3i mulls expansion into US credit

UK-listed firm 3i Group plans to acquire a US debt manager within the next few months, 3i chief executive Michael Queen said at Wednesday’s Dow Jones Limited Partners Summit in New York.

The group, which established a debt management division in February with the acquisition of Mizuho Investment Management, has about $5 billion to invest in senior and mezzanine loans in a variety of structures.

“We see a real opportunity in the market for non-bank finance entities to basically provide credit,” Queen said.

The planned expansion into US debt comes following about two years of reorganisation during which Queen and his team merged 3i’s growth capital and buyout units to form a unified private equity business. At the conference on Wednesday, Queen pointed to some of the mistakes the firm made prior to the reorganisation.

“We got carried away with the idea of growing assets under management for the sake of growing AUM, and I think that’s always a very dangerous thing,” Queen said.  “To accelerate growth, we leveraged up our balance sheet, and frankly that was the wrong thing to do at that point in the cycle.”

In addition to expanding its debt business, 3i is also planning to grow its infrastructure arm using two different investment styles.

“One is investing in developed markets, where we’re investing for the very long term,” Queen said. The strategy uses a listed vehicle to hold assets between 10 and 15 years. “Our second strategy in infrastructure is in India…and there we do have a typical private equity style vehicle.”

During a results call last month, Queen said 3i had decided to more clearly set out its future return goals to shareholders, setting a benchmark of a 15 percent net return averaged out over any five-year period. For the financial year just ended, the total return in percentage terms was 10.6 percent, down from 16.2 percent in the previous financial year.
 
3i's net asset value per share rose however to £3.51 from £3.21 last year.