Private equity fund of funds ICG Enterprise (ICGT ) has introduced a management fee cap, which would have cut costs by £1.1m over the year to the end of October had it been in place.

The revised fee will be tiered as a proportion of net asset value. If NAV is below £1.5bn, charges will be 1.3%; if NAV is between £1.5bn and £2bn, 1.1%; and if it is greater than £2bn, 1%.

The new charges came into effect last week with the portfolio of ICG direct investments, co-investments and secondary funds valued at £1.4bn at the end of October, 87.2%, of which had been valued in September or later.

The fee basis remains the same: 1.4% of the investment portfolio plus 0.5% of outstanding commitments to funds in their investment periods, excluding ICG-managed funds in both cases.

In the third-quarter update published last week, the board said the arrangement fairly compensated the manager and ensures that shareholders benefit from the economies of scale generated from growth in the company’s NAV.

The manager will absorb several costs previously paid for by the company, including sales and marketing costs, which are 25-30% of general expenses, excluding management fees and finance costs. In 2022, general expenses excluding finance costs were £1.6m.

Numis analyst Priyesh Parmar said the cap and contribution to sales and marketing costs were ‘positive developments and should be welcomed at a time when listed fund investors are acutely focused on fees’.

The trust outperformed its benchmark indices over the quarter and over a 12-month period. In the third quarter, NAV lifted 3.6% versus a 4.7% fall for the FTSE All-Share index and a 1% fall for the MSCI World index benchmarks in sterling terms as a weak dollar boosted returns. The shares fell 13.9%.

Over 12 months to October, NAV lifted 19.9%, compared with a 2.9% fall for the FTSE All Share and a 2.3% fall for the MSCI World. The shares fell 18.1%.

The main drivers of performance over the quarter included realisation proceeds of £63m, with 11 full exits executed at a 33% premium.

The managers made £60m of new investments across the primary (£34m) and direct (£26m) parts of the portfolio, which includes the ICG-managed ECA Group, a provider of autonomous systems and navigation solutions, and KronosNet, a provider of business process outsourcing services, as well as Vistage Worldwide, a provider of executive advisory services, which is managed by Gridiron.

ICGT made one new fund commitment to Leonard Green IX, a US private equity fund focused on large buyouts within the consumer, healthcare and business services sectors.

The private equity portfolio has a 45.2% weighting to North America, 30.6% to Europe and 17.2% to the UK, with the largest sector positions being telecoms, which makes up 23% of total assets, and consumer goods, 20.1%.

The resilient returns were anticipated, Parmar said,  given the focus on cashflow generative businesses with no exposure to venture and a conservatively valued portfolio as demonstrated by the continued exits at uplifts to carrying value.

The fund finished the quarter with a cash balance of £22.7m (1.7% of net assets). It also has access to a £151.5m undrawn bank facility giving total liquid resources of £174.2m, representing 13.3% of net assets.

The fund has undrawn commitments of £528.5m, which results in unfunded commitments of £505.8m, equivalent to 38.5% of net assets, although this drops to £406.7m, 31.0% of net assets, after considering about £99.1m of commitments that are due to funds outside of their investment period that are not expected to be drawn.

The board announced an interim quarterly dividend of 7p, taking dividends for the period to 21p, and intends to declare total dividends of at least 30p for the year, equivalent to a 2.6% yield.

In an effort to narrow the trust’s wide 37% discount over the quarter, the board repurchased 30,000 shares, equivalent to 0.04% of opening share capital at a weighted average discount of 45.9%. Since 31 October, a further 140,000 have been bought back at a weighted average discount of 40%. 

The worsening of the share price discount means shareholders have not got the full benefit of the trust’s underlying performance. Over five years shareholders have received a 68% total return, including dividends, compared to the underlying investment return from the portfolio of 112%.