Caledonia Investments Highlights Funds Strategy, North America/Asia Focus and NAV Discount Actions
Caledonia Investments LON: CLDN used its latest “Fund Spotlight” event to outline how its Funds strategy is constructed, why it focuses on North America and Asia, and how management is thinking about portfolio risks, cash flows, and market conditions.
Long-term approach and the role of the Funds pool
Chief Executive Officer Mat Masters said Caledonia is positioned as a long-term steward of multi-generational capital, targeting absolute returns of inflation plus 3% to 6% while limiting the risk of permanent capital loss. Masters said the company’s approach has delivered 9.8% per annum over the last 10 years, outperforming inflation by 6.5% per annum, and noted Caledonia has increased its dividend for “over half a century.”
Caledonia is organized across three strategies—public companies, private capital, and funds—with the Funds strategy providing diversified exposure to “two great long-term markets,” North America and Asia. Masters said the Funds pool represents about 30% of NAV, or £894 million, with roughly two-thirds invested in North American lower mid-market funds and the remainder in Asian private market funds.
Manager selection process and portfolio construction
Jamie Cayzer-Colvin, who leads the Funds pool, said the strategy is built around long-term partnerships with managers, typically in smaller funds where fees largely cover the investment team’s running costs and incentives are geared toward value creation. Cayzer-Colvin said Caledonia aims to deploy capital steadily rather than opportunistically and invests only when it has deep conviction that managers will deploy capital consistently with their stated strategies.
He described the team’s framework as the “three Ts”—team, thesis, and track record—supported by frequent meetings, long lead times before committing, legal review of fund documents, and ongoing monitoring. Caledonia often takes a seat on fund advisory boards (LPACs) and meets each manager in person at least twice a year, alongside quarterly update calls.
In terms of scale, Cayzer-Colvin said Caledonia has narrowed its coverage universe to around 500 managers it has met and actively monitors, and has built an investment portfolio of 46 approved managers overseeing 82 underlying funds, providing exposure to more than 600 companies.
North America: lower mid-market focus and “everyday America” exposure
Eloise Fox, who runs Caledonia’s North American Funds program, highlighted the size of the U.S. lower mid-market, citing approximately 400,000 companies with $2 million to $10 million of EBITDA, which she said collectively generate more than $10 trillion in revenue and employ over 48 million people. Fox emphasized founder-owned businesses as a key source of opportunity, noting that 57% of founder-owners are aged 50 or older and may be considering succession, liquidity, or partnering to accelerate growth.
Fox said the segment tends to be less intermediated and less efficient than large-cap private equity, with “materially lower and much more stable entry multiples,” typically paired with lower leverage. She framed the trade-off as higher operational risk but lower financial risk, with returns driven by professionalization and operational improvement.
As an example, Fox discussed CenterOak Partners and its investment in Turf Masters, a residential lawn care services business acquired in 2022. She said CenterOak supported 19 add-on acquisitions, expanded locations from roughly 20 to more than 40, and more than doubled the customer base, with more than one-third of EBITDA growth described as organic. Fox also said the Turf Masters exit was the second exit from CenterOak’s Fund Two and that recent CenterOak exits were in the range of 2.2x to 3.5x net money-on-money.
Fox said Caledonia’s current North American portfolio includes 30 managers across 45 funds, with typical commitments of $25 million to $30 million per fund. She said Caledonia is invested in around 200 underlying companies, and including fund-of-funds holdings, exposure would be “in excess of 800 companies.” The largest sector exposures were described as industrials, consumer discretionary, healthcare, and technology, while the portfolio was said to be about 60% services-focused.
Asia: middle class and innovation themes amid slower exits
Minh Ong, who leads fund investments in Asia, said the strategy targets two “mega trends”: a growing middle class driving domestic consumption and Asia’s increasing role in global innovation. Ong cited data showing Asia’s share of the global middle class rising from under 25% in 2010 to more than half today, with an estimate of two-thirds by 2030. He also cited China’s share of global R&D spending rising from around 4% in 2000 to 26% in 2023, alongside examples in biotechnology licensing, electric vehicles, and robotics installations.
Ong provided portfolio examples including Eye Maker, described as a Chinese medical and regenerative aesthetics company that listed in Shenzhen in September 2020, with the fund largely exiting the position and delivering a blended 30x return. He also referenced a Korean pre-need funeral services platform acquired in 2016 and sold to a strategic buyer in 2025, generating a 3.6x return. Another example was Momenta, described as an AI-driven autonomous driving software company with partnerships including General Motors, Toyota, Mercedes-Benz, and BMW, as well as Uber and Grab, with a potential IPO exit.
Ong said the Asia portfolio totals £313.8 million, comprising 15 managers across 35 funds and investments in 385 companies (more than 800 companies including final funds holdings). He said the heaviest sector weighting is healthcare at 33%, followed by consumer discretionary at 24% and IT at 20%, with a weighted average company age of five and a half years.
He added that macroeconomic uncertainty and foreign exchange movements have weighed on valuations and sentiment over the past three years, contributing to slower exits amid weak IPO markets, though he said operational performance has remained solid and the team has seen improving IPO market conditions in the past year.
Q&A: tariffs, cash flows, hedging, and discount actions
During the Q&A, Cayzer-Colvin said the last three years in Asia have been challenging, but pointed to signs of improving activity. He said that over the last 18 months the portfolio has had seven IPOs, and that over the next six months there are four companies approved for IPO and another six filed. He also said that during the last 18 months nine companies were sold via trade sale, averaging “more than a 30% uplift in NAV” at sale time.
On potential tariff impacts and downturn resilience in North America, Fox said tariffs and a broad economic downturn would impact returns, but she did not expect the effect to be “catastrophic,” citing exposure to repair and maintenance services where demand may slow but not disappear. Cayzer-Colvin said Caledonia has typically committed about $130 million per year in America, while commitments in Asia have been “more muted” recently as the firm watches the opportunity set.
Masters said Caledonia does not anticipate changing its allocation to North America, describing the funds exposure as a long-term strategy with consistent operational return drivers. CFO Rob Memmott said the company does not hedge the balance sheet, citing the cost of long-term hedging, but may consider hedging specific known cash flows.
Memmott also provided an update on the agreed sale of Stonehage Fleming, saying it is expected to realize cash proceeds of £290 million as of Sept. 30 and is held in the December NAV at £260 million. He said the process is continuing through regulatory approvals and that the first payment of £251 million is expected in the second quarter of the calendar year after approvals are completed.
On the company’s discount to NAV, Memmott said it remains a central board priority. He cited actions including enabling the concert party to go through 50% to unlock buybacks, a share split, and a dividend reprofiling. He added that Caledonia plans to continue share buybacks as part of broader capital allocation, particularly given a discount “at north of 30%,” while also focusing on NAV growth and increased disclosure, including the spotlight series.
About Caledonia Investments LON: CLDN
Caledonia is a FTSE 250 self-managed investment trust company with a long track record of delivering consistent returns and progressive annual dividend payments to shareholders. Our aim is to generate long-term compounding real returns that outperform inflation by 3%-6% over the medium to long term, and the FTSE All-Share index over 10 years. We are a long-term investor and hold investments in both listed and private markets across three pools: Public Companies, Private Capital and Funds. Each has a strategic allocation of capital, investment strategy and target return. We buy to hold, investing in high quality companies with strong market positions and fundamentals, alongside investments in private equity funds with track records of success.
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