Morning, everyone. My name is Philip Keller. I'm Chief Finance and Operating Officer at ICG. Welcome to our 2018 capital markets update, our first in a couple of years. Welcome and thank you for making it to London's latest trendy techno hub. I suspect we've substantially increased the number of people wearing suits in NW1 today. We are very appreciative of our host, Maitland, who are our PR advisor, for hosting us today. A little bit about how this morning's going to work. We have a number of speakers, and we're going to have specific breaks for Q&A after each couple of talks. Save your questions up. There'll be plenty of time to ask questions of the individual business unit heads who'll be addressing you. At the end, Benoît and myself will answer questions more generally about the company.
We are joined today by a number of our non-executive board, and specifically our chairman and the chairman of the committees, who will be available throughout the morning to talk informally or indeed if any of the shareholders or indeed analysts want private meetings, they're also available for that as well, and they're broadly sitting in the front two rows here. Two years ago, a number of our colleagues talked to you about some of the more established businesses at ICG, where the U.S., we talked about European mezzanine and credit fund management. Today, we're going to focus a little bit more on some of the new strategies, some of the more emerging strategies that we've been developing over the last few years. Hear the stories about how they came into ICG, how we grew those businesses, and where they are and how they're looking going forward.
Before we do that, though, Benoît is going to talk about the business strategy, where we are right now, and how we're going to be progressing going forward, a little bit more about the shareholder targets that we also announced earlier on today.
Thanks, Phil. Good morning. Our business strategy. This is our business model. ICG's business model fundamentally is quite straightforward. We invest, we manage those investments, and we grow assets under management. You will notice investing is at the top of the pyramid. We're an investment-focused firm. We have a reputation for the strength of our investment culture, for a deep focus on origination, and for the excellence and consistency of our track record over several economic cycles. This is our most valuable asset. The combination of strong investment and the quality of our portfolio management drives performance and ultimately growth in resilient and long-term AUM. I emphasize on long-term and resilient. We are not interested in growing AUM for the sake of growing AUM. We're focusing on long-term AUM, which translates into locked-in value.
This is what generates shareholder return and allows for strong visibility in the growth of our profits and dividend distributions. At our last interims presentation, I mentioned that we were ahead of plan on delivering on our strategic priorities. Indeed, we have met, actually exceeded, our fundraising targets every year. Our client base has almost quintupled in 5 years. We've launched a number of new strategies, a number of new products, so much so they now represent a significant part of our AUM and a growing part of our AUM. Despite this focus on growth and the associated cost, we have been able to preserve a healthy level of operating margin for the fund management company. We have also put considerable emphasis on the balance sheet to improve capital efficiency.
Philip will be talking about this later. Notably, our co-investment ratio has dropped from 37% to 7% today. As you know, we've returned over GBP 800 million to shareholders. We have revised our dividend policy to align it to the FMC profit growth. As a result, ICG does look very different from 8 or 10 years ago. We have diversified geographically. ICG is now truly global. We have also expanded our product base. Not only have we added new strategic asset classes, real estate, secondaries, but we've also expanded the breadth of our products within asset classes. If we look at corporate investments, for instance, in 2010, this was European Mezz and Asia Mezz. That's it. Today, it encompasses US Mezz, Japan Mezz, European Senior Debt, we will be talking about it in greater detail later, US Senior Debt, Australian Senior Debt, and so forth.
We have a much broader product base, much more diversified. As a result of these, more adjacent products become available. Simply, you get better at growing. Growth becomes part of your DNA. There's a virtuous effect actually in this, which we can observe on this graph. You could see that in the recent past, our growth has accelerated. This is where we are today. This is what we've achieved. What about our market environment and what's our competitive position? Starting at a global level. Macroeconomic context, as you're aware, is quite favorable. Most economies are firing on all cylinders. The IMF, as you've seen, have recently uplifted their global growth forecast for 2018 and 2019. We're at growth levels that we haven't seen for 7 years. This flows down to company performance. We're seeing that in our portfolio. Company earnings are growing.
It's particularly true, incidentally, in Europe. The environment and the outlook is quite favorable. For us, for ICG, we're actually not quite sure what to wish for. Obviously, a benign economic environment helps. Our portfolios are in very good shape. Default rates are negligible. It's easy. At the same time, most of our strategies have a significant floating rate debt component, and therefore would benefit from higher interest rates. Historically, we've done quite well in more volatile environments in dislocated markets. As a matter of fact, many of our investors invest in our funds, not only because of their recent performance, but because they've seen historically that we are able to take advantage of the opportunities that invariably arise out of downturns or more volatile markets. From a macroeconomic standpoint, it looks like smooth sailing for the foreseeable future.
At ICG, we wouldn't mind some choppy waters along the way. At our market level, going from the macro to our market, we're fortunate. We're benefiting from long-term structural trends towards alternatives. Beyond that, if you look at the split of asset classes within alternative, the share of wallet, if you want, from investors, you could see that private equity still represents a significant part of it. Private equity used to be the entire alternatives market. As the market has grown and become more sophisticated, you've seen the emergence of new asset classes like infrastructure, real estate, private debt. They're still relatively small compared to private equity. When you think about it, there's no reason why private debt, for instance, should be any smaller than private equity.
It's not inconceivable to think that as the entire market grows, these newer strategies would tend to grow faster as they catch up, which would benefit ICG, clearly. This seems to be confirmed by recent data from Preqin, which looks at long-term allocation plans for institutional investors. We can see two things. One is that their plans, fortunately, tend to match areas where ICG is focused and strong. Also importantly, you could see there is a marked emphasis on private debt, which would obviously be extremely beneficial for ICG. This is where we are particularly strong. There's another market trend that we are benefiting from that works in our favor. Is the fact that as the market becomes more sophisticated, it's also becoming more complex. There's greater regulation, clients are more demanding, and as a result, the market is bifurcating.
It's bifurcating between smaller single-strategy managers, and that is the bulk of the market. A much smaller population, it's even smaller if you're looking at the European base, much smaller population to which ICG belongs, of established diversified asset managers. That group, the diversified asset managers, is disproportionately benefiting from the growth of the market because a growing number of investors are looking to streamline their manager relationships, and they're looking for managers who can offer a range of products across geographies. There aren't that many managers in the scheme of things compared to the size of the market that can actually offer that. The barrier to entry is high and getting higher. There are actually not many new entrants into this group of diversified asset managers. The market environment is favorable. How well-positioned are we to take advantage?
We have a number of competitive advantages. I've just mentioned a few. Number one, I mentioned that at the outset because that's the most important, is track record. We have a 28, actually pretty soon to be 29-year track record with no failed fund. Actually, we've never had a fund that hasn't met its minimum performance targets. In our industry, such a consistency of strong performance is extremely unusual, and that's very highly valued by our investors. This track record, this long-term performance, that's our most valuable asset. That's our key competitive advantage. Linked to that, something that we're also known for, is our investment approach. I've mentioned that we've become truly global. We have a global reach, but our investment approach is very local. It's very granular. It's local teams on the ground sourcing transactions. We're very origination heavy as well.
This is what enables us to be highly selective in our asset selection, to pick the best risk-return profile for any given situation, any given opportunity. We're also benefiting from our history. Just the length of relationship that we have in our various markets with our various partners, very difficult to replicate this. Something that is often underestimated, it's data. We have a lot of data, and we keep enriching this base as we grow our strategies. In particularly in the private corporate world, we often, if not always, have a lot more data than the well-known professional information providers. That's a big competitive advantage. I've mentioned how the market is moving towards a greater need for multi-asset managers, diversified asset managers.
The fact that ICG now has 16 different strategies, a proven ability to add new strategies and the balance sheet to be able to back that, and that's quite important, we'll come back to that later, is a key differentiator. It's clearly contributed to increasing our credibility and our attractiveness to investors. Overall, we're in a reasonably good place. The environment is favorable. We have a number of competitive advantages to take advantage of this market environment. We do need to put things into perspective. If you look at this is essentially 20 years of history. Indeed, we have built a platform that is quite efficient now at building new strategies, bringing in new teams, onboarding new teams, launching new strategies, launching new products, but it's still difficult.
It takes quite a bit of balance sheet capital and several years to establish a new strategy, and even longer for a new strategy to become profitable. The bar is high. The price is high as well. When a strategy is established, it represents considerable locked-in value, and that's what we are looking for. Locked-in value is a defining characteristic of our business model. It's actually fundamental to the value of our business. Here's why. We've used as an example our oldest strategy, let's call it most established. European Mezz. We've been doing this for almost 29 years. It's a closed-end fund model. It's a very simple model. You raise a fund, and the fund has a life of 10 to You can extend it. So for this strategy, 10 to 13 years.
You raise a fund, and the day you've raised the fund, there are no redemption options. The day you raise the fund, you have contractual visibility over 10 to 13 years of fees. You invest that fund, then you raise the next one, possibly larger than the previous vintage. Then you get another 10 to 13 years of visibility on fees, and you keep on going. You could see it's quite a powerful and quite predictable model, which is what you see here. Look at the AUM progression for our European Mezz. It's almost linear. If you were just looking at this graph, you wouldn't know that it spans several economic cycles and that we had a major financial crisis in the middle. The strategy is so long-term that it doesn't register.
Another important point about the visibility is it's not only a matter of having contractual visibility for the next 10, 12, 13 years. It goes beyond that because actually in our industry, an established strategy with a track record is extremely sticky. You actually have a very high level of confidence that you'll be able to raise the next vintage and the vintage after that. Once a strategy is established, it's almost an endless fee stream. The one variable is how scalable is that strategy? How much can you grow the fund from vintage to vintage when you go back fundraising, and how much can you grow it without compromising on the quality of the strategy and on the performance of the fund. An established strategy is practically a perpetual fee stream.
The variable will be the slope in the growth of the AUM and the growth of the fees. You could see why we're talking about locked-in value. There are very few business model that have such visibility on income. That's the strength of closed-end funds. As we've seen, they have long-term predictable fee streams. There's also visibility of fundraising, again, because it's all long term. These funds will typically invest over a three to six-year period. They'll be back in the market to fundraise again every three to six years, which means depending on your pace of deployment, you have reasonably good visibility on your fundraising timing several years ahead of time. Highly visible on fundraising. Importantly, you always have capital available to deploy. I mentioned that these strategies have no redemption.
This means not only that you're never a forced seller, which is useful, but more importantly, it means that you have capital available when the market is the most attractive. Typically, that's when the market is very volatile. In a downturn, you have capital to deploy. You could take advantage of the opportunities in that environment. That's actually, interestingly, exactly what happened to us in the financial crisis. We took advantage of the fact that we had capital available to deploy to seek out particularly attractive opportunities. What's interesting is because our investors saw that we were doing this, they actually gave us more money. In 2008, we actually raised a sidecar, a mini fund next to our main fund to invest more. The most important financial crisis in decades for a fund meant actually higher AUM and higher fees.
Naturally, as you go from vintage to vintage, and even more so as you start adding more strategies, you have a natural increase in your operating leverage. That's also a direct consequence of the closed-end model. There's another feature of our model, which is that we have very significant embedded growth. Even if we were to completely stop trying to grow the business, so we're not trying to add any more products, no new strategies, we're just living off the existing portfolio of strategies. Well, even then, these strategies would generate significant growth for years. The reason for that is if you look at our portfolio along their life cycle curve. The top right-hand, these are our most established strategies. Even these are still growing. I was mentioning European Mezz, it's still growing. It's not growing exponentially, but it's still growing.
If you look at the younger strategy, the more recent strategies, the strategies we've introduced over the past two, three years, these have a double growth potential. What happens for these strategies is they get to their cruising altitude, their cruising speed after the third vintage. What happens is you raise a first fund, you invest it, then you raise a second one. While you're investing the second one, you're starting to divest of the first. Then you raise a third, and typically, you're overlapping three funds. Typically, by the time you're investing the third fund, you're still divesting the end of the first fund, and you're in full divestment mode for the second fund. You're overlapping three funds. Up until you've reached your third fund, you're naturally growing AUM and fees, even if you're not increasing the size of that strategy.
That's quite powerful because remember, these are strategies that are three to six years. With a new strategy, you have nine years to 15 years of structural growth just by adding a vintage after the other. In addition to that, of course, the more recent strategies have more growth potential. Actually what happens is they're growing. In addition to this vintage overlapping phenomenon, you have an increase in the size of these funds. You combine the two, that's quite significant growth. As you could see, with the existing base of the products without adding any other, there is very significant embedded growth. Obviously, that's not our strategy. We do want to keep growing the business and accelerate the growth, if only because the surest way to increase shareholder value is to add new strategies.
As we've seen, the model is quite powerful in generating long-term value. Finding new opportunities is not the most difficult thing. There are plenty of potential opportunities. The difficulty is the selection. To that end, we've put together a process that starts from the new product development all the way to actually launching a new fund and establishing a strategy, and including structuring it, including onboarding a team if we have to, including the marketing plan and so forth. There are a number of aspects that are important along this journey. As we say, it's a long journey. Establishing a new strategy takes a few years. Some of the key aspects that I wanted to highlight along that journey. One is market demand, obviously. We're looking for what is the scalability, what's the potential for that new strategy? Do we have a first mover advantage, for instance?
How well does it fit in the existing portfolio of strategies of ICG? Will we be immediately credible with this strategy? Second one, most important one, investment culture. We're an investment-focused firm, we absolutely need to make sure that the approach to risk, the approach to investment, is similar to ours, and that generally the culture will fit. We have to consider more mundane matters, such as can we actually afford the team that we want to bring on board? More importantly, or just as importantly, capital allocation. Investors are more and more requesting managers to prove concept before they launch a new strategy. They're asking managers to invest in a number of deals before they launch a fund to prove concept and to demonstrate that there is indeed a market and that they're able to deliver.
Not only that, they're also asking managers to support these strategies, at least in the initial vintages, to accompany the growth of the business. The balance sheet becomes critical, but it's also a scarce resource. Part of our job is to make sure that we're allocating it adequately and to the strategies that have the greatest potential, because it's a significant commitment and it's a long-term commitment when you're starting a new strategy. Taking all of this into account, our market environment, what we've achieved, our embedded growth, we have looked at our strategic objectives and particularly our measurable targets, starting with fundraising. We've decided to make a significant step up. We've decided to increase our fundraising target by 50% to EUR 6 billion per year. That's an ambitious target, we are highly confident that it's an achievable target for a number of reasons.
One, as I've mentioned, we have significant visibility. I can show this slide. I will not steal your thunder on the pipeline, we have significant visibility on fundraising for a few years. We also have demonstrated that we have a marketing team and a marketing platform that's highly efficient, that can deliver these sorts of targets. One thing I need to emphasize is our fundraising cycle is not annual. As we've seen, our funds go back to market every three to six years. Depending on how many funds happen to be fundraising in a given year and how many of these funds are some of our largest flagship strategies, some years will far exceed the average, some years will be below the average. What matters is the rolling average and the direction of travel. This is what we're focusing on.
Incidentally, slower fundraising years, essentially your fallow years, are quite useful because they're enabling us to focus on new strategies that typically are much more difficult to get into the market and to fundraise. They take much longer. They take a lot more effort. In the year we're launching them, typically, they don't move the needle for the overall fundraising number. In terms of potential value creation, they're quite significant. This cycle, these breathing years, are quite useful for our model. Fundraising target increased to EUR 6 billion. We've also looked at the operating margin, that's more of a balancing exercise because there's no doubt that our existing strategies and the embedded growth will push the operating margin upwards. At the same time, we want to keep growing the business, adding value, and adding new strategies.
It's expensive, it takes a long time, and that's weighing down on the operating margin. There's a balancing exercise. Nevertheless, when we look at our assumptions, even assuming that we accelerate the pace of new product development, we still believe that the momentum from existing strategies will push the operating margin up. That's the reason why we've increased the minimum target from 40% to 43%. Fundamentally, sacrificing some operating margin in order to establish a new strategy is always going to be worthwhile because of this, because of the locked-in value that it creates and ultimately shareholder value. Bringing it all together, we have refreshed our strategic priorities. I won't take you through the whole list. I've covered the points separately through the presentation. What I will emphasize is that our strategy is successful. It's delivering value.
We have no intention to change the strategy, but to accelerate it with a stated ambition to be recognized as the leading European specialist asset manager. Now that we've somewhat raised the bar for fundraising, Andreas will tell us how we achieve it.
Thank you, Benoît. Am I on? One, two. Can you hear me in the back? Yeah. Yeah, raising the bar. Thank you, Benoît. Quick introduction, because there's a lot of new faces in the room. Andreas Mondovits. I joined ICG five and a half years ago from UBS. It was Global Asset Management. I had a similar role there, global head business development for their real estate platform, which is a GBP 100 billion platform. You probably wonder why would I join ICG? I joined for the vision, and we're delivering the vision. When I joined in 2012, it's important because again, there's quite a lot of new faces. We didn't have a marketing team. We used placement agents to hire guns to place our funds because we only had a European Mezzanine fund and Asian Mezzanine fund.
There was no point having a marketing, there was the vision, diversify the firm, that meant the firm had to invest. I remember my discussions with ExCo, I said, "Well, you have 140 staff. If you want to hire me, I need 28 people." "What? 20% growth headcount." I said, "Okay, makes sense." I told them about the business plan. Today the team is 32 people, so marginally bigger. We have 14 senior capital raisers. There's a centralized client services team in London, New York, then we also have media and comms and all that. Now the question is why is it good to have this team? Because it's a big team, it's expensive for you, for the shareholders. The first one is actually it saves you money. We said half your results were GBP 5.7 billion.
The placement agent on average charge you 1.5%-2%. You run the maths, very expensive. We are much cheaper. Good news. The second one, Benoît mentioned that too, is new teams. When you talk to new teams, there's two questions they ask. The first one, can you give me a balance sheet so I can prove concept before we go fundraising? Benoît mentioned that. The second one is, can you fundraise for me? If you don't have a team, you have to say, "Oh, we have this great placement agent. Hopefully they can do it," maybe not. Part of onboarding your team, there's always a bit of a beauty contest of my team to demonstrate we can add value and can raise capital for them.
What I was planning to do in the next couple of minutes is talk about the overall fundraising market, then are these J-curves paying off? Are we getting more efficient? The growth of the investor base, that's important. Finally, are we gaining market share? Because Benoît said that the diversified managers are winning, and I try to demonstrate to you that is correct. The first one, the global market. There's three takeaways here. The first one is, how long does it take to raise a closed-ended fund? The market average, as you can see up there, is 15 months. The second thing you notice is that since the financial crisis, it hasn't really changed very much. It went from 17-15.
You hear about all these CVC hitting hard cap and Advent and da da da da, it still hasn't really changed very much. That's because of what Benoît said is, the market is bifurcating. There is a group of people who are winning and raising funds faster and getting more efficient, and there's many others who struggle because that's the average. That 15 months is the average. Just by the way, for your notes, the real time is a bit longer because you need about 4-6 months to set up the fund, the PPM, register with the regulators. Typically it's 18-24 months. That's just for the real average. This is when you officially launch the fundraising process as [audio distortion] . The second thing is more on the right side, which is, where's the money going?
These little gray bars are showing where the capital eventually will be deployed. Europe typically gets about 25%-30% of where the money is then deployed. We're obviously very well-positioned, given our heritage, to capture a big chunk of that one. The interesting part is the one on the left, North America, because North America typically, because of the home market bias of American investors, gets half of the flows. The question is, how are we positioned to capture them? I'll give you three examples. The first one is to capture the U.S. and the global flows. The first one is strategic secondary. Andrew Hawkins will talk to you in a couple of minutes.
His fund immediately, when the team joined us, was set up as a global fund. Andrew speaks with an English accent, but he's based in New York. It's kind of weird. Wouldn't you want to be based here? That's great because that way we can capture these flows, the investor appetite into that strategy. It's also based in U.S. dollar or denominated.
Second one, North America Private Debt 2. We're in the market with our second vintage of that team. Again, Benoît mentioned earlier, that's naturally a North America fund, it naturally generates interest. The third one is a very interesting one. Max Mitchell will come on stage in a couple of minutes, SDP, Senior Debt Partners. I'll talk a bit more about this in a second, what's interesting is we integrated. Sorry, Max. I thought you would repeat that. We integrated a 30% bucket for non-EU, we can deploy North America and Australia.
If we can prove concept, Max will speak about that, you could imagine this to become a global fund, which makes it super scalable. There's three examples of how we are capturing also the left side of the gray bars increasingly. We think about that a lot in terms of scaling up the strategies. Of course, there's the right side, which is more rest of world, we call that. Asia, Africa, LATAM, and all that. Then the third bit on this slide is competition. If you add up these dark blue bars, these are just private equity funds. In 2017, there's 1,000 of them were fundraising. You add private debt funds, private real estate funds, you could easily get to 2,000 funds in the market, hundreds of marketers running around knocking doors. Can I get a meeting?
I'll come back to the importance of getting a meeting, because if no meeting, no ticket. People still don't do virtual tickets. Still hasn't happened. Okay. You need a meeting to write a ticket. Again, the market is barbelling, right? I'll show this to you. You'll see how we can really get more and more efficient in your marketing and your marketing approach to make more room for strategy. When we started the journey in 2012, we could basically raise one closed-ended fund a year. We just weren't more efficient. Today, we can raise three or four and potentially more going forward in any given year. We're really increasing the throughput of the strategy. Again, I'll show this to you. Let's use SDP or our Senior Debt Partners.
SDP stands for Senior Debt Partners, which is our senior debt lending strategy, just to illustrate that point. SDP 1 was a fund we closed in 2013 at $1.7 billion, which it hit the hard cap. We actually increased the hard cap, so it was a success. It took us a while, 24 months, to fundraise this fund. It was, at the time, the biggest in the market. Why did it take us so long? Because when we started the journey, that was a new asset class, and you go to a private equity investor says, "Hey, I have a really cool strategy. 8 to 10-year lockup, 7%-8% net." "What? There's the door, because I'm looking for 20%." "Oh, wrong guys." Went to the fixed income people.
Hey, we have this really good strategy, 7%-8% net." "Oh yeah, I'm interested." "Well, it has an 8% 8-year lockup." "Ooh, no, I can't do that. I do liquid." We had to basically find the early adopters, the early innovators, to basically come into the strategy. Today, of course, this has become a mainstream asset class, as Benoît has shown you. We were the first guys in the market doing this. It's a bit of winner gets it all, and Max will talk about it. The second fund is a 2015 closing. We increased it by 75%, we shortened the fundraising time by two-thirds. Went from 24 to 8 months. That's massive in terms of efficiency gain. Then just recently, last year, we closed the third fund at $5.7 billion, another increase by 90%.
We once again shortened the fundraising time to five months. Note of caution. That's as good as it gets. Five months is. You can't get any shorter. I know Benoît is shaking his head. Of course, you can. We're trying to prove this soon. There's a reason, because investors in closed-end strategies, they're signing up for eight or 10 years. They have to do due diligence. They have to go to their board of trustees. They have to get approvals. They have to decide later. This is as good as it gets. Otherwise, it starts cracking and the investors get a little bit unhappy with you, because normally you have a first close and then a final close. We did this one very fast. Nevertheless, it shows you the efficiency you can generate when you have a good process.
Fast-forward, take. It's not on this slide. Take North American Private Debt Fund II. We're in the market with that. That fund also took us 24 months to fundraise. It's the first time funding because the team came from Blackstone, but everybody thought it's a first-time fund. We're in the market with this fund, and I guarantee you it will be faster than 24 months. That's good, right? Setting a low hurdle. Let's say. It's not going to be five months, but it will be somewhere there, which again, will be way more efficient in terms of the fundraise, than what we've done with the first fund because we established the strategy. Strategy is doing really well from a performance point of view. We know who's interested. Andrew's fund, Strategic Equity, is also coming back to the market at some point in time.
First fund also took us two years to fundraise, and we closed at GBP 1.1 billion, which was a remarkable success. If you hit a billion with a first-time fund, that's amazing. Everybody said, "Wow." Nevertheless, it took us two years. I guarantee you the next fund, and it might be a little bit bigger, it will be much faster. We're getting much more efficient at doing this. How are we doing this? This again, use SDP just to stay on that fund so it's easier. What we're tracking very carefully is how many initial meetings do we need, so it's the second, the dark blue bar, to create one ticket. This is a very important ratio. By the way, I said this at the last Capital Markets Day. Go and ask some of our competitors where they have these stats.
It's really funny. Nobody can tell you this. It's simple. You have a CRM system, you track it. You have to make people write corners, of course. Then you track it and it's easy. Nobody knows these things. Anyway, the ratio is from initial meetings, you see this in SDP II, which was the eight months fundraise. We targeted 156 investors. Roughly half of them were interested in the meeting, and then basically 42 conducted due diligence and 34 invested. Initial meeting at the top of the funnel to ticket, it was a one to 2.3, which is, by the way, very efficient. I'll come back to this. With SDP III, we were better because we knew between the fundraising, we always stay in touch with people. We knew who was interested. We only targeted people who were interested.
It was pointless wasting our time. All the people we targeted came and saw us. However, still, only about 60% then conducted DD. Why? The CIO just changed, the asset location changed, whatever. There's always changes. You never get them all. Again, it's roughly a 1.1 to 1.9, so a one to two ratio, which is, by the way, very efficient fundraising. Just to give your contrast, SDP I, when we raised that one, we had 210 investors we targeted. We had 200 initial meetings, and then there's usually a second or third. Max had 400 or 500 meetings. It was mind-blowing. Then we had 72 investors conducting DD, only 19 invested. We had a one to 10 ratio, which by the way, is exactly the same ratio as Andrew's first fund. One to 10.
First time funds, you have to assume you need 10 initial meetings, not phone calls, meetings with the PM, typically, to generate one ticket. Once you get through that cycle, you bring it down to one to two, one to three. You massively increase your efficiency, and this is what Benoît has been talking about. You're overlaying the strategies and you're getting more efficient. That leads me to our client franchise. Again, Benoît mentioned this, we've grown it roughly five times or 4.75 times over the last five years. Again, 2012 was when we started putting this team together. That's why we use this as an anchor, because we had 69 investors. We were really, really concentrated. Today we have 328 investors. Couple of things here.
First of all, at the bottom, we try to diversify the investor base, we also were very cognizant who has a volatile source of capital. For example, fund of funds. They were 19% in 2012. Today, they're 6%. Typically, they don't have money when you need it, and they have it when you don't really need it. The point is, you need to find long-term sources of capital. That's pension funds, insurances. These are sovereign wealth funds. These are people who have more long-term capital, and also not all of them, but most of them also in the crisis, Benoît said that, would come and give you money if they see the opportunity. Fund of funds usually don't have money. Not that we systematically reduced it, we just didn't focus as much on it. The other thing is, where's the opportunity? It's somewhat obvious.
It's going back up. By geography, it's the U.S., North America. 20% of our investors, that's numeric, are from the U.S. However, North America or U.S. in particular, is 50% of the institutional capital globally. We're underrepresented. By the way, we're in good company. Check our Partners Group annual report, they're even worse. The point is- When they're supposed to be a marketing machine. The point is we're growing in line with what we've done with the other investors, but it's a huge opportunity. There is about 5,000 investors you could address. We basically focusing on 800, which are the bigger guys, we did a lot of screening and scoring. We currently have about 65 investors in the U.S. There's a big growth.
As we go to a market like Germany, we already have 40% of the addressable market locked in. We have in the Nordics, 40% of the addressable market locked in. You will never get them all. Yes, we're still growing in Germany and Nordics, but somewhere around 50%+ , that's it. Not everybody will give you money. The one opportunity we have is the U.S. That's definitely one to watch out for, and we hired more marketers. We're penetrating the market better. We have also a dedicated guy now doing Canada. We're doing much more, and we're making progress. This week alone, this is coincidence, but it's true. We added seven new investors in the U.S. That's 10% more. It's great. The point is, U.S. is tough. First of all, geography. I was in there two weeks ago.
I had to go to Harrisburg. Harrisburg in Pennsylvania. You fly to New York, get on a train, takes you two and a half hours. You meet a big investor, takes 90 minutes. We had to pitch to the investment committee, and then you get a sandwich and take another three and a half hours train back to New York. That's one meeting, one day. That's the U.S. for you. Very inefficient fundraising market. It's because the way geography works. And the big Americans, the Blackstones, the Apollos, the Oaktrees, the KKRs, have done a really good job penetrating that market. It's their home base. Breaking into it is hard because nobody's been waiting for us. We're making progress, as I just said. This week alone was a big jump again. We're getting there and we're getting better.
And then the next thing is, what do we do with this client base? Cross-selling. Are we extracting more value from the client? Because so now the last couple of years, we established the client base and we keep growing that. But are we getting better at doing more with this client base? We basically have 30% of our investors have invested in more than one of our strategies. Now you're wondering what's the right number? It's difficult. It's private market. Apollo, if you check their website, they have published a number. They have 50%. I couldn't find other numbers. Apollo, they've been doing marketing longer than us. It's big scale. They're bigger than us. 50% is probably not a bad number as an idea because not everybody wants all your funds. But going from 30 to 50, that's massive.
Again, this will help us to make the thing more efficient, and I give you one example. We have a big U.S. client who invested in our European S fund five and then fund six. It takes a while. They've been a big client of ours for a couple of years now. But now they really got comfortable with us, and they have just make a big allocation to our North American Private Debt strategy. But it takes you a while. They have to be comfortable with you and all that. You don't onboard them and boom, you start crossing. We try, but they want to first see that fund doing well, and then they start giving you more money into our strategies. But I give you my favorite example. Israel. Israel is a very small market.
There's only about 10 to 12 investors you can target. It's very efficient. You go there two days, done, met them all. In 2014, that's when we started there. In that year, we onboarded three clients, which was good in the first year, with GBP 50 million. This financial year, first of all, of the top 10, pretty much all of them are clients of ours. Well, there's only top 10, there's only 12. Nevertheless, we got them all. More important, we're going to print about GBP 500 million. 70% of our Israeli clients have invested in at least two, most of them three or four of our strategies. When you have a smaller market and you focus on it, that's great, and it shows you also a bit of some of the upside.
Again, this is a very particular market and they're very tough to negotiate with, we have been very successful there and we're growing there. Why is this important? Benoît said this as well. The industry, similar to the traditional asset management, is consolidating. People want to have fewer relationships with larger managers. Again, I was in the U.S., met a big pension fund there, and they told me they have 160 GPs, 160 ICGs. The team has five people, 160 GPs, 300 funds. If you just plan to go to all their annual meetings, you have one guy, the only thing that person will do, just fly around and go to annual meetings. They show you that's not good. They want to reduce.
We hear this a lot that people want to have less relationships, they want to grow with the managers once they trust them. That's again, a huge potential for ICG to diversify across these clients. That leads me to the ranking. Again, getting market share data in private markets is very difficult. We presented something like this a couple years ago. This is taken from Private Debt Investor. We use Preqin and Private Debt Investor. Since our mainstay is private debt, we use it this time, and because they just published the results quite recently. This is global. This is basically taking five years of fundraising, and then they keep rolling that. It's five years of fundraising in aggregate, and we are currently number 12. First of all, there's this error pointing up SDP. Why did we put that there?
Because their cutoff is May 2017 for the statistics. We raised this fund after May 2017, so that wasn't included. When we do the next statistic, plus we're doing other stuff, it's very likely, I can't promise this, it's very, very likely that we're going to be in the top 10, first of all. It's quite clear we're gaining market share. Second, what you see there, if you look at the top 15, check how many Europeans there are. There's M&G, there's AXA, there's ICG. M&G and AXA have an advantage over us because they get-- when they raise a fund, there's a lot of premiums coming their way. That makes fundraising easier if you have the first GBP 1 billion already locked in. In the top 15, we're the only independent European and counting, going up.
Again, the Americans have been very, very good in the private market. If you look at the names, the company we have, Lone Star, Apollo, Oaktree, Blackstone, HPS Hybrid, Cerberus. These are all very blue chip names, and we're now in that group of names, which is a massive achievement. In 2012, we were not even top 30. You couldn't even find us. This is a massive jump. Summarizing, we're growing the client franchise and we keep growing it. We want to grow it further to diversify the client franchise, which also helps in a down market if you have more diversification. Second, cross-selling. Clearly, we're aiming to do more cross-selling into the existing client base. Third, of course, all that leads to improved efficiency in the fundraising. As I said earlier, in 2012, we could do one closed-ended fund.
Now we can do three or four, plus we are raising liquid funds in parallel. We do way more funds in parallel than we did before because we're getting more efficient. Again, it's also important because people want to have fewer relationships. I think it's fair to say, in summary, we have all the ingredients in place to get more efficient, to grow faster, and to raise the bar. Thank you. With that, I hand over to Max.
Thank you, Andreas. Efficiency, you talked about for about 10 minutes, on one slide. You have left me with, in theory, 30 seconds to deliver my part. I'm already getting the hurry up signals from the back of the room. Thank you very much. As Andreas said, I'm Max Mitchell. I'm the Head of Direct Lending. I've been with ICG for what seems quite a long time. I joined in 2001. I set up the SDP strategy in 2012. Prior to that, I spent 11 years in our mezzanine business, so I've always been on the direct investment side, and that really is something that will flow through, hopefully, the rest of my presentation and is a bedrock as to the, hopefully, the success of SDP. In my presentation, I'm going to talk to you about SDP Partners in depth. SDP Partners is our direct lending strategy.
To avoid doubt, it's referred to variously as SDP, senior debt lending, direct lending. All of that nomenclature all means our direct lending strategy. The credit crisis was actually a game changer for direct lending in Europe. Prior to the credit crisis, the direct lending market didn't really exist. It's not unreasonable for us to say that SDP is the son of the credit crisis, possibly one of the only good positives to come out of it. What we observed is that by 2011, increasing regulation and broadly balance sheet stress on the banks meant that they had curtailed their support and appetite for mid-market corporates. They really had retrenched back into their home markets, and they'd reduced their activity, their lending activity.
This created a market dislocation, a supply side dislocation, and created the opportunity for asset managers such as ICG to step into the gap where the banks had previously been dominant, and for us to create the direct lending market in Europe. ICG's heritage as a direct investment house for our 29 years of mezzanine investment actually set us up, and as Benoît said, gave us the credibility to be a first mover in this market, and that was critical. Equally important was we were able to leverage from our balance sheets, our investment teams, and our infrastructure to get our direct lending product up very efficiently, very quickly. Using our balance sheet to seed the strategy, we were already doing deals in early 2012, and what that meant was we were a first mover, and that has turned out to be a critical success factor.
Andreas, this chart on the left shows you that the AUM growth, deployment growth. Andreas has talked you through that, so I'm not going to dwell on it. I think the key point or the point I'll bring out is, as we stand here today, we have around EUR 7.9 billion of AUM in the strategy. That makes us the market leader in Europe, and is a powerful position for us to build from. The European direct lending market is a private market, and data is pretty limited. Deloitte do some analysis, and their data is directionally correct, so we refer to it and use it. The market has grown. The indisputable factor is the market has grown very significantly. Deloitte show double-digit growth each year since 2012. If we look at our own activity and our own deployment, we're seeing much higher rates of growth than that, nearer to 40%.
It is clear, however, notwithstanding we don't have perfect data, it is clear that direct lending is now a permanent and structural feature of the European market. It's not going away. Having said that, I do believe that there is still significant growth potential for us and for the broader direct lending market going forward. If we look at total penetration of non-bank lending in Europe, it's still very small. It's probably around 10% of market potential. If you contrast that to the U.S. market, which made the change to a non-bank financed market much earlier, driven by their banking regulation changes 20 years ago, in that market, you see non-bank lending is closer to 80%. That is a tangible and realistic benchmark for the European market to continue developing. Where we are today, 10%, U.S. market potential, 80%, I think that kind of growth potential is realistic.
I've spent quite a lot of time with investors over the last five years. Andreas talked about the 200 and something meetings.
Initial
initial meetings that I did on SDP I. You learn a lot of things. My two key takeaways from that, and over the last five years, is that the market has changed materially from a fundraising perspective. Andreas has touched upon the first observation. We've seen a real change in investor attitude to this asset class. Five years ago, we spent most of a meeting educating pension trustees about what a loan was, what is lending in Europe. It really was that basic. Today, most of these institutional investors have large allocations to alternatives and specifically to direct lending. When we go to see them, it's not an education meeting, it's about them selecting which manager they want to work with for the next 5 to 10 years. A much greater level of knowledge and sophistication.
You see that actually in this left-hand chart where this chart's the overall fundraising by vintage or by year, you see that we've seen some material step-ups in capital raised. The second and perhaps most important feature for ICG is that since 2015, I'm observing a flight to quality. What does that mean? Investors are no longer supporting or rushing to support small and new entrants in this space. In the initial years, we had quite a lot of new entrants. People didn't understand what success meant, what would deliver success, therefore, a number of managers got funds up and running. Today, that's very different. There is a flight to quality, if you look at the chart on the right-hand side, fundraising is really concentrated amongst a small number of managers.
If you actually look at the data, which once again is not perfect, but it's directionally correct, the top 3 managers represent more than 25% of the capital raised since 2012. ICG is one of those. We are probably the market leader. This real concentration of capital is a trend that I see evolving and continuing. There is no reason why that won't continue. ICG will obviously benefit from that as market leader. In terms of deployment of capital, we see the same trend as in fundraising. The market structure is well set, and there's a small number of managers that dominate the space. If you're not an already established manager, it is getting increasingly difficult for you to become relevant. I talked about it on the last slide. It's getting harder to raise money. Equally importantly, it's getting harder to deploy capital.
Borrowers or potential borrowers, for the same reason as the investors, they tend to gravitate to the larger managers. Scale, track record, reputation. These are things that borrowers want when they're looking for financiers. They don't want new entrants, flaky entrants, small people who can't support them through round 2, round 3, round 4 of their funding requirements. They're looking for long-term partners. ICG, well-placed to take advantage of this trend. Over the next 10 years, I talk about it in the top right-hand quadrant. Over the next 10 years, I think the market will consolidate. In theory, there are something like 80 direct lending funds in Europe. The majority of these are very small and irrelevant. The market will consolidate down to between 5 and 10 managers.
The reason is that scale is really important. Unless you have the scale to invest into the infrastructure, invest into the teams, invest into the local offices, it's very difficult to do this properly. That's not to say that niche players won't remain, but they do have to stay focused on a particular geography or a particular industry to be relevant. Consolidation is going to be a natural feature of this market, and actually, we've already started to see it happening. Not only are the number of new entrants falling off completely, some of the less successful earlier entrants are now pulling out of the market. Most notably, we've hired a guy from Avenue Capital. Avenue had a GBP 1 billion-plus direct lending fund. It delivered a reasonable track record, but they're not raising a second fund. It was too much like hard work for them.
They're retrenching back to their core hedge fund business. That's a trend I think we'll see over time. Typically on these deals, they are direct lending deals. What that means is that we are the originator, the arranger, and the sole lender on most of our deals. What that means is that to manage risk, to originate these opportunities and to manage risk, we actually want to be as local as possible to these deals. Therefore, it's not surprising that 90% of the deals that we've done since 2012 are in what we would characterize as our home markets, U.K., France, the Netherlands, Germany. These are markets where we have existing infrastructure, existing investment teams, and we have a deep knowledge of investing and recovery in those markets. I think that trend will continue. Clearly, you're starting to see some new names there. Canada.
We've just done our first deal in the U.S. You will see increasing diversification, but the core of this strategy is still the Northwest European markets where we have our home territory status. One of the questions that we often get asked by investors, particularly in the last fundraise, was, are the returns sustainable? Is the pricing sustainable given QE, given new entrants, given the noise around the market? The reality is, and we're able to point to that, it is sustainable. We've been able to deliver consistent, stable returns for our investors across SDP I, SDP II, and actually, when I look at the deals we're already doing in SDP III, that is continuing. The reason for that is that these are complex, locally originated, bilateral deals. They're illiquid and unrated. Therefore, it's very difficult to intermediate them and commoditize them.
The premium exists for that complexity, for that illiquidity, and I don't see that going away. The reason why this is important is because, and Benoît alluded to it earlier, you raise your next fund based on your track record. Track record is by far the most important thing for a successful fundraise. One of the reasons why SDP III was a five-month fundraise at 90% growth in AUM is because we had a track record. The positive thing is when we look forward to SDP IV, V, and VI, we've got the track record. We're building it. There's nothing to suggest that we won't be really well-placed to raise successive funds going forward. On this slide, I try to bring back to shareholders. I've obviously been talking about investors, I've been talking about deploying capital.
What I'm going to talk about on this slide is bringing this all back to what it means to you guys in the room. In particular, I want to bring out really the locked-in value theme that Benoît was talking about earlier. Clearly, we're just about to reach cruising height, Benoît's term from earlier. We've just raised our third fund, so we're getting to that point where we've got the compounding effect. Fund I has still got a portfolio and is still generating fees. Fund II, Fund III are now ramping up and generating fees. Actually, the more important interesting point for value creation and embedded value, the locked-in value, is this point here, which Andreas didn't steal from me, so I'm very grateful. He's pretty much stolen every other thing I was going to tell you.
In a world where asset management fees are only going one way, we increased the fee rate on SDP III by 25%. We did that by getting rid of all discounts and all size discounts. Clearly very positive. The other thing, combined with a 90% increase in AUM, what this means is, because this is a fees on invested capital strategy, all of this growth, which is embedded in that fundraise, is yet to come through the P&L. As we ramp up the fund, that additional fee rate, that additional AUM will impact the business over the next couple of years. Looking forward, Andreas mentioned it, we've added this non-EU bucket, I talked about a U.S. deal, a Canadian deal. One of the things that is really powerful about SDP III is we're able to seed effectively our potential global fund through SDP III.
The balance sheet is not having to demonstrate these proof of concept deals. We've been able to outsource that to our investors. When I look at the opportunities that we're originating out of Australia, out of the U.S., these are as attractive as the ones that we're originating out of Europe. Therefore, it really is feasible and likely that our next fund will be a global fund, which clearly gives us the opportunity for a step up again in fund size. Therefore, in summary, Four points really. ICG's direct lending platform is a market leader. We've got a really strong track record of raising capital and deploying capital. We're delivering returns in line with investor expectations, and that's a really powerful tool and message for raising successor funds.
There are significant tailwinds for the industry generally. As a market leader, we will benefit from those, not least the opportunity to expand out of Europe into other markets, and to create a global platform. For shareholders, the strategy is very capital efficient and scalable. Of our EUR 7.9 billion of AUM, less than 1% is from the balance sheet. The balance sheet isn't having to put capital into this lower yielding strategy to make it successful. They did initially. They seeded us. Philip will talk about it later. They seeded those initial few deals, but we've been able to reduce the capital exposure over time. Finally, having just raised SDP III, having negotiated a higher fee rate and a large step up in AUM, there is significant locked-in value in this strategy.
If we don't do anything else, we will see growth just from the mechanical rollout of that fund. Which brings us to a Q&A session for Andreas and myself. There's a coffee straight after this-
Yes, there is
if you can survive till then. Vanessa has a microphone. If you have any questions, put your hand up and we can bring you the microphone. Yes.
Questions on presentation so far. We'll open the floor.
Thank you. Arun Melmane, Macquarie. On your SDP fund, which is direct lending-
Yeah
it's a post-crisis thematic in some ways.
Yeah.
How do you ensure risk over the cycle, given what banks faced in terms of mid-market?
Whilst we are taking market share from the banks, there is a material difference in our business model to the bank business model. Fundamentally, we're managing credit default risk, which is the key risk in the strategy, through using ICG's classic processes and systems, which is essentially bottom-up analysis. The real answer is that we see 300 plus deals a year, and we do 18, 19 in a good year. We are being very selective about the credits we're investing into. We're looking to buy into companies, invest into companies that we really understand. We've got an alignment of interest with the management and the shareholders, and that have performed, demonstrated performance through a financial crisis. That's the benefit of having the most recent historic track record to look at. They have demonstrated performance that is reasonably stable and robust through a financial crisis.
We are avoiding cyclical companies. We're avoiding companies that don't generate cash, because ultimately, we want to lend to businesses that can repay us.
If you're saying that the previous financial crisis was a pretty good test on the asset class. You look at what leverage loans have done, most of the defaults and where banks actually lost money, were situations where essentially the restructuring was mismanaged. It was mismanaged because banks ended up in large syndicates and very difficult to steer. In our transactions, we're the only lender. That puts you in a very powerful position to help the company, but also sometimes to take more drastic action if you have to. If you were to apply our model onto what happened during the financial crisis, use it as a test bed, actually, you could say it's very resilient.
Would you take covenants and stuff like that, or?
Did you what?
Do you take additional covenants?
Yes, we like the stuff like that. Yes, of course.
I will be very succinct. We will not do covenant light. Covenants are essential. These are illiquid mid-market companies. They're performing, they generate profits, they generate cash, but they are mid-market companies. They have enterprise values up to EUR 1 billion, but they can disappear if things go against them. We need covenants to ensure that we have the right to take action early ahead of any kind of impairment action.
The other question I had was, in terms of where you're rolling out U.K.
Yeah
France, and Germany.
Yeah.
Is the reason that you're lower in terms of allocation in Germany because banks do mid-markets there, or is that more an infrastructure versus
No
future rollout strategy?
Because it's still a nascent asset class, it's growing nicely, but it's a nascent asset class. It has grown from West to East. The U.K. was the earliest adopter. France has followed. The Benelux naturally follows the U.K. Germany is still some way behind. The Scandinavian countries are still some way behind in terms of adoption. It's an awareness point. As they become more aware of the optionality, we will see more deals from there.
It's true in all private asset classes. Germany is not as mature. We're starting to see more deal flow in Germany on the private equity space. It's taken a very long time. Private debt will follow. It's not specific to private debt, it's the German market that is It's evolving. It's moving in that direction.
Yeah. It's always underpunched its weight, its GDP equivalent weight in all private asset classes.
Thank you.
Morning. It's David McCann from Numis. Just one of the first things that you led with today, clearly there's been a number of new strategies come on board. I mean, you did touch on it in the opening slides. Given the importance that the track record of the whole group has on everything, how do you ensure that you're not going to get a slip up in one of these newer strategies coming on board? I appreciate you talked around the ICG process and the recruitment, but obviously, as you do expand the diversity of the group, the potential for something to slip up does increase. Maybe you can talk about some of the concrete measures the group has taken.
Define slip up. A real slip up is if they make a poor investment. That's a real slip up. If the slip up is we have a strategy that doesn't take off, it hasn't happened to us yet, I'm sure it will, but that's okay. That's par for the course. We have enough opportunities. We need to have enough balls in the air. That's fine. The real slip up and where we put all of our attention is we want the strategy to build a strong track record from day one. We raise the bar very, very high initially on the first few investment that any new team is doing to make sure that they're insubmersible. If you want, during coffee break, you can have the discussion with Andrew about his business unit, but he will tell you how painful the investment committees were.
I think the first one lasted a couple of days. We can't get it wrong. If you get the first invest or the first few investment wrongs for a strategy, that strategy will never take off. For sure, we're raising the bar very high. Depending on the nature of the asset class, if it's an asset class that's very, very close to what we've done for years, such as senior debt, that's easy. We're quite comfortable. It's an asset class that's further from what we've done historically. It's not unusual for us to bring consultants, third parties on the investment committee to make absolutely sure that we're at the lower end of the risk spectrum, certainly in these initial days before the deals, before the strategy takes off. Does that answer your question?
Yeah, that's very useful. Thank you. Just one second question on SDP. The 8%-10% net returns that you're anticipating or expecting for the fund, maybe you can give us a bit more color on how is that made up? Between interest fees, and is there any kind of non-cash income, if you like? Any PIK type lending in that? Secondly, I guess related to that, so what's going to be the impairment expectation within that net figure? That'd be really useful. Thank you.
Those are gross returns. The 8 to 10 is a gross return expectation, but the question is still valid, and I'll answer the rest of it. This is a fixed income strategy, and therefore, all of the returns come from fixed income features, so interest income, upfront fees, LIBOR or EURIBOR. These are all floating rates, and early prepayment penalties generate some pickup of yield if these loans don't stay out for a certain duration.
It's all cash.
It's all cash, yeah. Investors love, actually. One of the reasons why investors buy into this strategy is both the attractive risk-adjusted returns and the higher absolute returns, but also the cash yield. A lot of them are using it to manage short-term cash liability management. In terms of impairments, when we sell the fund, we obviously model our net returns for our clients, and we assume a default rate of around 2%. One of the features of this asset class is the strong downside protections and strong recoveries in the downside through asset security, through share security, through the covenant package. We model a 70% recovery rate. That default rate and that recovery rate are based on ICG's actual performance in the senior syndicated loan asset space through our CLO program, our credit fund management program, the European equivalent liquid version.
It's the best benchmark that we have. It's the best benchmark that anyone has for this asset class.
It's lower at [audio distortion]. It's lower, it's the only benchmark we have in senior because there was no private senior debt market in Europe before. This assumption is lower than what we've achieved in mezzanine over 20 years. In mezzanine, our recovery rate on average actually has been over 100%. We've recouped more than what we've lost in the deals that have defaulted. We're using 70 because that's what the investors we're talking to coming from fixed income understand now. Coming from actually, we think that because the way we're approaching those deals, and in some instances, we will not shy away from taking over a business and managing it through a downturn, that your recovery rate will be quite high.
It does mean you need the teams to be able to do that, it takes quite a lot of effort to work through this restructuring, it's quite key to make sure that you protect the performance of a fund, even in a down cycle.
Just to finally put a little bit of color on that. Over six years, we've done 70+ investments, deployed GBP 5+ billion of capital. We've had one default, the consequence of that default was we had a consensual restructuring. We had strong legal rights, those legal rights meant the shareholder had nowhere to go, ultimately, there was a consensual restructuring where we took over ownership of the business. We didn't have to write off any of our debt, we preserved all of our capital. Having taken over the business, this was in August 2016, we've restructured the management team. It's a manufacturing business. We've shut two of the six plants to rationalize the cost base. We've invested into new CapEx to help drive growth. We've helped them with new customers.
The ultimate consequence of that is we expect to be selling that business in the next 12 months getting all of our money back potentially an equity upside from being the owner of the business.
Thank you very much. Any questions for Andreas? He's feeling lonely here. I enjoy this. Good.
Hi. Good morning. It's Gurjit Kambo, J.P. Morgan. In the last sort of seven years, obviously, you've been very busy launching new strategies. I think you've launched 12 in the last seven years. As we sort of look forward for the next sort of five years, seven years, is it going to be more of a sort of consolidation now you've got the 16 strategies, and therefore should we expect a slowdown in the kind of pace of new strategies coming on board?
I don't think so. You're right that we need to do both. You're right that because we have now a number of younger strategies, there's tremendous value in optimizing them because some of them are subscale, and we've explained how you get the benefit from just rolling from one vintage to another. Having said that, the opportunity set to grow into further strategies is quite large as we've seen, and to some extent it's getting easier. One, because we've done it. I mean, it's almost plug and play. We know how to bring in a team, we know how to set up the marketing, think about the fundraising. It's all there. Structuring it. As I was pointing to earlier in my presentation, the more strategies you have, the more opportunities and very adjacent products come up, and they are easier to launch, it's quite tempting.
I see no reason. If anything, I think it's possible that we could see an acceleration in the rate of new strategies for a period of time. We do need to do both because you want to maximize the existing strategy. That's also what's going to push profit up. The newer strategies tend to be weighing on your profits for a while, you need both.
Just one follow-up for Max, actually. In terms of, I think you mentioned that 10% is still non-bank funding in Europe, and obviously 80%, 90% in the U.S. I'm sort of surprised that number's sort of stayed around that level for some years now. What will drive that higher, do you think, in Europe, and is there sort of a difference in different markets within Europe?
The earliest adopters of direct lending were the private equity companies. To date, it's been predominantly an event-driven product and predominantly supporting LBOs, so buyouts, private equity buyouts. The trend that we've seen over the second half of SDP II and into SDP III is actually the use of the product by non-private equity. It's still event driven, but actually we've opened up a universe, not only we, but we as an industry have opened up a universe of opportunity in the non-private equity-owned companies. These are entrepreneur-owned, they're family owned, where they're looking for a financing partner to help them deliver some form of change or growth, and they don't want to bring in a private equity or minority shareholder. That's really the opportunity that I see driving the next five years of macro growth.
Hi, Justin Bates, Liberum. Question for Andreas. Could you just talk through the experience of SDP I, II, and III? So when you actually saw an increase in the fee rates, is that a trend we should expect to see across ranges? Was there a lot of pushback?
Of course, there was a lot of pushback. What we did is we generated a lot of interest in pre-marketing. Maybe I should go a step back. The way we're doing it, and this is where we When we set up the team, we had a lot of stuff to market, but we were always running behind ourselves, catching our tail. We now surpassed ourselves and now we're doing And Andrew, as an example, just came back from Japan and Korea, and he's not even fundraising, he's doing pre-marketing. We just talk with the market and we start really earmarking who's interested in strategy. By the time he will come to market, it's like the SDP. When we increased the fees, we made sure that we had an oversubscribed fund. You're not going to do that if the fund isn't oversubscribed.
There's no chance, because then you need to have basically, people have to believe you the fund is oversubscribed. By the way, that's also something. If you're not oversubscribed, don't say it is, because you only will say this once but at least my job, I can move on, right? The point is, you have to be credible. You have to know it's true. It was. We had almost GBP 10 billion of interest. Almost GBP 10 billion of interest, right? The only reason why we didn't take GBP 10 billion was, first of all, because there's a capacity, how much you can take and how much Max can invest, but also, speed, because we want to do it fast, because we were after summer, we want to come out with other funds.
We said, people, "Look, this is what it is." We also did a lot of competitive benchmarking. We knew that we weren't the most expensive game in town, especially for the infrastructure we provide and kind of the quality you get, right? Yes, there are some people dumping because they need to raise funds. We knew in our peer group, we're not the most expensive. We just factually explained this to people, then said, "Well, if you want to be in the fund, then that's kind of what it is." We gave basically no first close discounts, no size discounts, and for separate accounts, we charged five basis points more if it's more complex. It was quite fun. Normally they get deep discounts. Your question is, can we do this with all the strategies? No. Will we try? Of course.
Will we get there? I think you can't increase the headline fee on a fund unless something's changed in the strategy and it's becoming more high yielding or something different about the strategy, which happens. It's rare. We would not want to because that's not the way we want to be perceived by investors. We would not want to be perceived as taking advantage of a temporary market condition to suddenly jack up our fees. What you can do is you can easily get rid of the discounts, and investors understand completely, because you haven't changed the headline fee on a fund, but you're getting rid of discounts because there's so much appetite that it's not justified, and investors understand that perfectly well. There are more elements to that. There's just the fee.
The fee is important and everybody's focusing on the fee, but actually, there are features in a fund that are much more important than the fee in the terms of a fund that you can change when the market is extremely favorable and when you have a very strong track record that are extremely valuable. Expanding your ability to recycle, for instance, is extremely valuable because actually you're recreating new fees within the same fund. Having the ability to extend the life of the fund. For our European Mezz, we're now given when we're actually officially starting up to 13 years. That's extremely powerful. We have control over 13 years of a fund's life. There are other aspects beyond the fees that are quite important, and that if you're a recognized manager, investors will accept more readily.
I think if we want to have a little bit of a break before 11:00 A.M., I think if you don't mind, we'll take the questions with a coffee cup or tea. Thank you.
Morning again, everyone. Thank you for making it back swiftly from coffee break. I want to change tacks a little bit now and talk a little bit about the value of the balance sheet and how it enhances the value of ICG as an asset manager. We've touched on this all the way through, and we'll hear some more stories a little later, but I just want to focus on it specifically for the next 15 minutes or so. As we build our business, we benefit hugely from the synergistic value of having our own balance sheet, of having that permanent capital time and time again. We see it allowing us to incubate new strategies, accelerating the growth of relatively new strategies, and supporting the continual growth of existing franchises.
We've talked about this, actually, I think we talked about this with many of you in the room over a number of years, but I think now that we're seeing profits come through from some of the emerging strategies that we've invested in the last seven years, it's a good time to start looking at the specifics. A massive shift over the last seven years. Fundamentally, we've gone from seven years ago when we were investing in assets to a point in time where we stopped doing that and started investing in funds. That's quite a profound change, both in the culture of the business, but also the way we look at our own investment book.
What we've seen over the last seven years is quite a significant downsizing of the balance sheet as we've considered in each and every case, what's the right amount to allocate into specific funds. We now, on the asset side, have invested in hundreds of underlying businesses across 41 different vehicles which we manage for our clients. Also seen this feature come into the balance sheet, which is the little gray piece on the top. At any point in time, between 10% and 20% of our balance sheet is what we would call we're holding assets for syndication. Where we're holding assets waiting for them to be syndicated into funds to our clients. If you like, what we see as our current assets. What that allows us to do is to develop new strategies, hold assets on the balance sheet while we prove concept.
You've heard how that was very useful for a number of strategies, and we'll continue to see that as we progress through the morning. Over this period of time, seven years, we've achieved or we are continuing to achieve our goal of improving the financial leverage of our asset base. Now, as you'll see, the balance sheet is dwarfed by our third-party AUM. Our strategy is to continue to optimize the use of the balance sheet. What's happened over this period of time is we've developed a better understanding of what we perceive as the optimal amount to invest into individual strategies when we make those allocation decisions, which is at the very start of these long funds that we've been describing to you. We've seen some of this optimization come through as we've invested in successive funds over the last seven years.
European Mezzanine in Fund V, we put 20% of the capital in. In Fund VI, we put just over 16% of the capital in. Max talked about Senior Debt Partners. SDP I, we initially committed €100 million to that strategy. We actually were able to reduce that while we were bringing investors down to GBP 50 million. For the second fund, we invested GBP 25 million, a much larger fund. It was much more efficient. The North American Private Debt or Mezz strategy, we invested GBP 200 million into Fund I. We expect to put GBP 150 into Fund II. None of this, of course, is a science. It's very much an art. What we're trying to do as we learn more about how our clients respond to our own co-investment is try and become more efficient and optimize the balance sheet over many iterations.
I think what's really exciting, though, is we have now 26% of the balance sheet is invested in what we would see as new strategies, and I suspect within a few years that will increase to around 40%. All of that creates these very, very long stories of funds as they progress through tens of years. I want to come back a little bit in a moment to the importance and the synergistic value of the balance sheet. First, I want to consider the nature of the balance sheet returns. What returns can we expect from the balance sheet? There's really a function of two factors. Historically, what have we allocated from the balance sheet into our funds? What's the component of the balance sheet? Secondly, currently, how are those funds performing? What we've invested in and how those investments are performing.
This slide shows when investments were made that currently constitutes the balance sheets at the last balance sheet date at FY 2017, March 2017. You can see that the investments that impacted the return in the last financial year were actually made, some of them were made 7+ years ago, and allocations to those funds were made perhaps even before that. The constitution of the balance sheet is quite well known to us because we made decisions as to its current constitution many, many years ago. The performance of the funds, of course, is current. As all of our investments are in funds or holding assets are waiting to be syndicated into funds, the return on our balance sheet is really just a weighted average return on our funds. It's a weighted average of fund returns depending on the weighting that we have.
Currently, this is how we report the balance sheet income. It's not reflective of our business model. The way we report it right now is we split it by the type of income that is being generated by our investments. This isn't aligned to our clients, it's not aligned to our funds. In fact, it focuses too much on the performance of individual assets. It goes back to the time pre-7 years ago, when we invested in assets rather than funds. Even though all of those assets that we invest in are acquired, monitored, and realized at fund level. We don't manage them at asset level, we manage them within a fund, and those funds manage at asset level. Between the balance sheet and the asset is the fund that it's investing in.
This is quite difficult to forecast as well because it's now made up of so many hundreds of underlying businesses. From the new financial year, starting April 1, we'll be disclosing income in line with the funds in which the investment company invests. We'll show investment company income as a portfolio of investment in our funds, what we will call net investment return. As you can see, what we'll do is we'll provide a return based on either individual funds or groups of funds. This way, we can guide towards the likely allocation between these groups of funds, and we can also talk a bit about the expected returns on each of those funds or each of those groups of funds.
Which will allow us to have a discussion around performance of our funds rather than about performance of assets, which is much more aligned with how we're growing the business and how our clients see the business, and indeed, how we manage the business. It's at fund level, we manage assets. At business level, we manage funds. We can consider the volatility of different fund returns rather than looking at specific assets, capital gains, or impairments. I will stress, and the reason why I put the old style down at the bottom, that the 312 total return that you can see here is the same both ways. The result itself is the same. It's just the way that we want to discuss it with you, the analysts and shareholders.
As a result, we'll be dropping impairments as a KPI because it's not consistent with our current business model. All of the data that's currently provided will be in the data pack, so it'll all be available. For this year-end, we will show the results both ways so we can talk about how they reconcile to each other. I think this works because as the balance sheet invests in funds, the way that we report our results of our balance sheets is really, as I said, a reduced version of how we look at our funds. The valuations that we use are actually the valuations that the fund managers come up with as they look at their funds. Historically, our valuations and impairments capital gains are already done at fund level. There's no change to that valuation methodology.
What this shows is that over a number of years, the book actually changes fairly slowly, and taken as a portfolio as a whole, the returns are fairly consistent. We've got a range here from 13.4%-14.7%. This change in the way that we'll look at the balance sheet returns or the investment company returns will not impact the nature of the volatility of those returns. We'll just be able to discuss them at fund level. Of course, if there is a major market adjustment, that will come through in the mark-to-market, and we will see some change. If there's an uplift in the market, we'll see that come through in the valuations. In the event of a downturn, of course, there will be inevitably a short-term change in valuation downwards.
From an operational point of view, as Benoît alluded to earlier, downturns are very helpful for us. Volatility is actually helpful for the actual business side, putting aside the reporting, because we like the opportunity to invest in mispriced assets. While I have your attention very briefly, let me tell you a little bit about the implementation of IFRS 9. Somewhat of a formality, I'll keep it incredibly brief. This is effective in the new financial year. We don't expect any impact on our results. Myself, Ian, and indeed the chairman of our audit committee, Rusty Nelligan, who's sitting here, all delighted to talk to you as much as you'd like about IFRS 9 at the end of the session. The main message is it's coming into effect April 1, and there's no change in the way we don't see it changing our results.
Let me get back, move from matters of reporting back to how the balance sheet fits in with our strategy and enhances the value of ICG's fund management franchise. At every phase of a fund strategy's life, the balance sheet can be an incredible facilitator. In helping us develop new strategies by incubation, then through accelerating the growth of a strategy through showing institutional support, which is becoming more and more important. Then as a strategy matures, continuing to show institutional support, but also helping out whereas the investments in those funds may get a little bit too large. I want to just look at examples of each of these phases of how the balance sheet can drive forward the growth, be an enabler of growth for the fund manager.
I think it's fair to say that the past growth that we've enjoyed, and particularly in accumulating so many new strategies over the last seven years, and the future growth that we're anticipating, is absolutely underpinned and facilitated by the balance sheet. To such an extent now when we see multi-strategy asset managers in the wide world beyond us, who started out as partnerships and have grown and added strategies, we are seeing them more and more often looking to develop permanent capital of their own, because they see the importance. You see this across. This happens in the U.S. and in Europe. When I talked about the bifurcation of the market, in multi-asset, multi-strategy asset managers, it's becoming more and more important to have capital. Investors want to see house capital running alongside them, also it's an incredibly efficient way of developing new strategies.
In the early stages, as we introduce new strategies, the balance sheet allows us to hold assets independently of our funds. It allows new teams to prove concept, to build a pipeline, and for innovative strategies, this is incredibly important because for brand new strategies in the market to go and tell an investor that you've got a new idea, but they're investing in a blind pool because there are no assets at that early stage, is a very difficult ask. To be able to show them that we've gone and done two or three deals of our own and we've got a pipeline makes it far more real, far more palpable. In due course, the assets are syndicated and that helps identify early client support.
This has been crucial in attracting new teams to ICG who can then focus on getting some of their early investments on board with the sort of rigor that we've talked about so far, rather than going straight into fundraising, which is quite a steep ask. The two examples I've given here, Strategic Equity, which Andrew will talk about in more detail in a moment. We put an initial balance sheet commitment on the first deal that Andrew and his team brought to us of GBP 254 million. It's quite a sizable commitment. There was a number of underlying assets, but it was a single vehicle that we were looking to acquire. That cornerstoned at GBP 860 million deal because it attracted in other investors. That brought in the team and it brought in ultimately, an investor base that we could show that asset to.
For the Australian loan funds, it was a slower burn. We used AUD 130 million of balance sheet money to invest in senior loans in Australia. Over a number of years, they recycled that money several times so they could show a significant portfolio of investments and their access to the corporate debt market in Australia, which is now allowing them to raise third-party funds in much higher quantity. Once the strategy is up and running, the balance sheet can be essential in building the franchise and continuing to build critical mass. Over the last five years, a couple of examples. In the U.S., our U.S. Mezzanine Fund, what we call our private debt fund in the U.S., has actually been investing in assets since 2008.
In 2014, when we brought in new members of that team, the balance sheet committed GBP 200 million to the strategy, which along with a massive marketing effort, which has already been somewhat described to you, resulted in the first fund. We're now raising our second fund. House support was incredibly important. In liquid credit funds, we've had expertise in managing leverage loans and high yield for a number of years because we manage CLOs. It's similar sort of asset base. We've also managed separate accounts for clients. Recently, we've put in GBP 390 million of investment into a number of open-ended funds, but using the same underlying investment skills. That balance sheet investment is allowing the team to build a track record within a number of dedicated funds and we're now beginning to see AUM accelerate into those strategies as well.
Finally, the balance sheet is very active in supporting longstanding strategies. European Mezzanine is our oldest strategy. It's what we started off doing. Last year, we did our largest deal ever in that strategy, a French care home group called DomusVi. It was a major coup for ICG, but the amount of investment was too large for the fund because the European Fund had concentration limits. You can only put a set percentage into a single asset. The balance sheet was there to allow us to put assets onto the balance sheet while we looked to syndicate the amount over the concentration limit.
The balance sheet held EUR 60 million for 6 months while we found co-investors, which incidentally, clients love to co-invest directly into deals, and it also means the rest of the investor clients are happy because these larger deals get done and we have access to them. Very helpful for European Mezzanine. In U.K. real estate, that team tends to almost invest as they fundraise. In order to take advantage of the best deal opportunities in a very fast-moving market, the balance sheet often will provide them with bridge financing for 2-4 weeks just so they can get access to deals if their fundraising is running a little bit behind their investment pace. Incredibly useful.
Finally, our support of the CLO franchise since 1999, providing regulatory capital, has resulted in a very strong market presence as a CLO manager, both in Europe and in the U.S. Many factors have contributed to our growth as an asset manager. Our marketing prowess that we built up, talented investment teams, uncompromising investment culture, but also our balance sheet. A GBP of balance sheet capital is not just worth a GBP to us because there's the potential to drive and accelerate the growth of ICG as an asset manager. Hence, the synergistic value. We've talked about the embedded value within each fund franchise due to the predictable fees over many generations of our fund.
Our balance sheet strength and flexibility is very unusual for an asset manager of our size, and has been a key factor in adding new strategies and sustaining existing ones and continuing to build and accelerate shareholder value. I now would like to get us back to talking about some of the business units. One area that's grown, been one of the biggest growth areas over the last 7 years, has been what we've termed as an asset class Secondaries. We also use the term Equity Solutions, which covers 2 strategies. It's headed by Andrew Hawkins, who's going to join me, and tell you a little bit about how he came into ICG and just the strategy surrounding the business units he looks after.
Thank you very much, Phil. Yes, my accent is indeed a British accent. Andreas is quite right. In the words of Sting's song, I'm an Englishman in New York, or in the curious vernacular of my adopted country, a legal alien. Over the course of the next 30 minutes or so, I will share with you what this rather grand-sounding title, Head of Private Equity Solutions means. In particular, I want to tell you what it is that we do, why it's a successful and growing part of ICG. Give you some idea of direction of where we're headed and what we see as the outlook. Before I do that, let's just ask some basic questions. How and why did ICG get into this piece of the business world, and how did we find our way to ICG?
As you'll see in a second, there are actually two distinct activities within my Private Equity Solutions division, and each has its own history. My colleague, Emma Osborne, will shortly speak for herself and tell us how her business came to ICG and why it was such a natural home for her. My story, although actually my story funnily enough, goes back even further because I used to work with one of the founders of ICG a long time ago. I was a little younger than him. It was funny to be able to come back to something that I had such familiarity with. My more recent story is really one of three guys. We had a great idea. We had almost unlimited ambition, entrepreneurial zeal, a passion, and a hunger to build something different that we knew that the private equity market urgently needed.
We just didn't have any capital, which was an interesting problem. I'd had a long history in private equity, including being one of four partners who formed a mid-market Pan-European buyout and growth firm in the '90s. For five years, I worked at another private equity firm with my now two partners in this business. We had a shared mutual conviction about the robustness of what we planned to do, sufficient to allow us to leave the relative comfort and safety of that private equity firm and set up on our own. Actually, we've now worked together for 12 years, and we're still going strong. It was a doubly ambitious plan, as we were really setting out to start something completely novel and entirely unprecedented. We faced what I would call a Herculean task.
I think in a way, the excitement of building something that was radically new probably made us impervious or blind to the actual challenges. Everybody who knows the industry will tell you that starting any private equity business is incredibly tough. Just doing that, because there's the overwhelming regulatory and compliance burden, which gets worse and worse all the time. There's fundraising, while at the same time trying to execute deals. There's building teams and the infrastructure support. There's the extremely painful personal financing of the overhead burn rate. When it comes to a new strategy, something that the market hasn't seen before, incredibly tough becomes virtually impossible.
We were very fortunate after a couple of years, so to speak, in the desert, through a series of connections to be reacquainted with ICG, and in particular, to discover that they were looking to build something which was both a natural extension of their existing business and which sounded a lot like where we were wanting to go. At precisely the same time, not only did we have that realization, but we also had our hands around a deal, which was in our view, the best in this emerging opportunity set that I'll describe in a second. You could say it was something of a perfect storm. What did we see in ICG as an independent group? Well, let's just open with this. The fact that such a storied and successful firm shared our vision and believed in us was a huge confidence boost.
Psychologically, it was great. More substantively, what we saw was a couple of things which we talk about here. First of all, a fundraising machine to enable us credibly to raise third-party capital, because without the likes of Andreas and his team, it's extremely hard to break in. Secondly, balance sheet. We've heard from Phil about how the balance sheet is so transformational to businesses like ours that are emerging, and we'll talk a bit about that in a second. The balance sheet seeded our first deals, seeded the fund. It makes a huge difference when you're going out asking for money, that when you're rattling your tin cup, that it's already got some money in it. It also enabled us to build the team, to finance the overhead so we could scale the business.
I actually would like to say that we were profitable from the outset. This was quite an interesting thing, and Phil I think liked it. We took half of the balance sheet commitment and syndicated it to nine LPs on full fee and carry. Actually, it only took six weeks, Andreas, that first one. It was a little easier because it wasn't a blind pool fund. Everyone knew what they were investing in, so it was pretty straightforward. The other thing that is crucially important is infrastructure support. The benefits of being on a robust and scaled institutional platform. Think about legal and regulatory, fund reporting, accounting, tax, PR, HR. It's hard to overstate the value of these things in the context of trying to build a strong business, particularly as a startup. Don't let's forget the brand.
A powerful reputation and longevity underpins and empowers emerging business models. All this has meant that in the three years since we joined ICG, we've invested over $1 billion in pursuit of our strategy. We've raised $1.5 billion of capital, including $1.1 billion in the fund that we closed in June of last year. It's so interesting what Benoît was saying about the way that three funds overlap. We're now thinking the third fund and how that will generate even further profitability. As I mentioned, right now, what we call Private Equity Solutions or secondaries is actually two distinct businesses. One which I would call indirect, the other direct. Private Equity Fund Investments or PEFI as we know it internally, because it's easier to say, is, and Emma will describe in detail shortly, is in the indirect camp.
You'll hear it's very active in the process of selection and allocation of capital, indirect in that the underlying companies that ultimately are the investment targets of Emma's fund are managed entirely by the managers with whom PEFI invests. On the other hand, Strategic Equity, the business I started, is directly involved with underlying companies and in all aspects of their strategic development, governance, funding, realization, et cetera. What is it exactly? To put the other side of the question that I posed a moment ago, what was it that ICG saw in us? We had designed and developed a product to fix a fundamental problem in the private equity model that, for reasons I haven't got time to go into now, had led to hundreds of billions of USD of what I would call trapped NAV in older vintage funds.
Great pools of attractive seasoned assets where investors were keen to gain liquidity and who were therefore not so price sensitive. A huge marketplace, in other words, with little in the way of existing viable liquidity solutions. Our approach, from the very high level, was to partner with the existing managers of those funds and acquire their entire portfolios with them in a single transaction, and give those managers a new lease of life and new economic incentives, while at the same time providing a much desired liquidity option for the investors. Such transactions became known as fund restructuring, sometimes fund recapitalizations, sometimes GP-led transactions. You'll get from the nomenclature the broad idea of what was going on. We were undoubtedly, and remain as part of ICG, pioneers in this space, and frankly, in a large part of that market leaders.
Moreover, our experience and skill set made us very distinct from our natural competitors for such deals. We've been able to successfully and consistently close transactions at very attractive pricing. Let me unpack that a little more. In many ways, Strategic Equity has all the characteristics of a typical ICG strategy. A highly specialized investment approach in a distinctive and compelling asset class. Secondly, proximity to the underlying assets where there's a DNA inside ICG that makes us feel comfortable. Thirdly, taking advantage of market inefficiencies. Fourthly, loving complexity, where we can distinguish ourselves through deep analysis and rigorous and disciplined execution. Moreover, the fact that none of our competitors approach these opportunities in this manner, which is direct investors underwriting each company in the portfolio, means that we've been able to consistently buy cheaply, which is rule number one in private equity.
To illustrate, our average enterprise value to EBITDA ratio across 38 companies in six portfolio transactions is just 6.1 times. Let's just let that sink in for a second. The market context right now is that average multiples across the buyout world are presently well into double digits, and our deep asset focus, all our team are direct, they have buyout experience and training, means we can safely underwrite concentrated positions, gain immediate credibility with the managers we partner with, and exercise thorough and effective governance post-acquisition, sitting on the boards of companies, guiding strategy, challenging and encouraging management, and so forth. I'll come on to describe the market landscape in a second, but as I mentioned already, we've closed six deals despite having only had a final close on our flagship fund last June.
One very important consequence of that activity, as you can see here, is that we've already committed 60% of that fund that's less than a year since the final close, and we have three further deals right now in exclusivity. As you can imagine, this sort of fairly intense activity means that we're likely to be back with Fund 3 a lot sooner than we were contemplating. I said I'd comment on the development of the market. This first chart I'll show you paints the story of the rapid growth of transactions in our market sector. In 2012, where actually I and my team were involved in literally the 1st one of these transactions, obviously pre-ICG, there was GBP 2 billion of transactions.
In 2014, when we joined and we launched the Strategic Equity strategy on the ICG platform on the back of the largest deal that year and by far the most attractive that we'd seen to date, it was $8 billion. Last year, it doubled again to $16 billion. In that $16 billion transaction size, we deployed half a billion dollars. Perhaps the most important takeaway from this chart is that the market has matured, and I would say has gone beyond a tipping point. I now think it has a permanent place in the firmament of private equity. It's a pretty big market opportunity. As you can see here, the total addressable market of these old funds is almost $400 billion.
Around half of this is in the especially attractive to us, smaller, by which I mean sub $1 billion NAV transaction size, where we have those significant competitive advantages I spoke of a moment ago. Incidentally, while many of the names in these blue segments, which is our area of interest, won't be known to you at all, I'm sure if you look and you see names there, I don't know whether they'll be recognized by you. In this gray section, there's a whole different group of people that you probably will have heard of, like Warburg Pincus, like BC Partners, like Nordic Capital. These guys are doing restructurings of their older funds as well. We don't happen to like those deals so much because we don't like the pricing, because we're cheap, I suppose. We like to pay six times, not 16 times.
Those transactions have been very useful in another way, which is they've authenticated our marketplace and given it maturity. Frankly, as a result of that, not only does it kind of empower every GP with an old fund to look at one of these transactions, it raises the question, is it responsible not to look at one of these things? The whole of that $400 billion market universe is open to us. Let me just dwell for a second on performance of the asset class, and I make the following observation, which the chart attempts to depict. We achieve buyout-like returns, but at substantially lower risk because each of our transactions is a diversified portfolio, maybe five or more underlying companies. Actually, if you think about it, our fund becomes a portfolio of portfolios, the risk of failure is very low.
Another way of thinking about this is in terms of the so-called efficient frontier, a concept which most of you will be familiar with. Given the risk-return characteristics, we sit as far above the efficient frontier curve as anything I've been involved with in over 30 years of being in the finance business. What does all this mean for us going forward? I'd say we've got a lot of wind to our back here. There's huge investor appetite for these kind of assets, and as pioneers who happen to have created great performance benchmarks, we have significant advantages in fundraising. We also have Andreas, of course. As well as investing prudently under the ICG flag. The underlying market, as we've seen, is very large, I am highly confident we will get more than our fair share of it.
This will enable us to raise larger and larger successive fund generations, which in turn enable us to underwrite larger transactions. The business model, because it relies heavily on striking partnerships with incumbent managers, albeit with material governance and oversight rights and capabilities, it's inherently scalable, which means that more of the fee income generated falls to the bottom line. Finally, it's important to note that fees are on committed rather than invested capital, and they're guaranteed for the first four or five years of each fund. As Benoît was saying, this is a long-run, sticky fee product. There's one other little point, which is, just as for Max's business, we anticipate the fee rates going up on our funds.
Because of the success of the strategy, I think we're in a privileged position where we can not just reduce the discounts, but actually increase the baseline. That's what we'll hope to do in our next fund. I'm going to go back and sit down and give Emma the floor for a few minutes.
It's two years ago to the day that ICG acquired Graphite's fund investment business, some of you may remember. We manage a listed private equity fund called ICG Enterprise Trust, and that has total assets of GBP 670 million. Before I tell you about the business, a little bit of my background and how we came to ICG. I've worked in private equity now for 23 years, 13 of which as the portfolio manager of this trust. I'm also a co-founder of a private equity diversity initiative called Level 20, which ICG is a sponsor of. Before joining Graphite and working on this trust, I had various roles in private equity, investing across the capital structure, including as a mezzanine investor in the late 1990s, and I worked on a number of deals then with ICG. Throughout my time at Graphite, we backed the European Mezzanine funds.
We all knew each other really well, and when we were looking for a partner to take the business forward, ICG seemed like a natural fit. I thought it would be a perfect platform for executing our strategy. What is our strategy and how is ICG adding value? The foundation of the strategy, as Andrew mentioned, is investments in private equity funds. All our funds are focused on buyouts in developed markets, and that's the part of the market we think best enables us to meet our objective of generating consistently good returns with low downside risk, an approach that is consistent with ICG's overarching investment philosophy, as you heard from Benoît. We currently have investments in funds managed by 38 private equity managers. These include a number of names that you probably will be familiar with from the media, such as CVC and Cinven.
Also many less well-known groups that provide access to more niche parts of the market, such as Gridiron Capital, which is a U.S. middle market manager. I'd be surprised if anyone in this room has come across before. Fund investments not only provide the portfolio with a base of strong diversified returns, but importantly, they also generate deal flow for the direct co-investments and secondaries, which are a key part of our overall strategy. Co-investments and secondaries are attractive for two main reasons. Firstly, because they really enhance the returns from the funds, and secondly, because they give us more control over what's going into the portfolio. It enables us to increase exposure to specific companies that we have a high conviction will outperform through the cycle.
Examples include DomusVi, which was mentioned earlier, a care home operator that we partnered with ICG Europe, and Roompot, a Dutch holiday park operator that we partnered with PAI. Both companies have the same strong defensive characteristics that we look for in our larger holdings. Our approach is different from a pure fund of funds model, where the third-party managers make all of the underlying investment decisions. Whereas in our model, over 40% of the portfolio is in companies selected directly by us. We have a strategic objective to increase that to over half. The combination of the directly managed and third-party managed investments is unique in our market, as our peers are either pure direct investment or fund of funds vehicles.
We think that our approach offers our investors the best of both worlds, striking a balance between diversification and concentration, and between risk and reward. Moving on to how ICG is adding value. At the time of our move, we identified a wide range of potential benefits of moving from a small U.K. private partnership to a global asset manager, and we've grouped them into these three key headings. Access to deal flow is the most important one for our investors. This includes obviously in-house investment, which currently covers three of ICG's strategies, and it also includes some third-party deal flow sourced through the broader ICG network. Gridiron Capital, the fund I mentioned earlier, is a good example of that. The second area is insights.
ICG's been lending to and investing in private equity-backed companies for over 28 years, and as a result, has relationships with many private equity managers across the globe. These have been developed from doing deals with them, sitting on boards of companies with them, sometimes unfortunately working out difficult situations together. That gives us a different perspective from a typical fund investor. My team is finding that being able to get feedback on managers we're thinking about backing from colleagues who have first-hand experience of working with them and local market insight is a hugely powerful resource in executing our strategy. The third area of impact is support. As you know, ICG's business model is based on putting specialist support functions around investment teams to enable them to focus on managing portfolios.
We've enlisted a number of specialists to help us manage the trusts, such as legal, tax, and investor relations. ICG's also supported us by investing in the team, so we've added two to the five that came over from Graphite. Finally, ICG provides oversight at investment committee with both Benoît and Andrew bringing to bear their long experience to our decision-making. We've been pleased to see the benefits coming through in all three areas in the still relatively short space of time since our move, and we think there's much more to come. A quick comment on performance. Since our move, the trust has continued to build on Graphite's strong performance record.
The chart shows the net asset value per share over the short, medium, and long term. We've compared it to both the FTSE All-Share Index, which is the benchmark for our mostly retail investor base, and also the listed private equity group. You can see we've outperformed both the benchmark and the peer group over all time periods. It's also worth noting that the outperformance has accelerated since we moved to ICG, with the share price returning almost 60% in two years. Finally, before I hand back to Andrew, I've talked about the benefits of the move to the Trust and to the team. I suspect you might be more interested in the benefits to you as shareholders in ICG.
Fundamentally, the acquisition added a profitable and growing business to the group. That's in contrast to a typical team hire, obviously, notwithstanding what Andrew said earlier, which will tend to require investment in start-up expenses and seed capital. With the business, ICG got an experienced team with a track record of working together and outperforming peers, and with a good cultural fit, given the long relationship that we had with the firm. The combination of these two features makes the business a solid platform for future growth, particularly in partnership with Andrew's business. He's going to talk about growth initiatives in a minute. It's worth noting that the evergreen nature of the listed trust creates a long-term fee stream and means that the base business has good growth prospects. Our assets are up almost a third since the deal.
The other two factors on this slide are a little less tangible for shareholders. I think there are a number of synergies that we bring to the group. Relationships is the most obvious one. In the process of selecting our managers, we've developed relationships with hundreds of different private equity groups and intermediaries. We also have a broad network of other fund investors. These connections can strengthen existing ICG relationships or indeed bring new ones to the group. We have already introduced a number of contacts to some of our colleagues that have the potential to either generate deal flow for other strategies or interesting leads for fundraising. Market insights is the other synergy. As an investor in funds, we have a broad perspective on the private equity landscape. It's from a slightly different angle than ICG's other investment teams.
Benoît made a comment at a recent investor day that the best way to understand your clients is to become one, which is what ICG has done in bringing in my team. All in all, we feel that we're adding value to shareholders in a variety of different ways. I'll come back to Andrew.
Thank you, Emma. It's actually right. You know, the Emma's team has given four introductions to potential transactions for Strategic Equity, of real meaning and substance, so thank you for that. Those performance characteristics that you've seen are deeply impressive and consistent. Emma consistently outperforms all her peers. As I hinted in the introductory commentary I was making, the Private Equity Solutions business is presently focused on these two activities, the Strategic Equity and PEFI. It's just a beginning.
We see a significant opportunity to build meaningfully from this already pretty compelling, I hope you agree, base, not just through larger, more profitable funds, but by diversifying into other adjacent areas, particularly where we can harness and deploy existing ICG skills and experience, as well as taking advantage of the insights and information that flows naturally within the firm. Two examples of that potentiality are listed here. One is geographic expansion, perhaps into Asia. Why not run the Strategic Equity idea for Asian businesses? A further push into fund of funds, from which other very profitable investment activities, and which Emma alluded to, secondaries and co-investments can be spawned from, and which play very well to the existing strengths and capabilities inside Strategic Equity, PEFI, and the wider ICG group. In conclusion, let me draw out the main themes.
Firstly, Private Equity Solutions has become, in a little over three years, a significant profit contributor within the ICG family. We have two businesses with sticky, long-term, predictable and profitable and growing fee streams. In the case of Strategic Equity, we have a significant opportunity to grow AUM, taking advantage of our market leadership position and distinctive competitive edge. Beyond that, we have a wide array of attractive ways to diversify the private equity activities to expand the suite of businesses into natural adjacencies that lead to further profitable growth. On that note, I'd like to open the floor to Q&A. You better come up in case people ask you questions.
In terms of the difference between the Strategic Equity part and within PEFI, the secondaries equity component, are they quite similar? What's the difference between those two parts?
Between?
Between the Strategic Equity that you have, and then within PEFI you have the secondaries part.
Right.
Are they quite similar and is there overlap there?
Yeah. There are some similarities, but what Emma's doing in her secondaries business is buying LP interests, so limited partnership interests in funds, whereas we're buying underlying companies. If you want to make one point of distinction, it's that. There is a natural overlap, and in fact, when I was talking about who our natural competitors are, they are people like Emma's secondaries business on a much larger scale. Groups like Lexington and Goldman Sachs and Coller Capital and so forth. They're the guys who are doing that gray shaded area of fund restructurings, and they look a bit more like secondaries transactions as you'd understand them. There's an important point of DNA or approach or whatever you want, and which I kind of touched on, which is that Emma's DNA or the secondaries world's DNA is about manager selection.
It's about deciding whether you can trust the manager of the asset to do what is written on the tin. In our business, we're asset selection guys. Sure, we're partnering with in-place managers, but we're really digging down into the companies and writing our own investment cases in support of those assets. Do we want to own the underlying assets? There's quite a difference in mentality which gives us this competitive advantage in those deals. There is a lot of overlap and a lot of shared resource, particularly as co-investments come up where we have a lot of experience in making direct investments, which we can share and help Emma and her team.
Just one follow-up. In terms of the six deals you've done, obviously the underlying investors may want liquidity, so understand why they may want to sell that. Have these assets underperformed, and what are you doing when you're going in, when you partner with, let's say, EdgeStone, VSS, what's the skill set you bring in that extracts value?
It's a long answer, but I'll try and give a short version. Typically, these private equity managers have underperformed, which is why they're in this situation. There's a fund that's just not going to achieve carry or whatever. What we do is we revitalize the manager. We sit on top of them. We sit perhaps on their investment committees. We certainly sit on the boards of the underlying companies. We may give them new capital. We certainly give them new direction. We recharge those underlying businesses. It's not true for the entire audience of that GBP 400 billion. Within that market segment, many of the underlying companies are perfectly good companies. These are not bad companies because the private equity manager couldn't sell them. They're actually companies they didn't want to sell.
In fact, in many cases, they're the crown jewels. The focus of somebody who's really motivated to recharge the business. We get very involved. We're quite painful if people don't do what we agree at the beginning. We have enough experience to be able to alter the way that the private equity firms think about their businesses. Not there's anything wrong with them, but sometimes they've lost confidence, sometimes they've lost people, and we can help revitalize them.
Thank you.
I think it might be worth understanding in part the reason this model works really well is in these situations, there's a complete misalignment of interest. Because these funds are overall they're underperformers, the interest of the manager is to hang on to the assets for as long as possible because what they're getting out of these funds is the fees. They're unlikely to ever get carried interest. The investors in the fund want their money back. That's where the tension is. What Andrew and his team are doing is they're unlocking that situation. They're creating an environment where you're realigning the interest, and what you find is suddenly exit options occur and there are exits that typically come in much quicker than anticipated. The J-curve for this strategy is actually extremely favorable.
Yeah, we've made now eight company exits, complete exits, and we've had realized liquidity events on 15, and the average multiples we're getting are in the high ones and low twos multiple. These are good businesses that we buy cheaply. No one else? No. Poor Emma's kind of looking for a question.
Sorry, I have two questions. One on slide 67, which was where your addressable market is. A lot of this are no successor funds and underperforming vintages. I can understand where your money multiple comes from in terms of buying these-
Yeah
assets. There should be a reason for why those are, right? Because of the assets that sit in them. How do you achieve the turnaround for the companies? Do you do something in terms of restructuring or how hands-on is your approach?
Okay. The first thing that I would say is that the reason that these We're really talking about this upper segment here. The reason that these funds are where they are is not because the assets in them are bad, it's because the portfolio that was originally underwritten was an underperforming portfolio. What that means is typically there've been one or two or three businesses that were sizable that blew up and the GP lost all their capital. What we're not doing, because those private equity managers have proven that they might make mistakes in going into investments in the first place, they might be over-enthusiastic, might overpay with too much debt. A curiously repeated marketplace environment right now. We're not giving them new capital to do new deals.
We're simply saying, "Let's help extract value from those portfolio companies that are remaining." The other way to think about it, by the way, which is quite helpful, is these companies that are remaining in these funds are the ones that survived the financial crisis. They're actually pretty robust because the poor ones failed. What we do is pretty hands-on. We treat our manager partners with respect, and they continue with the day-to-day. They are the immediate face to the company, but we're on the boards of every single company that matters. We go to the board meetings. We have the debate. We agree a plan with the private equity manager about what needs to happen. If we're not happy with the way the plan's going, we take action.
We're right now in the middle of taking action on three companies across our portfolio where we don't think the private equity manager has done quite the right thing, we're being a little pushy. We're not unwelcome, by the way, because many times they need some help or counsel to develop what they've already got, it's normally not a fight to get things to change. Of course, because we've reset their incentives, they're highly aligned with us to create value.
Right. This GBP 384 billion is a historic number in terms of funds to date. When you're looking at what PE multiples are in terms of what they're buying today, how do you think that vintage will look like in terms of, if you pan 5 years ahead, how does that number change, 384?
Just to be clear, that GBP 384 billion is the NAV of all those funds that are more than 9 years old. How will that go in the future? A series of things will happen. The natural process is that these old funds shed their assets, so they'll go down because of that. They'll go down because deals like ours get done or other equivalent deals get done.
Right.
They'll go up because the vintages that then weren't 9 years old a year ago become 9 years old now. We've also had, since the financial crisis, volumes of fundraising have picked up and the same mistakes are being made over again. We're pretty confident that this number should at least stay where it is or go up.
All right. The last one I had was, I think you showed in Emma's Thematics, you showed returns versus FTSE companies. Yeah. Is that pre or post fees?
Post.
It's post fees.
Yeah. That's the net return to our shareholders.
Right.
About 60% is retail, so we use the FTSE All-Share as a benchmark.
Thank you.
Thank you very much, guys. Well done. Quite a lot of information to take in, I'm sure, this morning. Hopefully, you found it useful. We welcome feedback, certainly. If you think that we can improve on the content or the format, please get in touch with us and we'll improve for our next Capital Markets Day. A few, of course, concluding remarks. There we go. As you've heard, we benefit from excellent fundamentals. The market environment is very favorable generally and particularly for our asset classes, and we're in an extremely good position to take advantage. Locked in value, it's a defining characteristic of our business model, and it's a fundamental element to understand the value of the business. We're confident about AUM growth, as evidenced by our new target. You've heard three really interesting stories of growth this morning, and quite different.
Senior Debt Partners, completely organic story, something we built completely from the inside because it was a strategy that was very close to a strategy that we already had. U.S. senior debt will be the same, entirely organic. Strategic Equity, we brought in a team, we brought in the expertise, and we unlocked the potential through the platform, the marketing capability, and balance sheet capital. PEFI was an acquisition. Essentially, we purchased a fee stream, which we very quickly enhanced increase through synergies between the two entities. What Emma hasn't, I think, might have mentioned is her business is incredibly skilled because what she does at her level on just short of GBP 700 million, she could be doing for double that size easily. It's exactly the same amount of work.
These three examples are a good illustration, not only of the focus we put on growth and we will continue to put on growth going forward, but also on the flexibility of our approach to take advantage of the best opportunities, to find the best way to add new products to our product base. Finally, capital efficiency. You've heard Philip talk about how critical the balance sheet is. It is the fuel for the acceleration of our growth, and as a consequence, the growth of shareholder value. On that note, I'd like to thank you very much for attending this morning. We will be around if there are more questions, so do not hesitate. Thank you. You want another Q&A? Sorry. Apparently, there's another Q&A now if you really want to. Any questions about the company generally, because we won't really focus on specific strategies.
We'll take them for a few minutes now, then head through for more informal questioning and grilling. Thank you. Any We could do that with a glass of juice or something.