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24 March 2025

Intermediate Capital Group

Private markets are a rapidly growing area of the asset management industry. Asset owners are increasing their allocations due to the expectation of higher returns and low correlations with traditional public market assets.
The trade-off for these benefits has typically been lower liquidity and a lack of transparency, though these long-dated assets have been well suited for investors with long-dated liabilities, typically defined benefit pension funds and other large institutional investors. However, higher returns and a surge in semi-liquid products have also increased demand from retail clients. Global investment firm BlackRock expects the alternatives industry to grow to US$20tn by 2030, from the current US$13tn of Assets Under Management (AUM). With both institutional and retail investors pushing cashflow into private markets, we may see a strong long-term pipeline of AUM for high-quality alternatives managers. Intermediate Capital Group (ICG) is one such manager which appears well-positioned to benefit from the growth of private markets.

Founded in 1989, ICG is a UK-listed globally-diversified, private market and asset management business originally set up to offer flexible investment solutions in emerging asset classes. It joined the FTSE 100 in 2020 and, as of the end of 2024, has US$107bn total AUM over 16 strategies covering structured and private equity (44% of AUM), private debt (28%), credit (17%), and real assets (11%). ICG is regionally diversified, with clients across Europe, the Americas, Asia Pacific, and the UK, the majority of which are pension funds and insurance companies.

ICG scaled rapidly through 2024 in response to a surge in client demand. Over the calendar year, it raised an additional US$22bn of funds, more than twice the amount raised in 2023. AUM increased 27.5% year-on-year, with fee-earning AUM up 8.1% to US$71bn. While part of the AUM is fee-exempt, the majority not yet earning fees is ‘dry powder’, which is capital committed by clients that has not yet been deployed. In coming years, as this is invested, it will start generating fees for ICG, creating a strong tailwind for future earnings. Over the last five years, ICG has grown AUM and fee-earning AUM at compound annual growth rates of 19.3% and 14.7%, respectively.

The company has three strands of income driving returns to shareholders. Management fees are the core component of revenues and are charged as a percentage of invested assets. The base management fee is a relatively resilient and predictable stream of income which is generally not impacted by fund valuations. On top of this, the company receives an additional fee for performance in excess of a minimum hurdle rate of return. Performance fees represent 10-15% of total fee income and are harder to forecast due to the unpredictability of returns. Finally, ICG generates a return from its investment portfolio where it invests in its strategies alongside its clients.

Relative to peers, ICG has a large investment portfolio on the balance sheet demonstrating its ‘skin in the game’ commitment as a fund manager for clients. Using its investment portfolio, the company can deploy capital to seed and scale investments to support the launch of new strategies. In addition, investing in its more established flagship strategies allow ICG to directly benefit from its own fund management returns.

Looking forward, ICG is aiming to continue to grow both its flagship and scaling strategies to expand and diversify the business. It is working on first-time funds, including Real Estate Asia and Infrastructure Asia, as well as launching ICG Core Private Equity which will be its first wealth-focused strategy. Wealth is a fast-growing market for alternative investments, and ICG could leverage its scale and experience to become a key competitor in the space.

The recent strong performance has driven the share price up 30% over the last year to mid-January 2025. The company also offers a yield of 3.38%, paying a progressive dividend with the board intending to increase the dividend per share by at least mid-single digit percentage points on an annualised basis. Over the last five financial years, ICG grew the dividend at an annual rate of 9.72%. With an attractive dividend policy and track record of increasing distributions in excess of the target growth rate, ICG may be appropriate for investors looking for both an income and the potential for capital growth.

There are risks to ICG’s model, principally its large investment portfolio which makes it highly exposed to changes in Net Asset Value (NAV) and the performance of its own investments. Likewise, the investment portfolio is illiquid and would be hard to translate to cash if the company required.

Investors could also expect to see ICG’s share price fall if the underlying investment performance is poor, as it would be harder to raise future funds from clients weakening the pipeline. However, as demand for private markets is forecast to grow from both institutional and retail clients, ICG may be well positioned to benefit from structural trends in the asset management industry in the years to come.

Please note that this communication is for information only and does not constitute a recommendation to buy or sell the investments mentioned. Investments and income arising from them can fall as well as rise in value. Past performance and forecasts are not reliable indicators of future results and performance. The information and views were correct at time of publication but may have changed at point of reading.
Intermediate Capital Group
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