ICG plc (ICG) Earnings Call Transcript & Summary

Good morning, and thank you for joining us today. I'm delighted to have this opportunity to talk through our updated asset classes for the purposes of financial reporting. I will touch on what we're changing, why we're doing it and highlight some of the financial metrics that flow out of this change. The pack has a lot of historical information to help you, and I will not go through it all on this call. However, please do reach out if you'd like to discuss in more detail. [Operator Instructions] Finally, it's important to note that this change has no impact on our consolidated IFRS results or on the calculations or definitions of our APM reporting. To start, as you know, ICG is a global alternative asset manager investing on behalf of our clients. We provide flexible financing solutions across the capital structure to help companies develop and grow. You see on this page the 4 new names of our asset classes: Structured and Private Equity, which provides structured and equity financing solutions to private companies; Private Debt, which provides debt financing to high-quality corporate borrowers; Real Assets, which provides financing solutions in the real estate and infrastructure sectors; and Credit, which invests in primary and secondary credit markets. There are a number of reasons for us making this change. Firstly, we think this reclassification clearly articulates the breadth of our product offering. Secondly, it also makes it easier for our shareholders and other stakeholders to look at our businesses in relation to other listed alternative asset management firms. And thirdly, each of these asset classes has clear characteristics that help stakeholders understand what we do and the value we create from investments in the relevant asset classes, and I'll touch on this later on. And finally, this is also how we talk about our asset classes with our clients. Moving on to Page 3. This shows how our existing and future strategies sit within the new asset classes. So what has changed? Previously, 2 of our asset classes were called corporate investments and secondary investments. The strategies that sat within these asset classes have been regrouped and now sit within either Structured and Private Equity or Private Debt. The 2 asset classes of Real Assets and Credit have not changed, although we have changed the name of the latter to more accurately reflect what it does. Turning to Page 4. I mentioned earlier that one of the drivers of this change is to ensure that each of these asset classes has clear characteristics, and we set these out here. On this page, you can see the duration of the assets we manage, the blended target management fees and the underlying fee basis. This provides the foundation of the visibility we have on our fee income and the resilience of that income stream. The strategies within Structured and Private Equity target high returns. In line with the rest of the market, this enables us to charge attractive fee rates and to charge on committed capital. This results in a very attractive financial profile for these strategies. I'll flag that within Real Assets, real estate debt is typically a slightly lower fee and charged on invested capital. Whereas equity strategies within that asset class, for example, infrastructure equity or sale and leaseback, are higher fees and charging fees on committed capital. So in summary, as there's some variation within each asset class, these high-level characteristics should be helpful to understand the dynamics of our business. At a group level, on the next page, we show the breadth of our platform. You can see from the first 2 pie charts that our business is very broad and diverse in terms of product offerings. On the right-hand side, we show how the higher fee rates on committed capital lead to Structured and Private Equity contributing just over half of our third-party fee income. ICG has focused on developing strategies with private equity-like characteristics, strategies that charge higher fees and on committed capital. The majority of our emerging and seeding strategies have these characteristics, and we expect that trajectory to continue. And I will also touch on this later on. This presents a compelling financial profile for ICG as we continue to execute on our growth plan. In the appendix of this pack, there's more information on each asset class and the details of the historical third-party fee income. I will pause here for a moment as I think there's an important message that comes from these 2 pages. We are still seen by some in the equity market as "a credit shop." This, however, is absolutely not the case. Our strategies have evolved and broadened. And today, we're investing our clients' capital across the capital structure. As we think about the characteristics of our business, our medium-term growth potential and how ICG should be seen in relation to our listed peers, this is a very important point to get across. And hopefully, these 2 pages make that crystal clear. The importance of this becomes very clear as we turn to this page, where you can see how attractive the alternative market as a whole is and the strong growth it has experienced in recent years. We have performed very well compared to the wider market. In the 5 years to the calendar year 2020, our AUM growth outperformed the market by almost 60%, growing at 19% CAGR compared to the market growing at 12%. This market growth is expected to continue across all asset classes. And I would make 2 specific points: the breadth of our platform means that we're able to capitalize on this growth opportunity across all asset classes; and the market is huge, $7 trillion in 2020, forecasted to be $12.6 trillion in 2025. Our current market share is very tiny, and there is substantial opportunity for us to capture market share in all asset classes. Turning to Slide 7, which shows our third-party AUM growth historically. This is not new, but I wanted to reiterate this trajectory because it underlines our track record of growing and broadening our platform. You can see that, that growth has come from all 4 asset classes. I think this track record is pretty extraordinary. And you can clearly see the acceleration we have enjoyed in recent years, a 25% CAGR between FY '17 and FY '21, and we've almost doubled our third-party AUM between March 2018 and June 2021. Turning to Slide 8, which helps contextualize our growth opportunity in the medium term and which we showed during our full year results in June. I've included here a gain because the quality of that growth opportunity is made even clearer by the new asset classes we are announcing today. I would emphasize 2 key takeaways. First, the point I made earlier that ICG has increasingly focused on developing strategies with private equity-like characteristics, strategies that charge higher fees and on committed capital. Both our most recent strategies, sale and leaseback and infrastructure equity within Real Assets, are equity strategies and charge fees on committed capital. And 4 of our 5 seeding strategies will be equity strategies charging fees on committed capital. Secondly, the breadth of our platform, the embedded growth within it and the track record we have in seeding and growing new strategies. It takes time, years to do, and it's highly profitable. It has generated significant shareholder value over the years, and I'm confident it will continue to do so. And so to conclude, it's an exciting time for ICG. We have shifted dramatically over the past few years. Today, we are an alternative asset manager investing on behalf of our clients, providing flexible financing solutions across the capital structure to help companies develop and grow. The new asset classes that we are announcing today are an important step in helping ensure our communication to the capital markets is clear, transparent and reflective of ICG today. As we said in our full year results, there's a lot more to come. As we think about the medium-term opportunity and beyond, it's very substantial across all of our asset classes. Thank you all for your time. And now I'll take any questions you may have.

Thank you, Vijay. [Operator Instructions] We have a couple of questions already. First of all, does this change how you manage the business internally in any way?

No, not at all. This is a reclassification of the strategies within the asset classes. We are not changing the way we manage our business at all.

The second question is, do you expect any earnings upgrades as a result of today's announcement?

No, not at all. Once again, it's a reclassification of the asset classes. And we hope that we are now going to be able to be more comparable to all of our peers. If anything, I do hope this will result in a re-rating of our multiples as we are compared to the higher-rated peers which do have similar asset classes as us.

We currently don't have any other questions, Vijay.

Thank you. If there's no other questions, I will conclude here. If there's any other questions that anybody else have, please do reach out to Chris Hunt, our Head of Shareholder Relations, or myself. Thank you all for your time today.