Investec view: Caledonia Investments gives investors access to global public and private companies. A genuinely long-term approach and focus on high-quality, well-managed companies are traditional features of the investment philosophy. The private exposure, which is currently c.59% of NAV, consists of a concentrated portfolio of eight UK mid-market companies and 74 North American and Asian funds, with a tilt towards US lower mid-market buyouts. Meanwhile, the listed equity portfolio has a bias towards resilient companies with strong market positions, high returns on capital and pricing power. Caledonia measures its performance against the CPIH plus 3-6% and the FTSE All-Share and, as shown in the chart below, it has comfortably outperformed both comparators over ten years. A key driver of the long-term NAV total return has been the private capital and funds pool with annualised 10-year total returns of 13.9% and 17.3% respectively. Looking forward, we like the focus on UK and US mid-market companies and, within the direct portfolio, we highlight the use of prudent capital structures with low net debt/EBITDA of c.2-2.5x. Meanwhile, an attractive maturity profile within the fund pool bodes well for distributions if the market regains traction after what has been a very subdued period, and indeed the manager noted a pick-up in distributions from the North American portfolio in the final quarter. While the FTSE All-Share index has been the traditional equity benchmark, given the evolution of the portfolio and rotation away from the UK and towards a more global approach, arguably its effectiveness is now limited. For the sake of argument, using a hybrid index comprising 35% FTSE All-Share and 65% MSCI ACWI ex UK, which more closely reflects the geographic allocation over recent history (see p4), the five-year NAV total return CAGR is 10.9% vs. 10.2% for this composite benchmark. Given average cash of c.7% and an underweight North America/overweight Asia vs. this comparator, this is a solid outcome. Having traded within a narrow discount trading range of 13-20% for several years, the onset of the pandemic ignited a sharp de-rating of Caledonia Investments. While the family concert party clearly limits its ability to buy back its own shares, we also believe that the company’s profile is low. However, we believe this also creates an attractive opportunity. While liquidity has been a key driver of the de-rating, it’s important to remember that this can be a double-edged sword. We would regard a fair value discount level, in normal market conditions, to be around the 20% level. We initiate with a Buy recommendation.