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

Good morning. Welcome to ICG Enterprise Trust's Q1 Trading Update for the 3 months to 30th of April 2026. 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, along with the accompanying results announcement, are available on our website. We will have time for Q&A at the end of this presentation. So if you'd like to submit a question, please do so through the online portal you see on your screens. We'll then aim to answer those at the end of the session. With that, Oliver, over to you.

Thanks, Martin, and thanks, everyone, for joining the call. Firstly, a few reflections on the first quarter, the 3 months to 3rd of April 2026. As we all know, the economic volatility was very high due to the start of the Iran war and the concerns in regards to the software sector. As an example, the VIX rose to over 30 at the end of March. But despite this continued uncertainty, our underlying private company fundamentals have remained robust, and our portfolio continues to perform well. And Colm will go into a little bit more detail in regards to the performance. Public market software companies saw an increase in share price volatility. This was mainly due to concerns over the impact of AI on the sector. However, our portfolio has seen little impact. Our software exposure is only 12% and mainly focused on mission-critical areas such as cybersecurity, accounting, payroll and compliance, which can actually benefit from AI. And more broadly, the portfolio benefits from multiple different sources of growth, such as changes in consumer spending patterns, shifting demographics or increasing regulation. And Colm will also mention later some real case examples in regards to some of our co-investments in those sectors. And finally, we have always said that manager selection is very important in private equity since the performance gap between the top tier and the bottom-tier managers is bigger than in most other asset classes, which means in a volatile market environment, it is even more important to continue to invest in the top-tier private equity managers with strong track records and through cycles. So therefore, we continue to invest selectively alongside our top-tier managers, both long-established relationships like Gridiron, but also finding, identifying newer partnerships such as [indiscernible]. So we continue to scan constantly the entire U.S. and European private equity landscape in our search for new high-quality managers. Before we go more in depth in the presentation, let me take the next few minutes to outline our investment strategy, particularly for newer shareholders. As many of you know, we aim to capture private equity returns while managing risk through a focused investment strategy. Our investment strategy is really designed to generate top-tier private equity returns, but also reduce the risk and the liquidity of the asset class. And this is how we achieve this goal. Firstly, we reduce risk and increase liquidity by focusing on mature buyouts, profitable cash-generative companies. We believe mixing venture capital and growth capital into the portfolio will increase the risk and decrease the liquidity. Second way how we reduce risk and increase liquidity is by investing primarily in developed markets, North America and Europe, where the depth and quality of private equity managers is the strongest. Third, we focus on mid-market deals, companies with an enterprise value of typically $250 million to $2 billion. This is the sector they're small by public market standards, but we think a sweet spot of good companies, market-leading companies in their sectors, in their niches and where they can be transformed into market-leading great global companies. And this is part of the market, which is also the most liquid part of the private equity sector, where there are many exit options. And the fourth filter is that we only partner with top-tier private equity managers with proven track records and who have proven to generate excellent performance through cycles. And finally, we try to further enhance the resilience and the growth of the portfolio with co-investments and secondaries. And that allows us to give us more exposure to the best companies and ideas of our managers. So if you put this all together, that gives us a diversified portfolio of resilient companies with a more consistent return profile, more liquidity and better realizations where the performance is less cyclical or seasonal. What we're trying to achieve is really driving our portfolio with strong and consistent compounding returns. Now we asked ourselves, has our strategy delivered the promise of high returns but less risk in practice. And this is what you see on the next slide, and let's look at the data. On this slide, we plot the Enterprise Trust and our peers on a risk return graph. It is simply the NAV per share total return against the standard deviation of those returns looking at on a quarter-by-quarter -- on a quarterly basis. It's not a standard industry measure, but we think it is useful to illustrate how the Enterprise Trust compares with peers from a portfolio construction perspective. And as you can see here, the data shows that since January 2020 as well as from a 5-year return perspective, the ICG Enterprise Trust ranks first amongst the peer group, and we delivered sector-leading returns per unit of risk. For us, it is important that we deliver not just market-leading absolute returns, but also the right balance of return and risk. This is consistent with our resilient growth strategy we just talked about to deliver strong returns whilst managing risk. And with that, Colm will now talk you through the Q1 numbers.

Thanks, Oliver, and good morning, everyone. Just taking a look at the most recent quarterly review, that's the quarter to the 30th of April 2026. NAV per share stood at GBP 20.36p. And over the quarter, NAV per share total return was 0.1% up and portfolio delivered a 0.2% return on a sterling basis. So in both cases, reasonably flat. Looking at the longer-term track record, though, over both 5 and 10 years, you can see that NAV per share and share price total returns remained strong on an annualized basis. We also continue to return capital to shareholders. GBP 14 million was returned through buybacks in this quarter alone. For reference, that means 11% of our opening share count has now been bought back since our buyback program launched in October 2022. And that's complemented by our progressive dividend policy. The Board has announced a Q1 dividend per share of 9.5p and intends to pay total dividends of at least 42p for FY '27. On the investment activity, during the quarter, we made GBP 34 million worth of new fund commitments, the largest of which was to Gridiron VI. I'll go through our relationship with Gridiron a little bit more about the manager in a second. We made GBP 22 million worth of new investments, and we had another good quarter of proceeds. Totally GBP 51 million, and that was largely driven by the exit of 2 of our top 30 companies, that's Curium and Yodo. For the 54 full exits we've had in the last 12 months, they generated a strong return of 3.1x cost, and they continue to be sold above their book value, which you can see from the average 10% uplift to carrying value. Moving on to spend a little bit of time on Gridiron. Gridiron, as I mentioned earlier, was our largest new fund commitment during the quarter. It is one of our long-standing manager relationships. We committed to Gridiron Fund III, IV, V, and now we just committed $25 million to Gridiron Fund VI. It has all of the attributes that we look for in a high-quality manager. It's an investment strategy, investing in the U.S. mid-market that's very aligned to our own. Gridiron focuses on originating resilient mid-market companies. They have a very strong track record across a variety of different metrics, especially their third fund, the first one we invested in, which is one of the leading funds of its vintage. And it's a very strong source of co-investment deal flow. Over the years, we've invested with Gridiron in -- and you can see the logos on the slide here, AML Rightsource, which is a leading -- it pretty much does what it says on the tin. It helps companies comply with anti-money laundering regulations. [indiscernible] Valuation, which provides mortgage appraisals; Vistage, which is an executive coaching organization for small and midsized businesses; and Greenix, which is a pest control company. So you can see through that as well, it's also a very diversified approach with lots of different underlying growth themes. Turning now to our balance sheet. We remain in a strong financial position. At the 30th of April 2026, we had GBP 225 million of total available liquidity. We had GBP 34 million of net debt, and that's set against the portfolio value of around GBP 1.3 billion and an over commitment ratio of 34%. We believe this positions us strongly with one of the lowest gearing ratios in our peer group. And that gives us financial flexibility, which we believe is really important in this environment. That financial flexibility gives us the ability to continue to invest into high-quality new investments, maintain vintage diversification, and that helps to support long-term growth in our portfolio. It also enables us to continue to enhance shareholder returns through both buybacks and dividends. So finally, to conclude, what are our thoughts as we look ahead? Firstly, as Oliver noted in his introductory remarks, we see AI as a potential growth opportunity across the portfolio and not really so much as a threat. In particular, private equity ownership with its long-term patient capital is very well suited to helping companies adopt new technologies. It has great potential to improve margins, drive operational efficiency across our portfolio companies, including many industries, which you might not expect to be especially relevant for AI. Secondly, we continue to focus on the medium-term evolution towards having more secondaries and directs in our portfolio. Primaries continue to form the bedrock of the portfolio, but secondaries directs give us more discretion over deployment. They allow us to take advantage of the platform we have here at ICG. And above all else, they offer attractive risk-adjusted return profiles. And finally, the broader market backdrop, we believe is supportive of a recovery in activity. ICG Enterprise has already seen strong realization activity over the last 18 months, including the realization of 9 of our top 20 companies. But this trend has not been seen in the broader market, which continues to be more muted. We believe that conditions are in place for recovery to occur. And we believe that as transaction activity picks up, confidence improves and hopefully, interest rates become more stable, you can see that there could be some catalysts for recovery in those activity levels across the industry. So with that, I'm just going to pass back to Martin for the Q&A.

Fantastic. Thanks, Colm. We now have about 10 minutes or so for Q&A. So as a reminder, please feel free to submit questions via the Q&A box you see on the webinar platform. We'll try and group them into themes. A few of them have come in already. Firstly, on realizations, -- the question is -- or maybe I merge 2 questions. The question is you reported a good level of exit activity in Q1. What's your expectations for Q2? And maybe I merge that with this other question that's come in, which is GBP 51 million of realizations in Q1, that's a 4% realization rate. If you straight line annualize that, probably about 16% for the year. Any thoughts on whether we can hit mid-teens realization rate. So really 2 questions, one on expectations for Q2 and then if we can think for the rest of the financial year as well, if you have any thoughts?

Well, we do see some activity. We have had actually the second quarter remains quite active in terms of realizations. Yes, annualized, we are around the kind of mid-teens. We are hopeful, however, obviously, no guarantees, no clear visibility, but that we can do better than that. And so therefore, we're hopeful that we're going to end up in the kind of high teens to close to 20%. Now obviously, that's just looking at kinds of what we're expecting coming through, but that is highly dependent on where the market environment and what the exit environment looks like. So we're not in control of that, very driven by macroeconomic factors, which will -- hopefully will be positive in the next 2 to 3 quarters.

Great. Thanks, Oliver. A few questions on new investments. So what is the opportunity set that we are currently seeing? We've -- in Q1, total new investments of GBP 22 million. So a quieter quarter. As we said, are we investing selectively? Is there nothing interesting? What's the opportunity set we're seeing at the minute?

Yes. So I think sometimes you can see might look like we haven't been very busy. But actually, we've been working very hard on a number of different co-investment opportunities in particular. We are being very, very selective. There are clearly a number of industries that may be for which AI is more of a risk. There are clearly some challenges around valuation in certain sectors. And we have -- so we're taking advantage of the breadth of relationships that we have and the rich opportunity set really just to select the best deals that deliver the kind of risk/reward profiles that we look for. We've got -- we're very confident that we'll deploy our full co-investment program this year. But it's -- as I say, it's really, really selective. And it's also worth noting that as transaction volumes in the broader market have been quite light, and that obviously reduces the opportunity set to some degree as well.

Great. Thanks, Colm. A question on AI. How is it affecting your portfolio of companies? And if there's any examples or case studies of how it's being embedded into some of our portfolio company workflows?

So that really impacted on several levels. Number one is it's -- every company is currently looking into and playing around with AI to find ability to increase efficiencies. And we're seeing already some great success in some companies, in particular, reducing cost. The other is the other level of opportunity as well as threat is to make sure that you adopt your business strategy with AI and making sure that you understand how AI is doing that. And that is the benefit of actually in particular being with some larger fund managers and institutional fund managers because they see this in several of their portfolios, so they can be almost an consultant/being able to implement best practices across their portfolio of middle market and upper middle market companies. So we're seeing that live at work. You've seen probably some of the larger fund managers getting together to sponsor AI initiatives, and we have been invested in some of those funds as well. And then on the software side, you'll see that there is a diversion happening between mission-critical software where horizontal software where AI becomes actually a real important factor or can be integrated to make the software even a better tool and some software where it gets actually threatened by it. And so we're obviously looking into our portfolio, making sure we monitor that. The good news is that our software exposure is not that high so that we're -- even if there are some threats, our exposure is fairly small. Do you want to use some case examples?

Yes. Maybe just -- I think one of the points we made on the call was that very often, AI can be very useful in an industry so you don't necessarily -- it's not an obvious AI angle. Maybe one that is quite intuitive though is Class Valuation. Class Valuation is a company which performs mortgage appraisals in the U.S. And that's historically been a very kind of analog industry, people turning up and get boards, taking notes, taking a few photos, going away and it taking quite a long time to produce the actual report. The mortgage -- all of the people involved in mortgages, whether it's the lenders or the borrowers have an interest in those reports being much quicker, much more accurate. AI provides a number of efficiencies, but also improves the quality of the output as well. So they've been very Gridiron. And it also reminds you that one of the other advantages of the private equity model is that you have a manager that has a number of different portfolio companies. And all the time, they're learning what works. So what works for, say, Class Valuation, which is a mortgage appraiser, you probably -- you get some learnings from a company as well like Greenix because pest control, both fundamentally are mobile workforces. So you can apply those learnings best practice, and you also have the benefit of scale across the portfolio. So it's a very sort of integrated and very operationally focused approach. So we're really seeing in Class Valuation that making quite a big difference in the operating margin and this is just the beginning. I mean it's a very nascent technology. So we think there's plenty of scope for a very transformative change in companies like Class. And we've seen that as we look across the top 30, we can see those examples across the portfolio.

Great. Thanks. One final question has come in just on the U.S. Obviously, there's been quite a bit of volatility in the U.S. over recent months and quarters with 50-50 U.S., Europe. Are we still committed to that region? And what are we hearing from our U.S. managers? Maybe Colm, just because you came from San Francisco recently, might be a...

Listen, U.S. politics is very volatile. But the U.S. economy continues to have very strong fundamentals. The U.S. buyout market is still around 70% of the global total. And it continues to be, in our view, like a very rich source of very high-quality top-tier managers and really strong opportunity. I mean one of the interesting things is that, to a large degree, what we see in the U.S. mid-market is quite divorced from what's going on in Washington. The real economy is still functioning pretty well. And it's worth noting that Martin came back from San Francisco, this is -- San Francisco is the epicenter of the sort of AI revolution at the moment. The U.S. is still a sort of cradle of entrepreneurial spirit, economic growth, innovation. So we think it's an important market, and we'll continue to seek out investment opportunities there.

Great. Thanks, Colm. Thanks, Oliver. I don't see any further questions online. If there are any follow-up after this webinar, please feel free to contact the e-mail address that you can see on your screens. With that, Oliver, Colm, thank you very much, and thank you all for joining today.

Thank you.