Time is an investor’s greatest ally. It should be harnessed rather than treated as a constraint. That belief sits at the heart of Caledonia’s Time Well Invested philosophy, which underpins how we operate and support the businesses in which we invest.
Each of Caledonia’s three investment teams applies this philosophy through buy-to-hold portfolios designed to benefit from compounding returns. In the first of a series exploring how Time Well Invested applies across our portfolios, this article examines how Caledonia’s Private Capital team uses time to deliver long-term performance.
Rethinking the playbook
Many traditional private equity firms operate within limited-life fund structures, which can force decisions that prioritise fund dynamics over the long-term interests of portfolio companies. To raise successor funds, managers must return capital to investors, often requiring businesses to be sold regardless of whether conditions are optimal.
Caledonia’s Private Capital model is fundamentally different. Our philosophy is grounded in a buy-to-own mindset, shaping how we invest in and work alongside our portfolio companies.
As a self-managed investment trust with an evergreen balance sheet, we are not constrained by limited-life fund structures. We can exit investments when we and our management partners believe the time is right and often extend ownership to allow compounding to continue, typically holding businesses for six to ten years.
Alignment is central to our approach. We invest alongside management teams, usually in the same class of shares, and avoid the high-yielding priority loan stock instruments commonly used across the private equity industry.
We also take a conservative approach to leverage. Typical net debt/EBITDA ratios across our portfolio are 2.0–2.5x, compared with around 4.2x in the UK mid-market. This reflects our prudent risk appetite and gives businesses flexibility to invest in growth while supporting regular dividends to Caledonia, driving consistent NAV growth and strong returns on cost.
Partnering for the long term
We are highly selective, investing only where our long-term philosophy is valued and where we see the potential for sustainable value creation. We prioritise resilient businesses with robust operating models, strong cash conversion and ambitious management teams that balance growth with a measured approach to risk.
The businesses we back are seeking more than capital; they want a supportive, aligned partner.
Our investment in Seven Investment Management (7IM) exemplifies this approach. We backed the business for eight years, supporting its evolution from a pure-play investment manager into a platform-led, vertically integrated wealth manager. During our ownership, the business completed four acquisitions and almost tripled assets under management, significantly enhancing revenue and profitability.
When we exited, the investment delivered a 15% IRR and a 2.3x multiple of invested capital with modest leverage. The business was left in a stronger position, well placed for further success under its new partnership with Ontario Teachers’ Pension Plan Board.
Culturally aligned partnerships
We have built similarly trusted partnerships elsewhere. In 2019, we acquired a stake in Stonehage Fleming Family & Partners, the leading independent multi-family office in EMEA and the second largest globally. The investment was underpinned by long-term tailwinds in the ultra-high-net-worth wealth sector, alongside high operating margins, strong cash conversion and a strong cultural fit.
As a founder-led firm, Stonehage Fleming’s values align closely with Caledonia’s family heritage and long-term approach. Working closely with management, we supported growth organically and through acquisitions. Strong cash generation helped fund three bolt-on acquisitions, supporting international expansion and strengthening its position as a premium brand.
In September last year, we agreed to sell the business subject to regulatory approvals. The expected cash proceeds of £288 million will represent a 3.2x return on our initial investment and a 30% uplift to our 31 March 25 carrying value.
Working through challenges
A long-term approach is particularly valuable during periods of disruption. Our inns and drinks business, Butcombe Group, faced significant challenges during the Covid pandemic. Our model allowed us to look beyond short-term pressures and act decisively.
This included acquiring 21 pubs from Wadworth & Co. at a time when few companies were expanding, significantly enlarging the estate. Butcombe Group is now our fourth-largest investment, valued at £145 million.
Time Well Invested
Over the past decade, our Private Capital team has screened more than 2,200 potential investments, bid on over 40 and completed 19. This highly selective conversion rate reflects our disciplined investment process and belief that enduring value takes time to build.
Excluding the agreed sale of Stonehage Fleming, our Private Capital portfolio has delivered realised returns of a 1.8x multiple on cost and a 17% IRR since 2012, outperforming median UK mid-market private equity returns. Time Well Invested underpins the long-term returns we deliver to shareholders.
By Tom Leader, Head of Private Capital, Caledonia Investments
Past performance cannot be relied on as a guide to future performance. The value of investments and the income from them can fall and investors may get back less than the amount invested. Other companies and investments referred to have been selected for illustrative purposes only to demonstrate Caledonia’s investment management style and not as an investment recommendation or indication of future performance. The returns and performance data referred to in the piece are returns for Caledonia’s portfolio and individual investments within the portfolio and are not, and should not be taken as an indication of, the returns experienced by shareholders in Caledonia itself.