In this series of short profiles, we ask leading fund managers to defend their investment strategies, reveal their views on cryptocurrency, and tell us what they'd never buy.
This week our interviewees are Oliver Gardey and Colm Walsh, co-managers of Morningstar 5-star rated ICG Enterprise Trust (ICGT).
Which Sector Shows the Biggest Promise in 2022?
We prefer not to focus on specific sectors. Instead, we invest in buyouts of businesses that are profitable, cash generative and have defensive growth characteristics that we believe will deliver strong and resilient returns across all economic cycles. We find these characteristics in a range of companies, which is reflected in the diversified sectors in which our Portfolio is invested. Throughout 2022, we have continued to see opportunities that are well aligned to our investment criteria across a range of sectors.
What's the Biggest Economic Risk Today?
It’s a very obvious answer but in a word, inflation! We have all become used to a low-inflation, low interest rate environment and the supply shocks caused by the war in Ukraine and Covid are impacting industries and sectors across the Board. It is also – as we are already seeing in the UK – hitting consumers very hard. It is going to be critical for governments and central banks to get the policy mix right to minimise its impact.
Describe Your Investment Strategy
We focus on investments with defensive growth characteristics. There are several themes that contribute to a business having, in our view, defensive growth characteristics. These include (among others) attractive market positioning, providing mission-critical services to their clients and customers, ability to pass on price increases, and structurally high margins. We feel our focus on businesses with defensive growth characteristics positions us well to navigate the current dynamic market conditions.
Which Famous Investor Do You Admire?
OG: Seth Klarman is a very smart value investor that really understands the risk and return curve. He has delivered market beating returns over many years - proving the value of patient and disciplined investing.
CW: David Swensen, who was among the most influential investors of his generation and a master of intelligent asset allocation.
Name Your Favourite "Forever Stock"
Nothing lasts forever, as an investor you always need to be on your toes. Some of the world’s biggest companies today did not even exist 20 years ago!
What Would You Never Invest In?
We avoid anything with a speculative return profile where success or failure is a function of market fluctuations that a manager cannot control. For example, we do not invest in anything with significant commodities exposure as the prices fluctuate based on macro-economic events and political factors which are hard to underwrite. Instead, we focus on businesses driven by long term trends whether it's an ageing population, digitalisation or even the increasing popularity of having a pet!
Growth or Value?
Defensive growth
House or Pension?
If you can, it is sensible to invest in both and diversify. The difference between the two is that a house is more of an emotional investment not solely a financial instrument. It is somewhere to create memories and enjoy with your family. A pension is different in the sense that it is a less tangible investment that grows over time.
Crypto: Brilliant or Bad?
Not necessarily bad but definitely not for us. We don’t invest in mining of any kind! Crypto, like conventional mining, has a speculative return profile. It is a volatile, high-risk asset class where a febrile market environment drives returns.
How Can we Increase Diversity in Fund Management?
It is crucial to invest in young, diverse talent and provide a framework that allows them to grow and become future leaders in the industry. We have an investment team managing ICG Enterprise which is majority female. ICG generally and our team participates in a number of initiatives – particularly around internship programmes which are targeted at under-represented groups and as a firm we are very focused on creating an inclusive and respectful environment in which everyone feels recognised, rewarded, and included. This is not just the right thing to do – we also think that diversity improves decision making and performance.
Have You Ever Engaged With a Company and Been Particularly Proud (or Disappointed) in the Outcome?
Post-investment, we maintain active engagement with managers to identify and mitigate any potential ESG risks. We have strong relationships with all managers in our portfolio, regularly discussing investment activity and ensuring their strategy remains aligned with our Responsible Investing Policy.
Several of our managers are signed up to an industry initiative that helps companies that they own roll out share-ownership programmes for employees from top executives to lower-level workers. We really support this initiative as it allows all stakeholders to benefit from investment success.
What's The Best Bit of Advice You’ve Ever Been Given?
Throughout the history of investing, it has always been easy to get caught up in the latest trend whether its tulips, speculative technology companies or cryptocurrencies, but over time the most consistent returns come from investing in quality companies. We never compromise on quality. We only look for high-quality, cash-generative companies with attractive market positions and strong growth prospects. These attributes are likely to make them resilient investments, even in an inflationary and rising interest rate environment. In private equity, partnering with the right managers is also critical – you never achieve consistent returns from low quality managers.
What Would You be if You Weren’t a Fund Manager?
OG: I would have enjoyed being a Professor of Economics. I love studying, researching, teaching and the intellectual stimulus of a university campus. I find the impact of economic policies on human behaviour particularly fascinating.
CW: I have always been really fascinated by politics and world events. Growing up, I often thought of becoming a diplomat and it's still an area which really interests me intellectually, particularly given all of the global geo-political turbulence seen in the last few years.
