A modest first-half total return at ICG Enterprise (ICGT ) belied a busier six months as the listed private equity fund picked up levels of investment and bought back more shares.

Interim results for the half year to 31 July showed the £1.2bn portfolio of funds and direct holdings in private companies grew net asset value (NAV) by 2.8% with quarterly dividends included. 

Performance of the underlying businesses was ‘robust’ with earnings growing 13.9% and revenues by 9.6% over the last 12 months.

Oliver Gardey, head of private equity at ICG, was positive about the outlook for private equity and highlighted the recovery in the transaction market, which had been stalled by economic uncertainty and high interest rates.

His team invested £104m into new transactions over the period, including M&A platform Datasite, cloud accounting and payroll software group Visma, and Audiotonix, an audio mixing console maker.

Gardey said the investments demonstrated ‘our ability to invest in companies that benefit from long-term structural growth trends in areas such as digital transformation and tech-enabled business services’.

‘We are experiencing an increased level of transaction activity,’ he said. ‘This is the third six-month period of sequentially higher new investments.’

The exit market is also recovering, and the fund generated ‘meaningful value’ in the interim period, with nine full disposals at a weighted-average uplift to carrying value of 25.8%. The sales generated proceeds of £48.7m.

Deutsche Numis analyst James Glass said realisation activity in the fund remained ‘below historic levels’ but was ‘showing signs of normalising’ and should grow to ‘mid-teens’ in full-year 2025 from 12% in 2024.

Like most of its peers, ICGT shares are unloved and at £11.86 trade on a 39% discount below NAV per share that rose 37p to £19.46 in the six-month period. This reduces the company’s market value to £769m.

One reason investors shun private equity funds is their reputation for high costs which, while not totally undeserved, has been exaggerated by flawed disclosure rules. The company said it was reviewing its cost disclosures in light of the FCA’s announcement that the rules would be replaced and that funds did need to follow the rules in the interim. That should mean an end to the 6.7% ‘reduction in yield’ figure on its key information document that could well deter some investors.       

In May, the wide valuation gap on its shares prompted the investment trust to launch an ‘opportunistic’ buyback programme on top of its existing long-term buyback scheme. Share buybacks lifted NAV by 19p per share, about 1%, as the company returned £21m to shareholders.

Another £33m was paid to shareholders via dividends, with an 8.5p second quarter dividend putting ICGT on track to hit the full-year target of at least 35p.

‘We believe that the 39% discount is too wide for a high-quality manager and that the opportunistic buyback programme, alongside regular buybacks, should help to narrow the discount over time,’ said Glass.

Over the past five years, ICGT has delivered a total underlying return of 81% from its collection of profitable, cash-generative, mid-market companies, split 43% to North America and 52% in Europe. However, the chronic discount has cut the shareholder return to 49.6%.

Stifel analyst Iain Scouller wanted to see a pick-up in realisations given that leverage, or borrowing, was 10% of net assets and outstanding investment commitments that the company expects to be drawn are £452m, or 35% of NAV.

Before the payment of the upcoming dividend, which will cost £5.6m, the fund had cash of £17m, drawn debt of £93m and £110m available to be drawn from its bank facility.

Nevertheless, Scouller said that the shares offered ‘reasonable value for a broadly diversified portfolio’ and he retained a ‘buy’ recommendation with a ‘fair value’ target price of £14.60.