the credit teams that we have in the U.S. as well as in Europe, is that they see the sausage-making, right? Often, when we talk to the GP, you hear all the marketing materials and the marketing speak. It really requires effort to kind of dig in a little bit deeper. You do that. We have our methods and we have our ways of doing that. But when you get the perspectives from the credit teams below who sit in the portfolio companies of the private equity managers, you get to see a whole other perspective, and that is incredibly helpful for us. Also, on the secondaries side is incredibly helpful, because they are -- in every portfolio we look at on the secondaries side, there is an ICG footprint on it. We're either on the credit. We -- so we actually own the credit or we analyze the credit, or we are in the credit of a competitor or we have one of our sector analysts or the private equity guys in the competitor or in this or looked at the deal. So that is an incredible treasure of information, which helps us making the right or as-good-as-possible selection and decision on secondaries as well as primary as well as co-investments.

In terms of geographic location of the underlying companies, where are you seeing the most opportunities at the moment?

I think it's fair to say, we see -- and it's very a politician's answer, but we see opportunities in both Europe and the U.S. The private equity markets are both quite different dynamics. With the U.S., you have a very large, homogenous addressable market. So we love the fact that a U.S. mid-market firm based in Connecticut, like Gridiron, do a deal in Kansas. And that's obviously different in Europe, where private equity is organized more on a regional or country lines. So the U.S. market gives us these tremendous opportunities, particularly in things like -- one good example from our portfolio is LeafFilter. It's our fourth biggest company. It supplies home improvement services and it's able to roll out its business model over an enormous geographical market of 300 million people, which you just can't do in Europe quite the same way. But then the European market gives you these opportunities of having better knowledge. So in particular, at ICG, we've got, I think, 8 offices across Europe. So it's really good for us as a team. We can tap into that local, on-the-ground knowledge in each European market. So we see -- we're fairly agnostic, and that's why we target a 50-50 portfolio allocation because we can see that both market structures can deliver benefits. And we're seeing pockets of growth. And I think Europe has been very underestimated recently, but we're seeing pockets of growth in certain European economies.

We are not a public equity business, right? So we cannot identify value at the -- we cannot see value right now, but this is a long-term game. So we don't know what the market is going to look like in 5 or 6 years' time, right? So what we are trying to do is provide diversification between Europe and U.S., those are the deepest markets. And work together with the best managers in finding defensive growth companies, so that in no matter what the market looks like, if Europe is in the doldrums or Italy has gone commonistic and the U.S. has other political issues, we're not getting caught necessarily into that. It's more about building great companies and then able to be, in 5 or 6 years, to find a market to sell them. We're not picking -- you can't -- in private equity, you can't pick like value pockets at the current moment. It just doesn't work that way.

Just ask a quick question on the 3 strategies on how you set targets because I think you said that co-investments generally provide outsized returns. So how do you set the targets for the 3 strategies? So how often does that fluctuate? And why not have more exposure to co-investments if they do provide those outsized returns?

Yes. So our targets are 50% primaries, 25% secondaries, 25% co-investments. The reason why we have that allocation is in order to solve for I think having access to private equity, getting good deal flow, discretionary deal flow for secondaries and co-investments, but at the same time, not getting overexposed and keep good diversification. So that's why we come up with this [indiscernible]. Why is -- and so 50% a run -- and it's a tanker? So it doesn't really -- it's not like you can dial it in on a month-by-month basis. So these things grow and have to get adjusted over a flow over years. The reason why we do 50% primaries is because if you drop below that, you start to significantly lose the deal flow and particularly a diversified deal flow on co-investments and secondaries. So 50% to 60% is kind of where you want to be. Otherwise, you start losing the deal flow and a diversified deal flow. Why do we like 25% co-investment? Because as you can see in the top 30, that has actually provided us about -- is it about 40%?

About.

40% of our NAV. So that 25% has grown to 40%. So it's 25% of cost allocation, so that shows you it provides a great growth for us. But at the same time, you can't be too dependent on top 30, you lose the diversification. So that's why. And we want to be picky. So we're picking effectively we have a bet -- I mean, the '21 numbers, '22 numbers are slightly different than our unusual numbers, but we're typically picking 10% of our deal flow. So you want to have a lot of deal flow and you'll be able to pick. So that's why you need a lot of primaries to be selective on picking the best co-investments and then they give you a nice -- if you do well, give you a nice pop. Same thing on secondaries, similar to the co-investment. You want to be able to get that diversification. And it's hard to keep it at 25% because you're getting a lot of cash back all the time. And so therefore, you're actually putting more to work, you commit, actually, you overcommit to that in order to get to the 25% because you're getting cash back so much faster, which is great. There's a J-curve killer as well as providing cash for co-investments and liquidity for the dividends and the buybacks and so forth.

Right. And would you say that generally co-investments are a bit bigger in size, hence, going into your top 10, 20 -- becoming 10 or 20 holdings that are a little bit more risky? And final sort of follow-on question to those 2 is, has there been any examples of co-investments that have not worked out? And what lessons have you learned from those that have not worked out?

Yes. Great question. So it is important that you don't get -- because you're really increasing your risk profile if you do too many co-investments and that's why we like to have that diversification. And that's -- And the best way to manage the diversification is the actual cost, the actual. So we don't really do much more than USD 10 million to USD 15 million, depending on what the flow of the US dollar is, in terms of allocation to a single call investment. And that keeps us in place. We do, on average, somewhere around 4 to 6, 4 to 7. In some years, with some more. Some years or less, co-investments. So that keeps you in place to pick the best. I think Chewy has been a good example of where it's been a very successful investment for us, but it went completely crazy in '21, '22 with the whole hype around technology stocks, where their share price went from -- the IPO share price around $25 to $120. And so we got suddenly Chewy was over 10% of our portfolio. And now it's come way back down again now to, last quarter, at $15. It's now actually recovered nicely. If you check on the Internet, it's back to the IPO price. So that is a good example of what we don't -- we want to avoid, obviously. Unfortunately, we didn't have control over it because it was a public company, and we can't -- and yes, the fund manager eventually has the control of when they sell out and create realizations.

Yes. And sorry, final question on the Chewy point. I think it's a very good point because, as you say, if a company IPOs, it gets very hard. It goes up, you don't have control because the control is with GP. Is there anything you can do to mitigate that risk, i.e., what I'm trying to suggest to you is, have you ever considered shorting a stock to reduce the risk?

We're not good about -- we're just not good public equity people. I mean when Chewy was at $120, that's why Colm has a lot of gray hair over the last 2 years.

It's more working with Oliver to be honest.

In 10 months. Right. And really -- and we had this discussion with the Board, how do we hedge this, how do we get out, what can we do? The hedging was so expensive and it was so difficult because you have to kind of -- and because it's so illiquid, there's very little exits, it was very difficult to kind of put in your hedges and then finding the right timing to what you're actually hedging against. And frankly, in retrospect, we should have -- we could have paid a lot of money for it.

It would be a lot of money, a lot of decisions.

But it is what it is. It's very difficult. It's incredibly difficult for us to do that. And with -- and we're not just not being a public equity manager and having that share in your own portfolio and being able to manage that.

Just 1 thing or 2. I mean, it's worth noting, it's still despite -- the issue is very much the volatility. It's actually still been a very successful co-investment that's generated over 3x cost. And just on the share price point, actually, also in the context of our discount at the moment, there's been quite an improvement in the stock price. So since our January results, it's up over 25%. And we're going to shortly put out our Q1s, which are up to the 30th of April. And again, this is just based on the listed price, it's up 50% since April. So again, the perils of hedging, if you'd locked in at April, you wouldn't feel too good about it. And just on your point about co-investments, just maybe to give a bit of color on our historical track record. We've only ever lost money on 1 co-investment. And the learning from that, that's telling, this is real word, the learning from that was very much -- I think Oliver had talked through the slide of the characteristics we look for. Because when you depart from those, so this particular company where we lost money, it provided online training courses and it had a very strong market share at the time, but it didn't have very strong barriers to entry. And it wasn't a niche provider. It was very generic, so was subject to a lot of competition and ultimately, a lot of price competition as well. So really, the learning from that was just stick to the knitting, look at those characteristics very closely, don't talk yourself into departing from them.

[indiscernible] the pressure that you could put on them? Realizations are still depressed. And coming out of super return couple weeks ago, there were some comments where people are waiting until 2025. This is a [indiscernible] to '22 to '23 and it's really the -- I think someone compared it to a pig moving through a python. Like this has to get through at some point. Like what is your view on that? And like how much I guess ICG push for that?

It's hard for us to push on that. We can't really do that. And the reason why we're selecting fund managers is because we have trust in them, that they will -- and they are the closer to it, to the market, to the industry. So there are in a better place to identify and understand when it's the right time to realize. And the way how we're setting up ourselves is to be a patient investor. So we need to make sure that we run a very conservative balance sheet. As you know, we're probably one or the most conservative balance sheet amongst our peers, that we can have that patience and don't need to push and to have our fund managers find the right time to sell. We are highly aligned with them. And so therefore, for us to push them, we're just not equipped with the same info as they are. They are the ones who are doing the bank processes, they are the ones who are getting in-calls from the market. So no, that's addressing that point. Your second point was about when is the market going to free up again and when are we going to see a lot of realizations? I mean we do see -- I don't like to say green shoots, but it's more than that. We're -- to Mark's point, with the credit market and financings cost reducing and more visibility on cost of capital, think about 2 years ago or a year ago, we still were debating about where the interest rates in the U.S. are going to land, where is the Fed Reserve actually going to land? Is it 10%? Is it 5%? Is it -- where is it? Where are we landing here? Nobody had really good idea where inflation is going. Now we have a much better visibility. So now the private equity firms and other investors and strategics are much more comfortable pricing aggressively than it was like maybe like just 12 months ago. So we do see that. So we do see a lot more activity in the market. Are we going to go back to the 20 -- to 25% of any mean? No, we're not. Are we going to get into the high teens to maybe even 20-ish? We are fairly confident that we'll certainly have a better year this year than last year. So I think you start to see that coming through over the next 12 to 18 months. When are we going to be back full swing? Who knows? I don't know. I mean, we have a lot of macro risks out there who can impact that.

Just to bring in some of the online questions as well, they build off quite nicely of some of the ones we've had already. So maybe to build off of Hilary's point on geography in U.S. versus Europe, there's questions on sectors. So is there any sectors that are particularly thriving? Or any sectors undergoing weakness that we see currently?

Liza, do you want to take that one?

I think the sectors which we've seen pulling more deal flows are around tech and health care, which are the obvious ones, given they're also defensive characteristics. And I think the valuations for those sectors have remained pretty consistent. They haven't sort of had the sort of big swings. I think if you're going to trade anything you exit. Certainly in the current environment, those are the assets which you're going to sell. But I would say, in general, it's anything that is -- the deals that are happening, we've definitely seen it's a flight to policy, right? So it's all these sort of any company that has sort of a defensive growth characteristic. So tech, health care, also tech-enabled business services, some of the consumer staples. We're seeing actually quite a -- in terms of what our managers are doing, I think the deal flow is actually -- what's getting done is pretty broadbrush. But in terms of our sort of co-investment deal flow, I would say it's more sort of tech and health care focus.

Thinking about secondary sale in Q4 of some assets at a discount, can you just talk about where those assets came from in the strategy? And then also the motivation to selling at a discount? Was it to bring realizations total to a certain level? Or is it more interest to taking sort of interplay with your own discount?

Cover that one?

Yes, sure. So one of the things we do on a half yearly basis is a really detailed portfolio monitoring exercise. And so we go through every single fund, every single co-investment, and we seek to look ahead to see what the future return potential is for those investments. And what we identified from our last portfolio monitoring exercise, or the one last summer, was that there were some earlier vintage funds that had done very, very well. So they generated strong historical returns. But when we looked at the go-forward...

1.8, just to put it in context.

At the discount, so even taking account of the 60% discount, it was a 1.8x return and at [ 20-plus ] IRR. These funds have done really well. But when you looked at the underlying asset, so things like Asda was one of them, we had a chain of -- one of the CVC funds, it was in a chain of Polish convenience stores and given the situation in Ukraine, very difficult to sell assets in Poland at the moment. So when we looked at the individual assets, we realized that there was potentially limited growth potential and then when we compared to the price we could get, very simple terms, the exercise we undertake is can we do better with the proceeds taking account of the discount than just holding on to the assets? And we determined that we were giving away a likely return to the acquirer of around 9%, 10%. And we certainly think that we can do better than that with new investments, but also in share buybacks. So we thought it was accretive to make that sale even though it crystallized the discount.

And we've done pretty much -- almost every year, we've done 1 or 2, some smaller ones, some bigger ones. This was more on the bigger end of secondaries by exactly doing that portfolio management, identifying assets. Were they getting to a maturity where we feel like if we can realize at a good price, it might -- it makes sense to kind of reinvest that money.

And there's other platform benefit as well because having access to Oliver's LP secondaries strategy means that it gives us -- makes us better placed to be able to execute on that.

Link it at all to the discount, the trust itself at all, does that change the motivation at all?

Well, it's been take -- so it's a byproduct to be bloody disciplined. But that discount is an opportunity alongside other opportunities for investment, which nobody's wanted to use, [ take part ] to those.

So we're not looking at it and saying, "Oh, okay, the discount is really high now, we need to look into secondaries." It's more of a -- it's really about the portfolio construction and then looking into what's out there in terms of the price we can get versus reinvesting.

I know you've got a question as well?

Just a quick one. Kind of stepping back to the sector exposure question. Do you actually set targets from portfolio construction perspective on how much exposure to each sector you're looking for?

Liza, do you want to take that?

No, the quick answer is no. No, we don't. I think we'll obviously keep a line of sight over the overall portfolio construction. But at the end of the day, we're dependent on deals coming from our managers. And then we sort of make a selection based on the -- each individual opportunity, but obviously, like I said, with line of sight to the overall portfolio. So we're not going to -- you're not going to find that suddenly the portfolio becomes 90% tech. We are trying to create a diversified portfolio. But inherently, because we've got such a broad base of co-investment partners that invest across so many different sectors, in reality, our co-investment deal flow is very diversified.

We're more bottom-up driven and we're more driven by looking at defensive growth characteristics rather than sector specific. Now if it's consumer discretionary, a retail chain of -- clothing retail chain, it's probably going to be unlikely that we'll be super excited about that because of the lack of defensive growth characteristics.

The targets, obviously, we do set. Even if we don't set the targets, the targets we do set, it's a 100% buyout. We set a geography target as well, which is, as the presenters have said, 50-50 U.S., euro. And then by strategy, 50, 25, 25 primary, secondary and direct co-investments. I just want to bring in a question from the virtual audience as well. So this maybe builds on the question from Jonathan. But instead of the pressure on the exit activity, it's actually a question on investment activity. So the question is, in primary investments, how do you monitor situations where GPs are under pressure to deploy capital towards the end of a fund's investment period and the risk, therefore, of subpar investments? Is that potentially higher? Yes. So we absolutely do monitor that. It's something we're very alive to. However, we -- that's one of the reasons for targeting top-tier managers. We're typically not investing in first-time funds; we're investing in managers that have demonstrated a long historical track record, basically not doing things like that, being well aligned with their investors. So we're typically investing with managers that have been through different cycles. We would pick that up, however, if that was happening from our portfolio monitoring. So we're not just looking at what's in the ground, we're also looking at what the outstanding commitments are. I would say, in the last few years, we haven't really identified very many instances of that happening. Perhaps that's been because of the more active deal environment. We would pick that up. And I think if we were worried that a manager -- and this is very hypothetical, it's not something we're worried about at the moment, but if we saw that to the portfolio, we would obviously engage with the manager. But we would also, in extreme, must be able to sell the position as well. If we took a different view to the rest of the market, we have the ability to sell the position. But as I say, our current stable of managers, we don't think that's a significant risk.

So these people actually are being more selective because they understand that some of -- because the fundraising environment is tough, actually, some managers are actually trying to extend the life of their current fund because they don't want the fund raise right now. They're trying to sort of keep -- so they're actually being more selective. And actually the co-investment point, they're putting in less equity on purpose, that they're sort of undersizing some investors just to put in a few more platforms before they complete the fund. And also some of them are overinvesting. So again, just to juice up the returns, so they're recycling proceeds and overcommitting, so we've seen that increasingly so by the -- over 100% committed just to bolster the overall returns of the fund. So I think all those various sort of anecdotes sort of give us comfort that we're not seeing people just trying to rush capital out the door to raise the next fund.

Who's got the power in terms of loan covenants right now? Because I suppose in the 5 and 10 years prior to 2022, we heard a lot about [ covered line ] loans and how GPs were benefiting from them. But was that pendulum swing post 2022?

I think if you look at the bulk of issuance today with large cap sponsors, some large cap sponsors will simply just not do a deal with a covenant, with a financial maintenance covenant. Now from a lender perspective, we have covenant protections within the documentation to stop them dropping assets out of the group or incurring incremental debt ahead of you and so on and so forth. So I guess where we end up around the table, if we're doing a deal today with the [ senior ] members, whether it's CVC, within Apax, it's really nonpayment of interest. That's where you first expect a covenant that you have to bite. But I think when you look more at perhaps the mid-market transactions, you will ultimately see more deals with a financial covenant. I think the upper mid-market to the large cap space, it's quite rare. And that's because you have greater functioning in term loan B market, which is what we call it, 95% plus cov light. And the more direct lenders like ourselves, which are trying to do more with the large-cap sponsors, they just simply won't accept a financial maintenance covenant. But where we do get the situation currently, with CVC, where we think we will, it's typically set with 40% headroom to opening leverage. So there's still meaningful headroom on that.

Great. Well, we've sort of seen the figures on revenue growth, the EBITDA growth looking strong. What visibility and what trends are you seeing in the sort of post-tax figures and -- post-interest figures, sorry, and cash flow generation, post-debt repayments? And anything you'd highlight there?

Look, I mean, if you look at the current growth rates compared to historically, and I'm talking about historically now 10, 20 years, 30 years ago, I mean there are some fantastic sectors, when we talk about it, in terms of the overall. There's a lot of stuff going on in the overall economy in which private equity has access to, which is growing really nicely and it's growing bigger than GDP. Therefore, overall, you saw the numbers, our portfolio, vis-à-vis private companies, Europe versus, let's say, overall private companies, have been showing very high resilience and great growth, even if you account for leverage. However, what we will have to be very clear about is that what has happened since GFC to 2022, that low cost of capital and the incredible loan loss ratios was probably, historically, we're probably never going to see this again. So it is coming back to normal. I'd say, we're not going to look at loss ratios at close to 0 or below 2% default risk. It's going to go back to private equity and more historical norms, which is going to be somewhere around -- I mean, Mark, you help me out here. But those are probably somewhere around 6% to 8%. That's kind of where it's going to go back to. But that doesn't give me sleepless nights because that's kind of what historical average is. You will always have some loss ratio, just nature of debt having more leverage. But the portfolio in terms of earnings is in really good health, but you will see more defaults.

I was looking to some at data. There's more data coming out of the U.S. for this rather than Europe, but the default rate as at Q3 2023 for U.S. companies with EBITDA of greater than $50 million is at 1.2%. Now that does increase with smaller companies. So if the company's between $25 million and $50 million of EBITDA, it's almost double at 2.5%. But if you think about that in the context of Q3 2023 where the cost of debt was and where we think it's going, I guess, just anecdotally, to pick a particular situation that I was looking at earlier this year, alterDomus fund management provider, a majority stake was acquired by Cinven, they priced their new term loan Bs at 375 over in both euros and dollars. I was trying to position ourself on that. We were wider than that, but that gives you an idea of where pricing has come in from, call it, 475, 500 in the term loan B market 12 months ago, to where we are today for top quality credit and was at 375 for 400. So if you think if default rates are at 1.2%, then we're in a better market environment today.

Two more questions from the online audience. One is just factual. So one is are the 5- and 10-year NAV returns shown in the slides, gross or net returns? So the slides -- well, the performance figures shown on Slide 5 and the 14.6% NAV per share annualized return over 5 years that Jane quoted at the start, is net of all fees and costs. That was one factor question. And then maybe another one for you, Jane, if you want to bring it back to the top, as I'm conscious of time. This person, unless they joined late, and I think people understand well our progressive dividend policy, but could we just elaborate a little bit more on the difference between our 2 buyback programs and just explain the criteria on that how you think about it?

Absolutely. We've got the ongoing buyback program, which started in October '22, and we've deployed GBP 24 million on that so far. And that's daily [ servicing ] to our broker, Sam, engaged everyone well as we go through that. And to a certain extent, that helps, as I said, if you -- if the question that came in late, we -- to a certain extent, it helps us to mop up the savings scheme program, the drips of that. The -- and that's worked very well. But what we became frustrated with was the 35% discount and the ability to make some money out of that, the confidence we've got in our NAV. So we put in recently the opportunistic buyback and we've allocated GBP 25 million to that. We've spent GBP 7 million on that already. To put in context, we spent -- it was -- we gave shareholders back 3% of the NAV in last year to '24 -- to January '24. And if it keeps going at this rate, it could be 5% of starting NAV this year. But what we're very keen to do, and, I mean, poor old [ James Sam, get me on a [indiscernible], we are not crowding out anybody else. Natural buyers come first. But we're there. If there is a big seller, not a natural buyer, we can buy it at a decent price where we think we're going to make money, versus -- and our managers are very much behind that. It's one of the tools in our box. And the Board's keen to take advantage of that.

I think it's worth adding as well, it's massively improved liquidity for investors and potential investors. It's really improved the volatility of the share price as well. We know this is a kind of slow and steady game, so we don't want the big moves that you sometimes get with listed markets, so it's massively held that. And obviously, buying at such a discount has been very NAV accretive.

Super. Well, I'm conscious of time and also the room hire as well. So there are no further questions online. Any final question in the room here? Super. Well, if there are any follow-up questions, the e-mail address is on the conclusion slide, I think Slide 35 or 37. So very welcome to e-mail myself or the team if there are any follow-up questions. Otherwise, thank you very much both in person and virtual attendees, and we'll close there.

Thank you.

Thank you very much.

Thanks.

Thank you very much.

Thanks.