Okay, good morning. I'm hearing the bells ring 9:00, so I guess we can formally start. Thank you all for attending. This is ICG's Half Year Results Presentation. As I'm sure you will have seen this morning, it has been a remarkable first half. Our Fund Management Company profits are up 45%. We have raised EUR 6.1 billion in the six months period, EUR 6.1 billion, which is a new record for us. This means that our total AUM is just under EUR 34 billion. That is around the $40 billion mark, which in our industry is a meaningful milestone. All of our strategies in market have contributed to this success. Of course, we have benefited from the very successful fundraise of our ICG Europe Fund VII, which has closed a few weeks ago at the hard cap of EUR 4 billion.
That is a 60% increase on the previous vintage, and we have increased fees on that fund by 7%. You may remember, it is a meaningful fund because it features fees on committed. It is a 10-year fund extendable to assets on balance sheet, and notably of an exceptional gain on one asset, but Philip will go through this in greater detail. As a result, the group company profits are more than double what they were last year.
Dividends as per our policy are up 11.1%. That is GBP 0.10 per share. Our strategic priorities have not changed. Obviously, I would just point to two things. One, it is a good problem to have, but nevertheless, even though our Fund Management Company profits have increased 45% because of the performance of the Investment Company this first half, Investment Company profits are actually higher than Fund Management Company profits for this half.
This doesn't change the long-term trend, which is that the growth in FMC profit will be the main driver of the growth in value of the business. The other point that I would mention is, after having raised EUR 7.8 billion last year, we have now raised EUR 6.1 billion in the first half. I think we can comfortably say that we will meet our long-term target of raising EUR 6 billion on a three-year rolling average basis.
You may remember this is a target we have just reset last February. We had increased it by 50% from EUR 4 billion to 6 billion. It has been quite a successful couple of years on the fundraising front. I thought I would take this opportunity to address a few questions that we are often asked. I will try to be succinct, but I welcome questions after this session. We can continue this discussion. They are on two areas.
One is, what do you think about the cycle or a cycle? Two, what would be the impact of a rise in interest rates on the business? On the first point, on the cycle, I think the key point to keep hammering home is our strategies are very long-term. Most of our strategies are 10 years. They can often be extended further. In our world, there is no such thing as early redemption provisions. When we are thinking about our funds, intrinsically, we are thinking about a long period of time, and we have to anticipate that over a 10 or 12 year period, there will be cycles. That is what we do. It also means that we are building into our mandates for all of our strategies, the ability, the flexibility to take advantage of market dislocations. That is what we have done in the past.
This is what explains the long-term track record that we have. Actually, through the previous financial crisis, our funds did very well. The fund that was most impacted by the financial crisis, which was our 2006 vintage, eventually returned 1.8 x the money. Okay? That's part taking into account and taking advantage of these long-term investment period is a part of our business model. On interest rates, there's a misconception, and I'm not quite sure where it's coming from, that an increase in interest rates would be negative for ICG. It's actually the opposite. An increase in interest rate would be beneficial for ICG. If you think about our fund performance, looking back, the single most significant negative factor impacting our funds in the financial crisis was not losses, it was the drop in interest rates.
The reason for that is most of our debt instruments are floating rate. A drop in interest rates, as we experienced in 2009, 2010, immediately impacts the performance of our fund downwards. Now, if interest rates were to rise, our funds would directly benefit. There could be a question on would there be additional risk on the underlying companies? Actually, there wouldn't be, because even though we lend in floating rates, we require the underlying portfolio companies to hedge. Another point to note is hurdle rates, which is the measure that our investors are using to measure a minimum target return on our strategies. Hurdle rates are fixed. For us, an increase in interest rates just means that reaching the hurdle rate, it's so much easier. Hurdle rates for us today are the most difficult to achieve because rates in Europe are actually negative.
On the balance sheet, likewise, because we borrow either fixed or we hedge, and then we invest alongside our funds in floating rate instruments, an increase in rates would also be immediately beneficial to the PLC balance sheet. If we think about fundraising, there's a legitimate question, which is would an increase in rates affect the appetite of investors for the alternative asset classes generally because they would be content with the more traditional fixed income space, for instance? I don't believe so. I believe the shift towards alternatives is a structural shift. It's driven by many factors. Diversification is one. Long-term investment period is another. Downside protection, because these strategies have shown over cycles that they are quite resilient, is another. This is a structural shift. I think we're only at the beginning of this move.
Interestingly, we have a bit of a live example because interest rates have risen in the U.S. I mean, they're more than 2.5 points higher than they are in Europe, it's a meaningful difference, and this has had no impact whatsoever on fundraising from U.S. investors. There's a lot more, and we could cover a lot more about the resiliency of the model. I'm sure we'll continue with questions after this session, but for now, I think Phil will take us through the financial review.
Thank you. Morning, everyone. All of our financial indicators are performing extremely well. If I'm honest, I think probably a little even ahead of our expectations. AUM is up 17%. Fundraising, a record six months at EUR 6.1 billion. Fund management profit up 45% on last year, margin at 49%, and the fees up 35%. Overall, I think this provides a very strong platform for a good financial year as a whole. Looking at the segmental analysis, headline profit is our fund management profit, as you know, at GBP 64.4 million. 45% up on last year, 26% up on the prior six months. That's been driven by an increase in third-party fees, which itself has been aided and abetted by Europe Fund VII. If you remember, we closed that at the end of May, so we've had four months worth of fees on committed capital.
That's been about GBP 18 million of fees from Europe Fund VII. The second half, we'll see a full six months of fees, so there'll be an uplift on that. For the Investment Company, we've had a very strong performance from the Investment Company. A part of it is driven by a capital gain on a single asset. Now, this is an asset that we hold principally on our balance sheet. It's a single legacy asset. It's the largest and the only one of its kind. It's a company called Intelsat, which is a publicly traded satellite business, where we've invested in a vehicle along with a sponsor. We've recognized GBP 41 million gain because their share price increased in the period. That gave us a net investment return, which is our basic revenue measure for the Investment Company. That gave us a net investment return of 17.1%.
If I take Intelsat out, the net investment return was 13.3%, which is still a very strong half, above our guidance of 11.5%, and very favorably comparable to recent years. If I take it out, GBP 64 million, if I exclude Intelsat, which is ahead of the GBP 37 million last year, and that is driven by the performance of the underlying portfolios. Our balance sheet is looking very healthy. Investments are up GBP 211 million to 2.1 billion. That's really matching or aligned to the deployment of our funds in which we invest. The second line, the assets for syndication. This is where we incubate new strategies, where we effectively do the capital for R&D, where we're looking to acquire assets so that new teams can prove the concepts before we start fundraising. That has also seen an increase of GBP 125 million to 232 million.
I expect to see a bit more of that in the second half. We have a new infrastructure team that's looking for assets at the moment, and I expect that they'll do their first deal in the second half. That's a very good indicator of how we're using the balance sheet to drive new strategies and growth long-term into the future. On the liability side, you see gearing is a little bit higher. We expected that because we saw deployment was going up and we're putting assets into this R&D area. Gearing up from 0.77 at the end of the year to 0.86, still giving us healthy headroom and certainly nicely within our range of 0.8x to 1.2 x. We have a recently restructured and renewed bank facility and no reliance on a single bank.
I thought as I'm coming towards the end of my term, I think I'll probably have one more results session in me, but for me to indulge in a little bit of nostalgia, I thought I'd look back at the balance sheet of 10 years ago, March 2009. Just to really emphasize the difference, in 2009, the balance sheet was about 50% larger. It was roughly GBP 3 billion versus 2 billion now. Importantly, gearing was 2.7 x. A huge distance away from the 0.86 that we have now. Huge distance away, actually, from the top end of our range as well. It's a very differently funded business. Let's move on to the Fund Management Company specifically. Superb six months fundraising with a third-party AUM at GBP 31 billion, up 18%, dominated by the GBP 4 billion raise of Europe Fund VII.
Because Europe Fund VII is fees on committed, that means our fee-earning AUM was up 24% in six months, which is a big indicator of where fee income growth is going to come from in the immediate short-term. The fundraising pipeline is now focusing on newer strategies. Realizations. Price levels are holding up across all of our products. We've seen a small increase on a weighted average basis, but if we dig down into a bit more detail, I think you can see a trend. I think that the important trend is, what are we charging for the latest vintage compared to the previous vintage in each of our strategies? Because that is the best indicator of our pricing power. If I look at Europe Fund VII, that has a fee rate after various discounts are given, 143 basis points.
Fund VI was 134 basis points, a nice uplift. Very recent data, obviously. Senior Debt Partners went from 68 basis points for Fund II to 85 basis points for Fund III. Real estate, you can see there, we've seen a reduction, but that's largely a mix effect because we've seen far more fundraising in the half for our senior debt strategy in real estate rather than our mezzanine. It is a lower price product. Like for like, these strategies are much the same, but when you look at the mix, we've seen a reduction in real estate. In secondaries, that includes Strategic Equity, which we're fundraising for at the moment. We are expecting the price to be higher for vintage three than it was for vintage two, but as we're in the midst of fundraising, I can't give you final details for that.
I think the important point is we're seeing no reversal of this trend in the foreseeable future, and we're not under the same pressure as traditional asset managers are on fees. Not included in this analysis are our performance fees, which were GBP 10.6 million for the half, which is comfortably within our guidance of GBP 20 million to 25 million for the year. Want to take another look at fees. What this shows is looking out for the next five years, what would our fee levels be if we didn't raise any more capital from third-party clients at all? These are our locked-in contractual fees. All I've assumed here is an average level of deployment and realizations. What you'll see is a very shallow decline. It's about 6%-6.5% per annum loss of fees.
If we stop deploying and therefore stop realizing, because the two go together because of the market, or the market clams up, this would be even shallower. While we wouldn't raise any more money in this scenario, we also wouldn't lose any. In a severe downturn where the market clams up, those fees are even stronger. When we look at investments, if we saw a contracted income from mature strategies, this means we're getting new fees in with pretty minimal increase to our cost base. It's the strength of our operating model. It's very leverageable, and we've been showing this now for some time. There's little charge in the period for new teams, but that is coming because we've got four strategies currently that are in R&D using the balance sheet. In the second half, I expect the margin to remain high.
If for no other reason, we got a full six months of Fund VII fees, and it is our highest charging fund. Moving on to the cost base. We see an improving operating leverage with the cost ratio going from 54% to 51%. Our staff costs as a % are also increasing including incentives from 38.5% to 35%. We've invested in the period in our credit fund team and Strategic Equity. We're also continuing to strengthen our control and support functions. I like this slide. This shows fund management profit over the last 10 years. This is our headline profit. What it shows is from 2014, a 30% compound annual growth rate in our fund management profitability. This is the profit figure that drives our value.
I have to admit, the last five years have been more fun, but it is based on the hard work that was done in the previous five years. For the avoidance of doubt, FY 2019 is annualized for the first half. It is not a forecast. Moving on to the Investment Company. The ICO, I mentioned includes the impact of Intelsat. Share price went from $4 to 30, and of course, could fall. Our shares are in a vehicle controlled by the sponsor, so we can't sell them. In a sense, this investment doesn't really reflect any of our current funds or our current strategies. For the purposes of analyzing the Investment Company, I'm quite happy to take Intelsat out and ignore it. If I do so, the net investment return is 13.3%.
The net investment return is all of the running yields, all of the contractual PIK, all of the capital gains, less the impairment. It's basically what our investors, in the assets in which these funds reside, that we're co-investing with, how do our investors look at the income on the assets? We're looking at it the same way. That 13.3% is consistent with recent history, possibly a bit at the top end. That's because we've seen good returns on our fund co-investments because of the strengths of the underlying portfolios. If we look at the returns on these long-term investments as co-investments in our funds, they're aligned.
If I break that 13.3% net return, break it down by fund co-investment, which shows how it aligns with clients, you can see what we've enjoyed in the last six months is really quite outstanding returns on those investments, which of course our investors see as well. On the right-hand side, you can see the fund return, which is what our investors see. That's since the fund's inception. On the column one in from the right, you'll see our return in the six months. They're slightly different time comparisons, but the story is still the same. Fund VI, Europe Fund VI, 21% return in six months for us. Europe Fund V, 28%. ICAP, which is our Asia Fund III, 32%. Strategic Equity, 29%. This gives a slightly distorted but snapshot of our current track record.
What you see on the right-hand side is the longer-term track record for those funds. One other historic note, looking at the asset base, I just again wanted to compare the March 2009 balance sheet with the current balance sheet. First thing to note, as I mentioned earlier, the current balance sheet, which is on top, much, much smaller. It's virtually GBP 3 billion versus 2 billion. We've been talking a long time about leveraging a balance sheet more effectively to grow the assets under management around it, which is exactly what we've been doing. Very importantly, the current balance sheet, way more diversified. In March 2009, GBP 2.5 billion of the 3 billion balance sheet, GBP 2.5 billion was in European corporates. Now that's GBP 1 billion.
What you'll see here is we're now investing our balance sheets across a greater range of strategies, greater range of instruments, a greater range of geographies, far more diversified. In our balance sheets and in our portfolios, we have no companies incidentally that rely solely or that rely heavily on EU to U.K. trade. Investment Company costs, very comparable to last year and the prior half. Staff costs are a little bit lower because our business development expense has reduced a little bit because we closed down the energy, the oil and gas project during last year. We don't incur the cost of that this year. Deferred incentives are linked to our expected cash capital gains, there'll be a bit of fluctuation there. Overall, there's not a lot of change if we look back six months or 12 months to the cost of the Investment Company.
Let me finish up our looking forward to guidance for the second half. Fundraising, we're clearly going to exceed the GBP 6 billion, but of course, that GBP 6 billion is a rolling three-year average. This year will provide a very nice base for this year and the two to follow. Our margin, I expect it to be in the upper 40%. Net investment return, excluding Intelsat, looks comfortably above 11.5% for the year, that is going to be somewhat subject to the market because we value our portfolio based on how comparable companies are trading. Gearing is edging up towards the middle of our range of 0.8x-1.2 x. All in all, we're anticipating a strong year for FY 2019 based on a first half that's seen a very high level of fundraising and very, very strong fund management profit growth.
Benoît will now explain how we managed it all.
Thank you, Philip. This should now be a familiar slide. The ICG Value Creation Triangle, investing selectively, managing portfolios and funds, and growing assets under management. I propose to go through each in turn after a few observations generally on the market. This is ICG proprietary data. There are actually some reports outside if you want to pick them up. We are tracking 300 to 400 private companies in Europe. Some in our portfolio, some not, and we believe that is a fairly representative sample of the market. What you can see here is overall revenue and EBITDA growth remains quite solid across the board and across countries in Europe. This is a European-focused database. If we were to look at the U.S., the numbers would be even higher. This is consistent with what we're experiencing in our portfolios.
All of our portfolios, with no exception, are doing incredibly well. The second slide, still based on the same data set. Perhaps more surprising, particularly given the noise in the market, that credit fundamentals remain quite strong. There is an increase in leverage, you could see. It's nowhere near the levels of 2008, but there is a notable increase in leverage. I would point to two things. One, there's a much greater proportion of senior secured debt instruments in the structures. That's the blue part of the bar chart. That is largely the consequence of the growth of private direct lending in Europe and the use of instruments such as unitranches. These, if there is a downturn, will have a stabilizing factor. The other element, which is quite meaningful, is that red line. The interest coverage is at a historical high.
That's defined as EBITDA over net cash interest, which that's a measure of the ability of companies to service their debt. As you could see, not only is it at a historical high, but it is materially above where it was in 2008, and that is indicating a very different risk profile. Structures are in a much better risk position than they were 10 years ago, and by some margin. The other point to note is these are industry averages. If you have strong origination capability and/or you're focusing on certain segments of the market, you can structure financing that are more conservative than this. If I take, as an example, Fund VI, Philip just mentioned the performance of Fund VI, which is showing 28% IRR.
Well, Fund VI, which we've just finished investing, so it's a recent fund, the average senior debt level in that fund is 3.5x . Nowhere near the market averages here. Going back to our value creation triangle, starting with investing. All of our strategies are on track. I think that's the key message on this slide. All of our strategies are on track. They're deploying as expected or at the pace that was expected. We keep pointing that out, we're an origination-heavy platform. For us, the key is the origination, is having Senior Executives on the ground in the various countries. That is what is enabling sufficient quality of sourcing to maintain a level to be able to select the best possible deal and the best possible risk-return profile throughout the cycle. Which leads to this. This is a slide we're quite proud of.
It's our track record. Not many asset managers could point to such a long-term, unblemished track record. It's probably our most valuable asset. Importantly, the recent vintages are significantly outperforming. You've seen some of the numbers from Philip. Our Europe Fund VI is showing 28% IRR. It's actually already at 1.9 x money multiple, even though we've just finished investing it. The Strategic Equity strategy is showing an almost unbelievable 45% IRR. Our North American Private Debt Fund, the Fund I, which again, we've just finished investing, is showing 18%. Its target was more in the 14% range. All of these recent funds are outperforming, which is obviously very good news for these specific vintages. Even more importantly, it's a very strong indication of our ability to successfully fundraise in the future. Everything we do is long term.
When you think about it, in Europe, we've just raised Fund VII. The strong performance of Fund VI will essentially be what determines how successful we are in raising Fund VIII, which is several years away. You look at this and that's already giving you a pretty strong indication of our ability to successfully fundraise Fund VIII. We've just started investing Fund VII. That's giving you an indication of the visibility that this gives us. That's another approach to performance, looking at exits during the period. It's telling the same story, which is if we're comparing to historical numbers, the performance is extremely good across the board. What I thought I would do for a change, because we always focus on the best deals, and we do have a few outstanding deals where we've exited with IRRs north of 30%.
I thought I'd pick one from the red part, because that's interesting as well. There's always a bit of color behind those stories. We've had two deals that have underperformed. One of those is a transaction that we made several years ago in Spain, where we invested in senior debt at a relatively low leverage, 2.5x EBITDA. This was a low-risk investment. These things happen, force majeure, completely unforeseeable event. The company goes on the brink of bankruptcy. The team locally, again, as to the importance of having strong teams locally on the ground, the team locally managed to salvage the situation, reinject some money, save the employees, and in the end, after a few years of work, a couple of weeks ago, we received all of our money back.
We didn't make a return on this transaction, which is why it appears in the red, but we received all of our money back. These situations are valued immensely by our LPs because they demonstrate our ability in difficult situations, and there will always be difficult situations. Our ability to fight for the asset to protect the capital makes a material change. Incidentally, that investment is in ICG Europe Fund V, which has already returned all of the money to investors and more and is looking to be one of our best vintages. As I pointed to in my introductory slide, given our performance last year at 7.8%, we're doing quite well if we compare that to our long-term rolling average target of GBP 6 billion per year, which as I've mentioned earlier, we've just increased materially this past February. This is a strong period of fundraising for us.
Not entirely surprising. Last year, we had our senior debt strategy. This year, we have our European fund strategy. These were always going to be strong years. This should not overshadow the success we've had in other strategies, where all of the strategies that were in market have fundraised either as expected or in some instances, better. Looking forward for the remainder of the year, the focus will be more on those strategies that are constantly in market and fundraising, notably our capital market strategies, as well as some of our real estate strategies. We are also, as we had indicated in our full-year presentation, we are also fundraising for ICG Strategic Equity III. Fundraising has started. We are looking to raise $1.6 billion, which is a 60% increase on the previous vintage. That's the objective. It's not a hard cap.
We have no hard cap on this strategy at this point. We are also looking to increase the fees. This would be a first for ICG because we're not just looking to reduce the discounts, but we're actually looking to increase the headline fee rate. This is a strategy that has fees on committed, so it has a long-term significant impact on our profitability. I think you've heard enough about the success of the fundraising of Europe Fund VII. The only thing I would emphasize here is this is our oldest, most mature strategy. I do take significant comfort from the fact that our most mature strategy is still able to grow 60% and increase fees and therefore, grow its contribution to the firm's profit.
You will also see that in the red line that as a result of the successful growth of the strategy, the co-investment ratio keeps improving, the efficiency of the balance sheet keeps improving. This is a great slide. If anything, it shows how much the business has changed, how different we are as a business from five or certainly 10 years ago. It shows the strength of the platform, the value of the brand, and the synergies that we're starting to extract between strategies. On the left-hand side, you're seeing a breakdown of our investors in the European Fund VII. What's interesting here is despite having increased the size of the fund by 60%, 75% of the investors in the fund are repeat investors. It's a strong feature. We have a sticky client base.
That's a very good sign when you're thinking about the ability of future fundraise is investor base tends to be extremely sticky. The other point to note on the right-hand side is the increasing number of our investors who are invested across strategies. Actually just over the past year, the number of our investors who are investing in more than one strategy has increased 26%. We're not only increasing our number of clients, but also more and more of our clients are investing in several of our strategies.
There we're clearly benefiting from a shift in the market where not only is there a shift towards a greater allocation to alternatives, but many investors are consolidating their GP relationship because they have too many to manage, and therefore they're looking for GPs who can offer a broad range of strategies, and that's exactly what ICG is providing them. That's exactly as we broaden the number of strategies, we're getting a virtuous impact. In conclusion, well, it's been excellent first half, I think we'll all agree. 45% increase in the Fund Management Company profit. A record EUR 6.1 billion raised over the period. Importantly, our portfolios are all performing well. We're actually at a low point in the number of underperforming assets and watchlist assets historically.
Finally, the strength of the balance sheet remains critical to drive future growth, and I'm absolutely convinced that we have very significant additional future growth potential. That concludes our presentation. I thank you for your attention. We're quite happy to take questions, continue on some of the themes that have been evoked or answer any other question you might have on these sets of results. Great.
Hi, good morning. It's Gurjit Kambo from JPMorgan. A few questions. Firstly, are there any structures where you're thinking about evergreen structures, given more and more of your clients are giving you money and getting new funds? Firstly, is there any sort of evergreen structures you're looking at? Should I go one after another or should I.
I'll go one by one because I may forget your first question by the time we get to the last one. Evergreen. We do have a few evergreen structures. They have pros and cons. The pros is you no longer have to fundraise again. The con is, they're evergreen, but they have to have some sort of an exit clause. That's what we do. We make these exit clause extremely comfortable for us. Typically, they need to give more than a year of advance warning. All it does is it's only turning off future new investments. You never have to sell anything. It's more comfortable than what you might have in the more traditional asset management space with some early redemption.
Nevertheless, it's not as comfortable as having people locked in for 10 years. There's a balance. It's useful to have some evergreen mandates, but you don't want that to be too significant a part of what you do. For us, it's small. There are instances where it's very useful is for investors that have very significant appetite in our strategies and appetite that far exceeds what we can absorb. What we can do then is we can say, "Fine, let's open that evergreen mandate and you're going to keep adding to it every year." For that, it's useful. Otherwise, we much prefer to have investors locked in for a really long period of time.
The second one, in terms of, I think the Fund VI, you said the senior debt leverage was about 3.5 x. What was the sub debt? Is that also sort of similar levels in terms of?
Well, no. Sub debt is higher.
Yeah.
Why I'm mentioning why we're tracking the senior debt, that's because it's what's ranking ahead of us in those structures. Essentially, it's our risk level. By pointing to that, what I'm pointing to is that Fund VI, even though it's a very recent vintage, the risk level on that portfolio is actually quite reasonable. That's what I'm pointing to. The level of sub-debt will vary from deal to deal. Sometimes it could be quite low. Actually, in some instances, we are that senior debt. When I'm telling you that's what's ranking ahead of us, I'm actually giving you a conservative view, because sometimes we are part of that 3.5, but that's a good proxy for the risk on that portfolio.
Just the final one. Obviously, there's been a lot of talk in the press about BBB bonds coming under some pressure, leverage loans coming under pressure. From what we can see, the default rates still remain very low. Issuance of CLOs is still very high. Is that sort of what you're seeing?
Yes. That is absolutely what we're seeing. The fact that default rates are low, in itself, is not a good indicator. If structures become way too stretched, the risk level it could be extremely high, even though you have low default rates. What you have to look at is the evolution of those structures. What I was pointing to in one of the slides is, yes, you are seeing an increase in leverage, but for one thing, it's not across the board, so you can choose which deals you want to invest in. That's one thing. The second one is with that interest cover level, is actually the structures are not that stressed.
Because the higher leverage is being put on companies that have very significant cash flow generation, which was not the case in 2006, 2007, where people were putting high leverage on just about every company. It means that those companies that have higher leverage typically have the ability to actually weather that sort of leverage.
Okay. Thank you.
Sorry, Gurjit, can I just check, your question on BBB bonds was around that as an indicator for the quality of corporate credit?
Not because we hold BBB bonds.
No, yeah. More around the Yeah, that's right.
Where we don't have any portfolios where BBB bonds feature as a part of the mandate.
Morning. Dave McCann from Numis. Looking at slide 23, 24 again, which I think were quite helpful, the ones where you were talking about the European market trends. A few questions on those. How similar are those trends to your actual portfolios, would be question number one? I think that on the 24, where you showed the interest coverage ratio was particularly helpful, I guess in responding to some concerns that might be out there on where the risk in this portfolio is. I do note that that says net cash interest rather than total interest. How does that line look if you look at total interest, including obviously, PIK provision? Finally. Obviously, it's not as easy to show quantitatively, but how would that line look if you looked at the covenants taken over time? Have the covenants been weakening recently?
They're very different questions. I'm not sure the covenants would feature on that slide at all. Sorry, all your questions were on this slide, actually. The first question is how do we compare to this? It depends by fund. As I said, Europe Fund VI looks much better than this. Our senior debt fund would not look too dissimilar, but we would just have the blue bar, because in those structures, we have no sub-debt at all. It would be lower, but it would be all blue for our senior debt strategies. Your second question was on interest cover.
Yep.
Most of the deals being done in the market have, as you could see, they have very limited sub-debt. Actually, there's very little PIK. If I look at what we do in senior debt, it's all cash pay. It's 100% cash pay. It wouldn't look materially different. Which incidentally, that would be very different from 2008, where you had a very significant proportion of PIK interest. You're right, if we did an adjusted line, it would look even more slanted and pronounced compared to 2008. We could try to do that. It'd be interesting.
Covenants?
Covenants, yes. There's no doubt that there is a general weakening of covenants, but that's particularly in the large syndicated deals. Apart from the CLO part of our business, which is more market driven, and there the key is the ability to trade. What we mostly do, which is the private end of the market where you do not trade because there's no trading, it's not as pronounced, and it will vary dramatically from deal to deal and region to region. In Europe, where we invest through SDP, we're investing a couple of GBP billions a year, so it's significant. We've never done a cov light, for instance. The market hasn't moved to such a stage where you no longer have covenants.
It's true that in a number of deals, the covenants are what they call getting looser, there is more room on the covenants than they were maybe three, four years ago. Three, four years ago, they were particularly tight because this was still a post-crisis type of approach. It's getting back to, in most deals, a more normalized level where there's a 20% headroom. If you think about those transactions. This applies to senior debt only. When we're in the sub-debt or in other tranches, it's a completely different equation because sometimes you may prefer that there are no covenants because if they are going to be used against you by the senior, then you prefer to have different types of protection. The story becomes more complicated if you're not in the senior debt.
In the senior debt, what happens is in direct lending, because you only have one lender, could be ICG, if you're the private equity sponsor and you don't have a 20% headroom, that's a really dangerous position to be in because unlike in 2008, where part of your protection if you're a private equity holder is that you're dealing with large syndicates of banks and various holders of debt, and that's always complicated to manage, that's giving you a little bit of flexibility if you're the private equity holder when the company underperforms. Here, you're just dealing with one lender. One lender can very quickly take over the company if things are not happening as they should be. It's not unrealistic, I think, for.
We did a lot of work after the referendum, and we've been continually monitoring and updating that. I don't think anything has fundamentally changed. We were focusing on access to clients, which we now have unfettered access to clients through registrations in continental Europe. We have registrations here. The U.S. uses different routes to get to European clients. We have a number of routes to retain access. That's pretty well covered. We've got a growing office in Luxembourg, which meets all the regulatory requirements, and we're using that actively in some of our newer funds. From a people point of view, which I think is one of the other key dimensions we would look at, we manage a lot of money, but actually, in terms of numbers of people we employ, we're still fairly modest size.
2/3 of the business or 60% of the business are on this floor of this building. Actually, IT is on the ground floor. That means that if people need to move around, what's important for us is that our investors are near the companies they're investing in. It would take very little movement of people and a very small number of people if we had a cliff edge Brexit to make sure that our investment teams were close to where they're investing. We might need to move people around a little bit for investment committees, but it's relatively logistically modest compared to what a lot of companies may have to do. We're pretty flexible. If I look at the portfolio, the U.K. businesses that we're invested in, we've been very careful to select businesses, particularly where we have larger positions where they're pretty much hermetically sealed.
We talked before about Park Holidays, which is holiday homes in the U.K. We've got a business that supplies teachers in the U.K. These are U.K. to U.K. businesses rather than relying on cross-border trade. Since the referendum, all of our monitoring, and you know we're very active in monitoring the businesses that we invest in, we've been making sure the businesses have got very good plans for Brexit. For some it's irrelevant, and for some it's a bit more work, but we've been doing all of the hard work has been done in advance.
Thank you.
Thank you.
No, thank you very much.
All we're doing is keeping those plans up to date.
Good morning. This is Liz Millard from Bank of America. Your net investment return guidance is 11.5%. Obviously, we've got 13.3% for the half annualized, adjusting for the one-off. Just wondering why we perhaps aren't revising that up even just slightly, given the performance. A second question on impairments. Obviously, you're not disclosing that this time around. If you could give us some sort of high-level commentary as to where that is, that would be awesome. Thank you.
Sure. On the net investment return, that does fluctuate with the market. I think we'd be quite cautious. I'm not sure we're really in a position to say that we're going to change our outlook on that, because your view on the markets in terms of what they'll be like at the end of the year are probably better than our own. I think I'd prefer to let that one play out. When we set that guidance, we really looked at what is a relatively conservative view of the capital gains that we can expect to achieve from our portfolios that we invest on the balance sheet, and therefore long term, what do we think is a sensible return overall. Not really considering particularly necessarily whether that comes through lower impairments or higher gains or what kind of running yield.
It's worth mentioning, Phil, as well, that a greater and greater proportion of our balance sheet is dedicated to launching new strategies and to seeding assets for new strategies. Some of these strategies are lower yielding, and we're not seeding those strategies for the underlying assets themselves, but for the value that will be created out of those funds. As a result, that target is becoming more of a mix between the various strategies that we're launching than actually a reflection on the performance of the portfolio. If you see what I mean.
Impairments, I think the number is in the data pack. Ian? Yes, he nodded. I can't remember offhand what it is, but I think you would find it would be very low for the period, probably one of the lowest we've seen in a long time. I can't recall the exact number, but it'd be low. Because the portfolio we have, as Benoît mentioned, we can't remember a time when we had so few companies that we were really concerned about.
Thank you.
Any other question? Okay. Well, thank you very much. We'll be around if you want to continue chatting outside of the main session. Thank you very much for attending.