ICG’s Durteste: We’ve done well in higher inflationary environments

Intermediate Capital Group’s chief executive and CIO Benoît Durteste isn’t spooked by the threat of rising inflation; in fact, such an environment could sort the wheat from the chaff.

Speaking on the firm’s annual results call on Tuesday, Durteste said: “Judging by experience – which may or may not be the right thing to do – we’ve done well in higher inflationary environments.

“There are a number of reasons for that. One is strong companies tend to do well in an inflationary environment because they tend to be able to pass on increased costs and sometimes more. Strong companies tend to do well and better – there’s greater differentiation in an inflationary environment.”

Durteste noted that along with inflation, the potential increase in interest rates will have a beneficial effect on the business of the firm, which originally made a name for itself as a mezzanine powerhouse.

“An increase in interest rates certainly has in the near term a very positive impact on our business because all of our debt products are on a floating rate basis, and the underlying companies are all hedged.”

He noted that any increase in interest rates directly benefits the performance of ICG’s funds without increasing the risk profile of their underlying portfolios.

“It would actually materially help if there was an increase in interest rates,” Durteste said.

The London-headquartered alternatives manager gathered $10.6 billion of inflows in the year ending 31 March – its third-largest year on record – and had a total of 16 strategies raise capital during the financial year, according to a statement accompanying the results.

The firm raised $3.9 billion for its direct lending strategy Senior Debt Partners IV. It is also in market with its eighth European debt fund targeting €7 billion, and it is seeking $5 billion for its fourth GP-led secondaries fund. ICG also added offerings focused on life sciences and pan-European real estate.

ICG expects to raise $40 billion cumulatively over the coming four years and at least $7 billion every year, Durteste said.

“With $60 billion of total AUM we are a major player in Europe and we are starting to become a meaningful participant on a global level. But there is substantially more growth to go for,” Durteste said. He noted that the compounding effect of the firm’s strategies creates a clear path to $100 billion of third-party AUM in the coming years.

Asked what impact a sustained inflationary environment would have on ICG’s returns or fundraising plans, Durteste noted that the performance of the firm’s funds has been consistent over time.

“If we get into a recessionary environment it would impact everyone. But there is a long way to go before that…we lived in an environment with much higher interest rates and our strategies were performing very well.

“One of the things our LPs value a lot is the consistency of our performance over the decades and that means not only through downturns, but also through various cycles of higher and lower interest rates.”