This is ICG's full year 2019 results presentation. It's been an exceptional year for ICG. We have achieved several meaningful milestones during the course of this year. Starting with fundraising, EUR 10 billion raised. As a result, our AUM is up 29% to EUR 37 billion. Importantly, third-party fee earning AUM is up 41% to just under EUR 30 billion. This has positive implications both immediately and in the long term. Immediately, we benefit from an uplift in revenues and profits. Fee income is up 32%. Fund management company profit is up 51% to just shy of GBP 144 million. Thanks to a strong performance on the investment company as well, group profit before tax is also up 49% to GBP 261 million. Long term, this represents a step up in our future fee streams, and as a result, a significant increase in locked-in value.
It's also been a strong year for investments. We have deployed EUR 6 billion, crucially without compromising on investment discipline and investment quality. As a matter of fact, all of our funds, all of our portfolios are performing well, without exception. It's all good news. As a very clear sign of the confidence we have in the business and its prospects, we have made a structural enhancement to the dividend policy. In other words, it's a more generous dividend policy, effective immediately. As a result, the final ordinary dividend is up 67% and the full year dividend at GBP 0.45 per share is up 50% on the previous year. Our strategic priorities, we are unsurprisingly well ahead of plan. We've met a number of our objectives. Fundraising, obviously. Importantly, the Fund management company profit becoming the dominant profit contributor. The operating margin, as we've just discussed, the dividend policy.
Some of our objectives, of course, require constant effort. That's notably true for the optimization of the balance sheet and for the expansion of our strategies, which is going to be one of our key focus this year, as we will discuss later. Before that, Philip is going to walk you through the financial results.
Morning, everyone. I couldn't really be happier to report this set of numbers as my last. To say that I'm rather pleased would be probably stretching British understatement. Our main profit number, Fund management profit, is up 51%, which for a company of our size is really something we can be proud of. This, of course, this performance has built up over a number of years. A decade of diversifying the fund strategies that we can offer our clients. Three decades of building up the European corporate franchise, which once again has been a real platform of the profit growth. Eight years of building up our marketing and operational infrastructure. If you look at the segmental analysis, group profit is up 49%, Fund management company profit up 51%. That's built on a fee increase of 32%, third-party fees up to GBP 220 million.
The operating margin has kicked upwards from 45% to 52%. For the investment company, the net investment return is 12.6%, which quite coincidentally is exactly the same as last year. If you remember the half year, we had a little bit of excitement because of Intelsat. That excitement has now dumbed down somewhat. In fact, Intelsat has had only a very small impact on the year-end numbers. I'll look at that a little bit more later. This 12.6% is a clean figure. The balance sheet really is doing its job of supporting the fund manager. Indeed, the balance sheet is in very good shape. The investment portfolio grew from GBP 2 billion to just under GBP 2.4 billion over the year as we invested in new and existing strategies. Our current investment ratio remains pretty consistent at 7%, so that hasn't really grown.
The gearing ratio at 0.86 times is still at the low end of the range, but more comfortably sitting within it. I think that's a good place for us to be at the moment. On the liability side, the company is very well-funded. We issued $400 million of private placements into the U.S. market earlier on this year. That has maturity of five, seven, and 10 years, which means the private placement program, which has now been going for a very long time, plus our shareholders funds the long-term co-investment book. That's very good matching between the assets and liabilities. Whereas the bank funding, which also has been refreshed this year, provides us with capital for our shorter-term assets that we hold for business development purposes, and also an opportunistic war chest. Again, matching assets and liabilities quite closely.
If we look at the fund management company, the model is working. What we've seen over the last few years is a fairly small increase in the balance sheet has been one of the platforms for the growth of a large amount of fund management activity and profit growth. That's also been assisted by more effective leveraging of our operational and financial base. As a result, we've seen increasing profitability of the fund manager. Again, very much the model as we set it out to work. AUM, Assets Under Management, grew 30% to €34.5 billion. Fee earning AUM is up 41% to €29.6 billion, so just under €30 billion. Both were impacted by the raising of ICG Europe Fund VII, which added €4 billion to both, because ICG Europe Fund VII is charged on committed capital, so it increases AUM and fee earning AUM by the same amount.
We also saw some good increases in fundraising and AUM in other areas. The CLO program saw the issuance of €1.5 billion of CLOs. Our liquids strategy, our open-ended credit funds, saw fundraising of €2.2 billion, which is way ahead of where it's been for the last few years. If you recall, this is an area we've been investing in for the last three years and building up that team, building up its track record. It's very scalable, and so it has a very high marginal profit. It's very good to see that fundraising really starting to come through. The other thing to note on this slide is realizations at the low end of the range that we've seen for the last few years at 9% of AUM. Let's look in a little bit more detail at how the fees were generated.
The bigger bar graph at the bottom shows the increase in fees by the different strategic classes. All of the strategies have seen growth in the fees over the last three years. Most notable last year was on the left-hand side, Fund VII, which saw a big increase in the corporate investments. We've got a strong fundraising year behind us, and that means we will see inherent growth and natural growth coming through in SDP, in liquids, in CLOs, and Strategic Equity. I'd expect this trend to continue. If we turn to the fee levels, which is the subject of the smaller graph on the top right, overall the weighted average fee rate is consistent at 86 basis points. As is often the case, the mix effect masks the actual upward fee movement amongst almost all of our strategies.
For the European strategy, if you look over the last three funds, which is the best way of looking at the same product over three vintages, the European strategy has gone from 132 basis points to 142 basis points of fees. I'm talking now fees net of discounts that we yield up. Senior Debt Partners has gone over the same three vintages, 73 basis points to 85. There's been a drop, as you can see, in real estate, but that reflects a change in the fund strategy, where we reduced our target returns and therefore the fees, in order that we could target a larger fund, which is currently being raised. That was a decision to target a different part of the capital structure for real estate lending. In fact, a more senior part of the capital structure for our real estate lending.
Strategic Equity on the right-hand side, that's gone from 104 basis points to 127 basis points. As you see, there's very good upward movement and very good protection in the fee levels that we're managing to achieve at the moment. I wanted to look a little bit, again, I did this at the half year, at the contractual nature, the sustainability, and how protected our fee levels are. This shows the erosion of our fees on our current AUM, assuming no new fundraising. Now, I showed this at the half year, and I just showed five years, and we looked at that and saw a 6% erosion per year on the fee base of the company.
We've now extended that out 10 years. As you would expect, the erosion continues at a slightly faster rate as these funds run off and we have a lower AUM on which we're charging. Two points actually to go into on this. The first is in unfavorable market conditions, realizations will slow down, and that erosion will also slow down. The fee rate is more protected in unfavorable market conditions. That is very good defensive quality of the business model. I think more interestingly, we did some calculations to establish what amount of fundraising we would have to achieve on average every year to sustain the current level of contracted fees. How much we would have to raise so that the FY 2020 level would stay flat. The answer is EUR 3 billion.
If we raise EUR 3 billion, which is half of our current target, and less than a third of what we achieved in FY19, we will maintain contractual fees at their current level. That demonstrates both the strength of the business model, but also the huge potential that we have for growing, because every EUR that we raise above EUR 3 billion increases that contracted fee base. Let me go from the top line to the bottom line. The margin at 52% was well above the 43% target. We benefited from increasing leverage of our operational platform, but also the fact that newer strategies are now growing into their second, third, and fourth funds, which means that we have increased fees with only modest increase in costs.
The biggest impact on margins for this year was the impact of Fund VII, which came on stream at the beginning of the year, where we saw a big increase in fees because it was on committed capital with virtually no increase in costs in that strategy. That made this year a bumper year. This won't happen every year, and we do need to keep investing in growth. As the last slide illustrates, we can create huge amount of value by continuing to invest in growth. Having said that, we will be revisiting the fund management profit margin during the next six months, and the company will report on that with the half-year results. Looking at the cost base, we've clearly seen a very effective leverage of the platform with the cost-income ratio reducing from 55% to 48%.
We've looked back again over a five-year period at what are the operational and the marketing base of the company and how these platforms have become more efficient over the last five years. Looking at FY14 to FY19, the marketing team, which we brought on stream just before that, about six, seven years ago, has reduced in cost from six basis points of AUM to three basis points of AUM. At a very rough back-of-the-envelope calculation, if we used placement agents entirely and didn't use our own team, the cost would be about 15 to 20 basis points, which reflects the value of bringing up our own team internally, and of course, that has many other non-financial benefits as well.
For the operational infrastructure teams, everything that isn't marketing and investing, what we generically call infrastructure, from FY14 to FY19, the cost of that team has gone from 19 basis points of AUM to nine basis points. Again, showing quite considerable scalability and operating leverage. Moving on to the investment company. The investment book is larger. Net investment return, though, has been constant at 12.6%. Intelsat, which had an impact of GBP 41 million unrealized gain in the first half, had a GBP 27 million unrealized reduction in the second half. At the end of the day, it kind of came and went and left us a little bit better off, but not much. The net investment return is made up of contractual interest, be it rolled up or cash, and also the fair value change in valuation of our equity portfolio.
One of the metrics we look at is trying to bifurcate what is the impact on the equity portfolio between the performance of the underlying businesses and the market, because obviously we're using multiples that are driven by the various stock markets. The multiple that we used at the end of FY18 was 10.4x earnings, and the multiple at the end of the year we're looking at, FY19, was 10.3x. Virtually no impact in net investment returns has come from market uplift. All of it has come from either contractual interest or from the performances of the underlying businesses, which is the best sort of income. We're sticking with the guidance of 11.5%, even though we've been a little higher for the last two years for net investment returns.
That's because as we diversify, we use the balance sheet to invest in a number of product areas which tend to be dilutive of the net investment returns, so that suppresses it slightly. You can see that when we look at where the performance of the balance sheet and where the net investment returns have come from. The bottom line there, the other category, which includes all of the business development-type investments, includes the liquids, includes the real estate, are generally below 11.5%, and that contributed just under GBP 60 million on net investment return as opposed to GBP 19 million a year ago. We'll continue to see a little bit of dilution. But the main drivers of the return still come from the European funds at the top there, and Strategic Equity, and from North American Private Debt.
You can see the returns if you look at the third column from the left, FY19 net investment returns. These returns are very impressive, between 15%-30% during the year. That's very good for the balance sheet, but more importantly, it's very good for our clients. In fact, what our clients really look at is the right-hand column. They look at the fund return to date. And you can see there also some very impressive returns, 25%, 19%, 40%, 17%. That's what our clients see. It's what they care about most, and they're well above the fund targets. With the diversification comes a slightly diluted net investment return, but the positive of that is we have a more diversified balance sheet. So we've got some information here around the geographic and sectoral diversification. From a sectoral point of view, there's a bias towards healthcare and services.
Cyclicals, by which I'm looking at media, manufacturing, leisure, and logistics, account for 17% of our balance sheet portfolio, corporate portfolio. The market is at 36%, so we're underweight cyclicals. The geographic split in the pie chart shows good geographic diversity. You'll notice in gray the U.K. as a continent by itself is 25%. But of that, 25%, 87% of these are businesses which are intra U.K. So they're U.K. businesses sourcing from the U.K., selling to U.K. So it's things like holiday parks in the U.K., debt collecting in the U.K., providing supply teachers in the U.K. So these are not companies that are doing a lot of international trade. They're very much sealed within the U.K. And that has been our focus on the U.K. corporate portfolio for some time now. So it's not surprising that it's so weighted towards that kind of asset.
As you know, we use the balance sheet to access larger deals for our existing funds. Over the last couple of years, two companies in particular where we've managed to access very large deals by using the balance sheet as well as our third-party funds. The largest of these are Domus and Minimax. Both have done extremely well. As a result of revaluing the equity that we own in those businesses, both of them have broken through the GBP 100 million mark in terms of their balance sheet position. I mention this only because it's unusual. We haven't had assets on the balance sheet of that size for some while. We're actively managing those positions through syndication. I just expect them to reduce over the next 6-12 months. Both, incidentally, are excellent companies.
Finally, on the investment company, we've seen overall a reduction in IC costs. This principally is due to the business development costs that are charged to the balance sheet. We show them separately down at the bottom, GBP 5.6 million-GBP 2 million. Business development cost represents the cost of teams that we bring on board who initially invest on the balance sheet alone. They transfer to the fund management company as soon as they raise third-party income, third-party fees. In this case, you'll recall last year we were exploring an energy fund. The costs of that were in the FY 2018 numbers. They are not obviously in the FY 2019 numbers. There's been a reduction in those costs.
There's also a reclassification in our staff costs of national insurance that have moved from the staff cost line to the deferred award line, which is why there's a change there. Looking at guidance for the coming financial year. I'll just point out a few of these items. At this stage, in the current market, we expect fundraising to be consistent with our GBP 6 billion average that we've spoken about before. Therefore, to stay comfortably above the rolling average, which is the formal target. The operating margin, we need to recognize that we need to get a balance between benefiting from the improved leveraging of the operational base, the marketing base, and the investing base of the company. Also making sure that we've got the potential to keep growing the business through the OpEx line.
We will be revisiting the target of 43% in the second half. The balance sheet is a little bit larger as we grow and diversify. It's gone up to GBP 2.4 billion from GBP 2 billion during the year. We don't expect the co-investment ratios to increase, but continue to either stabilize around 7% or still to continue to go down, just more slowly. I think probably most interestingly in this guidance, most significantly, is the refinement of the dividend policy to distribute more of the spoils of the success of the fund management company to the shareholders. We're doing that by using. The refinement is to use the group's effective tax rate to get the after-tax profit for the fund manager rather than the notional tax rate applicable to the FMC.
That naturally enhances the pool from which we can draw our dividends, which is that 80%-100% pool. We have a low tax rate at group level, we expect this pool to be larger and to fund the dividends for the foreseeable future. We're applying that for the year just gone. This refinement reinforces the confidence that we have and results in a more generous dividend policy. My 26th and final set of results, and some 600 slides later, and some of you have sat through all of them, for which many thanks and apologies. Forgive me for ending with this slide. It's possibly my favorite. A 43% compound annual growth rate since FY 2014 I think perfectly illustrates our strategic journey, not just over the last five years, but over the last 10 years since we focused on fund management.
It's a great pleasure to end with this slide. It's also been a great pleasure to work with you. I've enjoyed many hours of discussing ICG and with some of you, a range of other topics nothing to do with ICG. I'd like to thank you for covering us and helping your clients to get a better understanding of a very special company, a company that's a little bit unusual, but a company with huge growth potential. Thank you very much. With that, I will hand back to Benoît.
Thank you, Philip. As usual, we are going to take a look in turn at each of the 3 pillars of our strategy, investing, managing the portfolios that's driving track record quality, and growing assets under management through fundraising. With some observations on our markets. Broadly, the markets remain favorable. Deal flow is strong across geographies. In some countries, it's actually reaching new highs, particularly in Germany and France. There is one exception, unsurprisingly, in the U.K., where we've seen a marked slowdown in activity to which we are contributing because we're also being a lot more cautious about investing in the U.K. in the current environment. By and large, the deal flow across geographies remains quite strong. It's helped by the performance of underlying companies. This database broadly comprises mid-market private firms, and you can see they're still enjoying healthy levels of top-line and EBITDA growth.
The market is very competitive, though. It has been for a few years now, there's clearly a lot of dry powder, a lot of capital that's seeking to be deployed. We see that this is putting pressure on valuations. It's putting pressure generally on terms, notably on leverage. As you could see on this slide, leverage levels are creeping up. A few observations here. This is ICG's proprietary database. We have about 1,400 private companies in that database. As we enrich the database, we've introduced a bit of a skew because there is an increasing proportion of larger syndicated deals in the database. They tend to have a higher leverage. There is a mix effect that is exaggerating the upward trend in leverage. Nevertheless, even if you strip that out, leverage is going up.
On the other hand, we have pointed to that before, and it remains true, I'm glad to see that the FT has written on it today. The net interest coverage is at a historical high. What that seems to indicate is that even though leverage is going up, it's going up on companies that are very healthy, that have a strong cash flow generation, that are certainly not under stress. Very different picture from 2008, 2009. The other important element is that the private markets are not uniform at all. There are significant differences by country, by type of transaction, by size of transaction. The fact that we've been investing in our origination platform and our teams locally for decades now makes all the difference.
As you could see on the top part of this slide, leverage on our own portfolio remains at a relatively conservative level. It's actually been trending down. It's certainly significantly lower than the market average. It is possible in this competitive environment, and provided you have the origination capability, it is possible to invest in opportunities that have an attractive risk-return profile. Which is important to bear in mind as we look at the next slide because we've been deploying very well. It's possible to deploy well without compromising on investment quality and investment discipline. We've invested around €6 billion during the year, which is 23% up on previous year. If you look on the right-hand side of the bubble chart, all of our strategies are investing on schedule. Some are ahead. Worth pointing out here, Europe Fund VII is off to a very strong start.
Actually, in the next few weeks as we close our latest transaction, we will be close to 50% invested in that fund. In the first year of the life of the fund, that's a very strong performance. Of course, the question can be, are you sure you're not compromising on investment quality? Without going into too much detail, just one metric on Fund VII. The senior leverage, the average senior level on the portfolio for Fund VII as of end of March was 3.7 times EBITDA. That's way below the market average. You can deploy very well without compromising on investment quality, and that's exactly what our LPs are looking for us to do, is to be able to deploy their money in interesting opportunities. The positive aspect of the early performance of Fund VII, actually, there are several.
One, as with any fund with fees uncommitted, early strong deployment has a very significant positive impact on returns. That bodes well for the performance of that fund. The second aspect is it's highly likely that we will be back in the market with Fund VIII earlier than we had anticipated. Typically, you start thinking about a successor fund when you're 75% invested in any fund. We're going to be close to 50% invested in Fund VII. Finally, our ability to deploy in this fashion could help justify a further increase in the size of this strategy through Fund VIII when it comes to market. This is a familiar slide. That's our track record, our most valuable asset. The message hasn't changed. We haven't had a failed fund in our entire history, which in our world is an exceptional outcome.
This should be further improved by the performance of our exits or realizations during the course of this year. We have taken advantage of very favorable market conditions to exit 24 transactions. As I was pointing to, the performance that we've crystallized through these exits will push the performance of all their respective funds up for every single one of them. It's a very good outcome. At the same time, this is a snapshot. This is the performance over one year. That doesn't make a track record or a reputation. A single fund doesn't even do that. You need to show consistency through cycles. For that, as an illustration, I've included a slide that we've been using recently in marketing, and particularly as we were fundraising our European Mid-Market Fund, and I'll come back to that.
If you look at that orange distribution curve, that shows the performance of all of ICG's realized European funds. The blue line shows the private equity funds, buyout funds. What this shows is our strategy, even though it's at a lower risk point than traditional private equity, is delivering similar returns. Actually, slightly higher because the private equity curve is somewhat skewed to the left. Let's just say it's delivering comparable returns with, importantly, a much lower standard deviation. Our standard deviation here is 0.11. What this says is not only are we delivering the performance, but we are delivering that performance consistently. It's predictable. Which is exactly what LPs are looking for, particularly at this point in the cycle. Compare that to the pure play buyouts.
You could see that it's a much more spread out distribution, and it's actually you have quite a significant tail to the left. Very powerful slide with our LPs. Fundraising, an outstanding year, obviously. We've reached the EUR 10 billion mark. We obviously benefited from the success of Fund Seven. It alone accounts for EUR 4 billion. That's not the whole story. As you could see on the bar chart, it was this year a very diversified fundraising exercise. We were successful in many areas. Philip has mentioned a few. In corporate credit at over EUR 2.2 billion, that's more than double the previous year. Even U.K. real estate, despite the Brexit environment, we still raised over EUR 700 million. I could also mention the first close of Strategic Equity, I will come back to that. Overall, during the year, we fundraised for 13 different products.
That's a very promising outcome for two reasons. One, because it shows that we can. In the alternative asset space, most managers fundraise sequentially. Very few managers are able to fundraise as many strategies simultaneously, concurrently. That is testimony to the strength of the platform and the strength of our marketing team. The other point is that while flagship funds will always have a significant impact in the year they are fundraised, we are no longer solely dependent on the timing, the fundraising cycle of these flagship funds. We are diversified enough that we can rely on a constant inflow of capital. Very strong year. A personal best, as with every personal best, it's only meaningful if you put it into context. We've tried to do that by borrowing a slide from PDI, Private Debt Investor.
That is their 2018 fundraising report, which shows fundraising performance over the past five years. As you can see, ICG features rather well on that slide. Two developments or aspects of the fundraising this year that I'd like to draw your attention to. One is Strategic Equity, and the other one is on the European corporate strategy. For Strategic Equity, the good news is at this point, as of today, the fund is over GBP 1.2 billion. It's looking like a very promising fundraise. This is larger than the full size of the previous vintage. The other important thing to note with this fundraise is, as we have been pointing out and as Philippe reminded you earlier, we have been able to increase effective fee rates on many of our strategies by reducing discount.
At the interims, I mentioned that for the first time, we would try with this strategy, Strategic Equity, to not only reduce discount but actually increase the headline fee rate. Well, we have, and it's been successful. If anything, it shows that for the right strategies that are in high demand, you can not only increase the size of the strategy, you can not only reduce discount, but you can actually increase the headline fee rate for that strategy. That's a strategy with fees uncommitted, so it has a material impact. On the European corporate strategy, I'm not going to go back over Fund 7. The relevant information here for the purpose of this slide is, you'll remember we've increased the size of Fund 7 compared to Fund 6 by 60%. As you can see, this strategy has been constantly growing.
We've been, as a result, increasing the size of the investments we were making. So much so that we've created a space to launch a sister Mid-Market Fund which for us has a number of benefits. Strategically, this is a segment of the market where we've always been very strong, and we wanted to maintain our presence there. Two, we know from experience that the relationships you build with management teams and with companies when they're smaller in size are extremely valuable because you can accompany them through their growth. In our portfolio, we have a number of companies that we've been financing for 10, 20, or more years. It's important to remain present in that part of the market. Finally, importantly, it's financially very attractive.
Even though we've taken the opportunity of the growth of this strategy to strengthen the team, fundamentally, we are leveraging an existing team, an existing investment committee, and because its fees uncommitted, it's quite profitable. It's actually profitable from the get-go. On the back of the successful Fund VII fundraise in November, we went out to launch this European Mid-Market Fund. I'm happy to report that in quite a short period of time, we've been able to have a first close. Two weeks ago, we had a first close for this European Mid-Market Fund at over 600 million EUR. That was our initial target. This has done well. Putting things into perspective, if you look at this strategy, this is our oldest strategy.
From Fund VI to Fund VII, the size of the strategy has doubled, which with fees uncommitted has quite a material impact for us. Even mature strategies can still create significant growth opportunities. Our fundraising outlook. We're not going to benefit this year from having a flagship fund to market, but it's still looking like a very active fundraising year. As I mentioned earlier, this year, we will have a particular focus on new strategies. We intend to launch 3 new strategies during the course of the year. The first one is the ICG Europe Mid-Market Fund. We're well advanced on this one. We have reasonable visibility. The second one is Sale and Leaseback which we have recently launched, so it is in market. The last one is our Infrastructure Equity strategy, which we intend to launch later this year.
First-time funds require a disproportionate amount of effort and time. If successful, they're very valuable because they represent a brand-new fee stream for the firm. It's quite important for us to be introducing new strategies regularly. These are particularly attractive because all 3 of them aim to charge fees uncommitted. On that note, you'll note this year, we've color-coded. The blue bars, we will have 5 strategies in our fundraising program that have fees uncommitted. The 3 new strategies, in addition to the Strategic Equity Fund III and our 4th Asia-Pac vintage, which we're going to be launching probably this side of the summer. 5 strategies with fees uncommitted, that's a new high for us in a single year. That is obviously quite good news.
The other point that I would like to make here is both Sale and Leaseback and Infrastructure Equity are likely to benefit from a sustainable fund qualification on the back of significant efforts we've made in our ESG approach. On that topic, ESG is not new for ICG. We were one of the early signatories of the UN PRI, but we've put in significantly more effort, notably by appointing a responsible investing officer this year. Today, in our industry, we are in the top-performing group for ESG, which is exactly where we want to be. We've also put in a lot of effort recently, these past few years, but particularly this year on D&I. I'm not going to go into detail. There are many really interesting initiatives and programs that we have launched. I'll just highlight 1. We have signed up to the HM Treasury's Women in Finance Charter.
As such, we have committed to a 30% of senior female executives by 2023. I'm actually delighted to report that this year, 50% of our senior hires in the U.K. were women. Plenty to do, but we're on the right track. By way of conclusion, it's an outstanding year on all fronts. Fundraising, investment deployment, quality of the portfolio's performance, profits, and as a result, dividends. Looking forward with some of the exciting new products that we're bringing to market and a few more that are in the wings, we're very positive about the growth prospects of the company. On that note, Philip and I will be happy to take your questions.
Hi, good morning. It's Gurjit Kambo from J.P. Morgan. A few questions. Firstly, in terms of clients, what are they doing in terms of allocations? We're seeing more and more consolidation in terms of the managers that clients are using. Are you seeing that trend as well? That's the first question. Just in terms of the European mid-market fund, how does that differ from the main fund? Because in my view was always that you had a mid-market bias anyway in your European fund, but just what the key differentiator there is. As you launch three new strategies this year, you're still confident you can keep the balance sheet at around 7% or so of the AUM?
Okay. I'll take the first two. I'll start with the mid-market fund. The definition of mid-market is quite broad. By U.S. standards, pretty much everything we do in Europe is mid-market. For us, it's not a question of shift in strategy, it was more a question of loss of opportunity. As we grow, it was becoming more difficult to do transactions where we were investing less than, say, €75 million, just because of opportunity cost. At the same time, we know that there are transactions where you're investing EUR 50 million that could be quite attractive. They could be quite attractive in the near term, and they can represent potentially new deals in the future. We really wanted to keep the focus on that part of the market. Up until Fund VI, we just put in the effort.
Up until Fund VI, we were still doing those smaller deals, even though we knew they weren't really moving the needle for the fund, but we did it for strategic reasons. With Fund VII, we had an opportunity to create a dedicated bucket targeting these companies. It has a number of other advantages. One, because we had capped a number of our LPs in Fund VII that enabled them to invest a bit more with us in the same strategy. It also enabled us to bring in new investors. Because of the size of Fund VII, some investors were just too small for us to bring in, but they were perfectly suited for this strategy, and it was a good way to bring them into the ICG family. First question, you'll have to remind me.
Just on the consolidation in the industry.
Yes. Your analysis is right. There's clearly a move from LPs, particularly the large LPs, to consolidate their GP relationships, which is why it's strategically important and so beneficial for us to keep growing. For a number of our clients, we're too small. For a number of our clients, we cannot absorb enough of their capital. Think about a large sovereign wealth fund interested in our strategies. Comes one of our flagship strategy, ICG Europe Fund VII, and we tell them you're capped at GBP 250. Their reaction is, "If I can't put GBP 1 billion with you in your various strategies, you barely register on my radar." Yes, you're right, the market is consolidating that way, this is why it's so important to be one, if not the largest manager in Europe, because you're going to disproportionately benefit from that move.
On the 7%
The biggest point of investment in a strategy tends to be at the very beginning, because we hold NAV on the balance sheet, then we roll our investment into the fund. You tend to have to put a larger amount into a newer fund. One of a few things can happen. Either the fund gets larger and yet our investment stays roughly the same in absolute terms, or we start to reduce the investments as we've done with ICG North American Private Debt Fund II, or as we've done with Senior Debt Partners. Inevitably, therefore, as we grow, we need to invest in new strategies, but the amount we invest in the individual strategies reduces as the strategy gets larger. That's why I think that we can stay at 7%, maybe. I think it will keep reducing further because the AUM is getting larger.
Actually, we've been pretty static at GBP 2 billion for a few years. It's gone to GBP 2.4 billion, which is quite a big increase, I suspect that that will plateau again for a little bit. There's a natural reduction compared to the AUM growth.
Good morning, and thank you, Philip, for your help over the last few years, and congratulations and all the best in your musical endeavors.
Thank you.
Two questions from me for both of you. Firstly, given how much you raised this year and last year, you've pretty much got to your AUM growth target for the three years, last year, this year and next year. Just wondering why you didn't perhaps increase it. Secondly, you've talked about management fee discussions, and you're able to increase the target fee and decrease the discount. Are you getting any pushback on management fees in any strategies, even initially in discussions with your clients? Thank you.
On fees, you're always getting some pushback. Nobody likes to pay fees. If I were to compare to a few years ago, I'd say the tension is much, much lower. The reason for that, we've pointed to that before, it's supply-demand. There is so much demand for alternative asset managers, particularly the well-established ones, that the fee actually very quickly doesn't feature really in the discussion. You have to remember, these are high return strategies. When you're returning, I mean, Philip has mentioned a few of them, 17%, 25%, 35%, the fee is neither here nor there. That's not the biggest component in the discussion.
What they're going to be focusing on is, for instance, how quickly we grow, because they're going to be mindful that we don't grow too quickly, that we don't start changing the nature of a strategy, for instance, because that would be changing their risk profile. The discussion is going to focus much more on these aspects. Do you want to take the first one or?
I think they're both for you, actually. Apart from the comment about me moving on, I think that was fine.
Sorry, you sidetracked me with the music. I cannot answer the music.
I'm just wondering why there wasn't a revision.
Yeah.
Yeah. Well, there was just a revision with just over a year ago, where we uplifted it by 50% from four to six. It's true, we've had two very strong fundraising years. At some point we may consider that. You do have to remember that fundraising tends to be a bit spiky, depending on the fundraising of large flagship transactions. We'll have to see, but what's undeniable is that we're on a structural upward trend in fundraising.
Neil Welch from Macquarie. Can I ask you what the scale of your business is doing, firstly in your ability to deploy? While you're raising funds, and that's a demonstration of your scale and the demand you've got, it also means that you need to deploy those assets effectively. Just going back to that chart about the returns that you've achieved, does that deployment, the scale of that deployment that you're making, does that affect the overall returns that you achieve? I.e., do those come down because the investments you're making are more developed opportunities? Thank you.
Yeah, that's a good question. I think you have to remember that our strategies are not volume strategies. Take Fund VII because we pointed to it. It's invested 50% in one year, which we've never done. When you break it down, actually what's happened is that each one of our country team has done one deal. It so happens they've all done a deal in that year. All it means is the French team has done one deal, the German team has done one deal, the Spanish team has done one deal. That's it. We're not talking volume. As a result, because these are so ad hoc type transactions, the increase in size of the fund doesn't necessarily mean that there's a repercussion on the returns. That's provided you can grow the size of the transactions that you do.
That's been what's behind the main European fund. What's behind the growth is exactly that. If you had asked us 10 years ago, how much can you grow that strategy, we would never have guessed. Our view was, because what we do is so ad hoc, there's a limit in the size of deals that you could do, because it's easier to do it on smaller deals than on larger deals. Actually, that's proven to be incorrect. As we've grown, we've been able to access larger and larger deals. If that's the case, you're not really changing your model at all, and there's no reason why the returns should change. What you have to be mindful of as you build up each strategy and as they grow in size is the key is always people. It's the origination.
What you have to be mindful of is how do you progressively increase your origination firepower because you're picking one person here and there. Again, this is not a volume play. This is something that requires a lot of thinking well ahead of time. You may have seen in Europe, but it's true in the U.S. as well, we've made some hires. Some of them have made it in the press. That's not because we think we're under fueled today, we're thinking about the future and what do we need in terms of resources to be able to maintain that performance as we grow in future vintages. Does that answer your question?
Yeah, it does. Thanks very much.
Happy birthday tomorrow, by the way.
Morning, it's David McCann from Numis. You're obviously well aware that many traditional asset managers, particularly in the last couple of years, have really talked about moving into your space. Whilst obviously they don't have your track record, which I'm sure you'll point to here, they do have powerful distribution and client relationships. Has there been any significant impact on your business so far, and do you expect that to change in the future? I appreciate the comment earlier about the demand being so strong for these products it probably hasn't registered.
Yeah.
Is there a slight risk of complacency here that as these traditional managers continue with their endeavors here that eventually something changes?
There's always risk of complacency. That's one you always must avoid. We're not observing any of that today. I think what's fair to say is these traditional asset managers have struggled to come into the space because it's a lot harder than it looks. It takes a really long time, and because for these managers, in order for the AUM to start moving the needleIt's going Either they need to make very large acquisitions, or it's going to take them decades, because it takes a while. You don't go out and you start raising a, whatever, GBP 15 billion new infrastructure fund. Doesn't work that way. You start by raising a GBP 500 and GBP 600, and then the next vintage might be a GBP 1 billion, and then the next. Pretty soon you're 10 years in. It's proven to be more difficult than I think they had anticipated.
Culturally, it's vastly different. These are two completely different worlds. The only thing that's in common is it's called asset management. Otherwise, they're completely different worlds. That's been a difficulty for all of them. Having said that, you're right, they have a lot of firepower. Over time, you never know what could happen. We've had similar discussions, you may remember in the past about the pension funds going direct or the Canadian sovereign wealth funds going direct and this ebbs and flow because it is more difficult than you might think to build a platform like this.
If you look over a long period of time, there are many more examples of the private teams coming out of big institutions, be they asset managers, insurance companies, or pension funds, than successfully building one within, or even acquiring one and retaining it.
Yeah.
It's always gone the other way.
From a competitive landscape point of view, it's a very slow-moving market. If you look at the competitive playing field, the players, you look 10 years ago, weren't that different. Not that many have disappeared. It's very resilient. Not that many have appeared. For that reason, it's quite a long process to establish a track record, teams. Incidentally, as we've discussed a number of times, you have a J curve. It's not profitable for several years when you're establishing just one of these new strategies.
Introduce Vijay.
Yeah. Any other question? If not, before one more minute before we close the session, first of all, I would like to thank Philip personally and on behalf of all of ICG and the board, for an exceptional contribution to the success of the firm over the past 13 years. Thank you very much. Well done.
Thank you.
I would also like to introduce Vijay Bharadia, who has joined us this week and will be formally taking over from Philip as CFO from the next AGM.
Thank you. Thank you, Benoît. I just started on Monday, you asked me at the right time. I'm very delighted to join such a high caliber firm with exceptional growth prospects clearly working with Benoît and the board to continue to build this franchise given where it's at today, look forward to meeting you in due course as well. Thank you.
Thank you very much. Thank you for attending.