True Views: State of the nation.

Although political events have provided some significant surprises as 2017 has developed, the trajectory of the UK economy has followed a path broadly consistent with our expectations at the start of the year.

Inflation has risen from historically low levels, as a function of both currency and commodities, and this has placed clear downwards pressure on consumer spending, most notably in high street sales volumes. Although the labour market continues to be robust in terms of the number of people in work, wage settlements (notwithstanding upwards pressure from the National Living Wage) has remained anaemic. The resulting pressure on real wages has created a brittle environment with both sentiment and spending measures showing signs of reversal. The commencement of Brexit negotiations, led by a government characterised by neither strength nor stability, provides a further challenge in what threatens to be a period of ongoing economic volatility.

Looking ahead over the balance of the year and into 2018 we see few signs of current pressures lifting. Inflation seems highly likely to remain above average nominal wage growth well into 2018, while an historically low savings ratio and ongoing expansion in unsecured credit suggest that consumers have little in the way of ‘buffer’ should circumstances deteriorate. If inflation persists it seems inevitable that the ultra-loose monetary policy of the past few years will begin to tighten; this will place further pressure on consumers and businesses.

The political outlook, meanwhile, is opaque and unequivocally unhelpful. Brexit negotiations appear to be taking on a depressingly predictable pattern with the risk:reward profile, exacerbated by an enfeebled governing Party skewed firmly to the downside. We expect 2018 to bring further challenges.

It is against this sober backdrop that True will continue to pursue opportunities in areas of the consumer economy where structural factors (most obviously ongoing channel shift, which shows no sign of abating) offer strong growth potential even in more straitened economic times.

Our sector-specialist approach, investing in disruptive growth businesses in the small to mid-capitalisation spectrum of the private equity industry, provides further assurance of attractive returns. Indeed, economic headwinds may even accelerate the rate of market share gains by our portfolio companies as they are, by design, utilising business models which are under-indexed to areas of systemic cost challenge (notably people and property) and capable of capital-efficient scale to maximise opportunities to gain market share.

It is also relevant that we are committed to accruing interests in businesses with under-exploited assets and opportunities (e.g. data). This creates the potential to drive value via asset optimisation throughout our ownership period and can be delivered even in tougher periods of the economic cycle.

Our industry-focused investment strategy is not dependent on a macroeconomic rising tide. While recent months and, we expect, the period immediately ahead present a relatively challenging backdrop for the consumer we are confident that we are well positioned for further success.

31 October 2017