ICG Enterprise Trust PLC GBP · LSE:ICGT
ICG Enterprise Trust PLC GBP — Graphite Enterprise Trust — Winterflood Investment Companies Conference 2012
46 slides from ICG Enterprise Trust PLC GBP's conference presentation, Jan 26, 2012
Slide 1: Listed private equity
Listed private equity Rod Richards Winterflood Investment Companies Conference 26 January 2012 0
Slide 2: Winterflood Investment Companies Conference – January 2012
Winterflood Investment Companies Conference – January 2012 1. Introduction 2. The private equity model 3. Funds of funds 4. Listed private equity – overview 5. Listed private equity – five year history 6. Listed private equity today 7. Graphite Enterprise 1
Slide 3: 1. Introduction
1. Introduction GRAPHITE ENTERPRISE
Slide 4: Graphite Enterprise is one of the longest established private equity companies
1. Introduction Graphite Enterprise is one of the longest established private equity companies Listed on the London Stock Exchange in 1981 – £23 million raised in total – Investments exclusively in private equity – Managed by Graphite Capital throughout its life Net assets of £411 million at 31
Slide 5: Graphite Capital is the Manager of Graphite Enterprise
1. Introduction Graphite Capital is the Manager of Graphite Enterprise A leading UK mid-market private equity firm with £1.2 billion assets under management – Direct investments in UK mid-market – more than £800 million – Fund investments and co-investments – more than £400 million – Graphite Ente
Slide 6: 2. The private equity model
2. The private equity model GRAPHITE ENTERPRISE
Slide 7: Private equity has an attractive operating model (1/2)
2. The PE model Private equity has an attractive operating model (1/2) •Investors’ interests are closely aligned with PE managers and portfolio managers Interests are •PE managers receive a share of gains if hurdle return rates are achieved aligned •Company management teams invest in the equity of t
Slide 8: Private equity has an attractive operating model (2/2)
2. The PE model Private equity has an attractive operating model (2/2) •PE owned companies have significantly fewer disclosure requirements Decision making is •Decisions can be based on business fundamentals rather than PR concerns long term •Long term plans can be agreed which involve short term re
Slide 9: The PE model
2ThePEmod | KURT GEIGER SSIS] ‘ GRAPHITE
Slide 10: PE-backed companies can make good returns in a hostile environment
2. The PE model PE-backed companies can make good returns in a hostile environment Case study – Kurt Geiger A leading UK-based retailer of luxury footwear and accessories Acquired by Graphite Capital in a £95 million secondary buy-out in February 2008 Developments under Graphite Capital ownershi
Slide 11: 3. Funds of funds
3. Funds of funds GRAPHITE ENTERPRISE
Slide 12: How does a private equity fund work?
3. Funds of funds How does a private equity fund work? Institutional investors commit to funds at the outset – typically for ten years PE managers identify, buy, manage and sell companies to generate returns Traditional funds typically have a five year investment period Cash is only drawn fr
Slide 13: Good private equity managers generate strong returns in any environment
3. Funds of funds Good private equity managers generate strong returns in any environment 25th and 75th percentile net returns for UK PE funds, by year in which the fund was raised 12 Source: BVCA Performance Measurement survey 2010
Slide 14: Manager selection is the key determinant of performance
3. Funds of funds Manager selection is the key determinant of performance Fund of funds managers are in the strongest position to select the best managers Significant due diligence is performed prior to investment: – Realised track record – Unrealised portfolio – Management team – Strategy and m
Slide 15: 4. Listed private equity
4. Listed private equity GRAPHITE ENTERPRISE
Slide 16: The listed sector is small compared with the private equity market as a whole
4. Listed PE The listed sector is small compared with the private equity market as a whole The UK listed private equity sector has a market capitalisation of €7.5 bn * This compares with European institutional funds raised in the last five years of €164 bn Sources: fundraising: Preqin; market ca
Slide 17: Listed private equity has many advantages
4. Listed PE Listed private equity has many advantages Traditional private equity Listed private equity Accessibility • Minimum investment of €5 million or more? • No minimum purchase value Liquidity • Locked in for the fund’s 10 year life? • Shares traded daily on recognised exchange Vintage year •
Slide 18: The potential concerns are a widening discount and managing commitments
4. Listed PE The potential concerns are a widening discount and managing commitments Listed private equity companies typically trade at a discount to their net asset value – Investor returns are at risk if the discount widens – When discounts are wide this represents an opportunity – Some companie
Slide 19: London-listed PE funds have assets of more than £9bn
4. Listed PE London-listed PE funds have assets of more than £9bn Last reported NAV Fund Type Focus (£m) 3i Direct Global 2,804 Candover Direct Europe 183 Dunedin Direct UK 158 Electra Direct Europe 821 Hg Capital Direct Europe 363 SVG* Direct Mainly Europe 1,046 Total direct NAV Direct 5,376 Aberde
Slide 20: 5. Listed private equity – five year history
5. Listed private equity – five year history 19
Slide 21: Traditional private equity funds performed well through the '90s and early '00s
5.Five year history Traditional private equity funds performed well through the ‘90s and early ‘00s Net fund IRRs by vintage year (pooled basis): Source: BVCA Performance Measurement survey 2010 20
Slide 22: As a result, fund raising increased substantially
5.Five year history As a result, fund raising increased substantially Source: Preqin 21
Slide 23: Listed private equity funds also performed strongly over ten years to 2007
5.Five year history Listed private equity funds also performed strongly over ten years to 2007 Years to 31 Dec 2007 3 5 10 PE NAV total return * 91% 142% 249% PE Share price total return * 72% 158% 246% FTSE All-Share Index 50% 105% 82% * Simple averages. Source: Morningstar. 22
Slide 24: Balance sheets were based on an assumption of continuing favourable conditions
5.Five year history Balance sheets were based on an assumption of continuing favourable conditions Commitments less cash or add net debt, as a percentage of net assets, 2007. Excludes undrawn bank facilities. Candover pro forma for commitment to Candover 2008 fund made in 2008. Source: Morningstar.
Slide 25: In Q4 2008 share prices of listed private equity fell very sharply
5.Five year history In Q4 2008 share prices of listed private equity fell very sharply Source: Morningstar. 24
Slide 26: The impact of the financial crisis on private equity was uncertain
5.Five year history The impact of the financial crisis on private equity was uncertain The market was concerned that: – Listed funds were overcommitted and might not be able to meet drawdowns – Secondary funds were trading at high discounts – PE funds had paid high prices for recent acquisitions –
Slide 27: Valuations subsequently fell reflecting the changed market conditions
5.Five year history Valuations subsequently fell reflecting the changed market conditions NAV performance from 31.12.07 to lowest reported point (reporting currency): Source: Morningstar. 26
Slide 28: However performance in the four years to Dec '11 was stronger than anticipated
5.Five year history However performance in the four years to Dec ‘11 was stronger than anticipated % NAV performance from 31.12.07 to 31.12.11 (total return, reporting currency): Source: Morningstar. 27
Slide 29: The resilience of portfolios through the downturn demonstrates that the model works
5.Five year history The resilience of portfolios through the downturn demonstrates that the model works PE managers responded rapidly to the downturn – Companies took early action to address trading issues – Banking facilities were renegotiated Earnings have increased faster than those of listed
Slide 30: … but share prices have not reflected this performance
5.Five year history … but share prices have not reflected this performance NAV and SP performance from 31.12.07 to 31.12.11 (total return, reporting currency): 29
Slide 31: 6. Listed private equity today
6. Listed private equity today 30
Slide 32: The listed sector has de-geared and reduced commitments
6. LPE today The listed sector has de-geared and reduced commitments The investment pace in 2009 was slower than anticipated Commitments have been reduced through sales or other mechanisms New capital was raised e.g. ZDPs, rights issues Bank facilities have been put in place or renewed Rea
Slide 33: Overcommitment levels have been reduced significantly
6. LPE today Overcommitment levels have been reduced significantly Commitments less cash or add net debt, as a percentage of net assets. Excludes undrawn bank facilities. 32
Slide 34: Discounts are high compared to historic averages
6. LPE today Discounts are high compared to historic averages Before the financial crisis, sector average discounts were 14%, compared to 36% since Data set varies reflecting when each fund was listed. Source: Morningstar. 33
Slide 35: Despite a 37% discount, the long term performance of the sector has been strong
6. LPE today Despite a 37% discount, the long term performance of the sector has been strong Years to 31 Dec 2011 5 10 15 20 PE NAV total return * 12% 100% 251% 981% PE Share price total return * -22% 62% 192% 922% FTSE All-Share Index 6% 59% 127% 378% Opening discount -5% -17% -16% -29% * Simple av
Slide 36: Although the concerns of 2008 no longer apply, discounts remain high
6. LPE today Although the concerns of 2008 no longer apply, discounts remain high Overcommitment: - Balance sheets have been significantly strengthened High secondary discounts - Secondary market discounts are now 0-15% for high quality managers High prices for acquisitions: - Recent acquisiti
Slide 37: Discounts are more likely to narrow than to widen
6. LPE today Discounts are more likely to narrow than to widen Private equity discounts remain wide relative to the investment trust sector Periods where PE was at a premium to investment trusts generally 36
Slide 38: 7. Graphite Enterprise
7. Graphite Enterprise GRAPHITE ENTERPRISE
Slide 39: Graphite Enterprise has an attractive business model
7. Graphite Graphite Enterprise has an attractive business model Hybrid funds of funds / direct investment model – UK mid-market through Graphite Capital’s own buy-out funds – Other sectors and geographies through third party fund investment and co-investments – Typically 20-25% through Graphite C
Slide 40: Graphite Enterprise has consistently outperformed the sector and the Index
7. Graphite Graphite Enterprise has consistently outperformed the sector and the Index NAV total return Years to 31 Dec 2011 1 3 5 10 15 20 Sector average 7% 7% 12% 100% 251% 981% Graphite Enterprise Trust 15% 28% 31% 128% 390% 1520% FTSE All-Share Index -3% 44% 6% 59% 127% 378% SP total return Year
Slide 41: Balance sheet management has been consistently prudent
7. Graphite Balance sheet management has been consistently prudent Dec Oct Graphite Enterprise 2008 2011 Cash/net debt1 42% 15% Total liquidity (cash + bank facility)1 42% 29% Overcommitment %2 51% 18% Peer Group average 3 Cash/net debt (8)% (7)% Overcommitment%2 91% 39% Graphite Enterprise has ha
Slide 42: Graphite's performance demonstrates the attractiveness of the listed PE model
7. Graphite Graphite’s performance demonstrates the attractiveness of the listed PE model The Graphite Enterprise net asset value has: – Outperformed the FTSE All Share Index in 16 of the last 20 financial years* – Outperformed in every three year period in the last 20 financial years* – Only unde
Slide 43: Questions?
GRAPHITE ENTERPRISE Questions? Winlerflood Ww) GRAPHITE ENTERPRISE
Slide 44: Graphite Enterprise
Graphite Enterprise Structure: Company registered in England and Wales Ticker: GPE.LN Investment trust tax status ISIN: GB0003292009 Registered company number: 01571089 SEDOL: 0329200 Listing: Premium listing in London Website: www.graphite-enterprise.com Manager: Graphite Capital Management LLP Aut
Slide 45: Legal notice
Legal notice What this document is for This document has been prepared by Graphite Capital Management LLP (“Graphite Capital”) as manager of Graphite Enterprise Trust PLC (“Graphite Enterprise”). The information and any views contained in this document are provided for general information only. It i
Slide 46: Graphite Enterprise
GRAPHITE ENTERPRISE Winlerflood Ww GRAPHITE ENTERPRISE
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