Listed portfolio pushes 3i into £182m loss

The UK-based private equity firm had a total negative return of £182m for the first half of 2008, due in part to £411m in write-downs and an £87m drop in value of its quoted portfolio. Its buyout and infrastructure businesses produced positive returns.

3i suffered a £182 million (€224 million; $289 million) overall loss for the six months ended 30 September, a dramatic reversal of the group’s performance in the same period last year when it booked a £512 million profit.

The results translate to a total negative return of 4.5 percent – its first negative return in five years – and a net asset value of £10.19 per share, down from £10.77 in March.

Philip Yea, 3i chief executive, provided a grim outlook for NAV prospects for the second half of the year.

“Progression in net asset value in the second half will, as always, depend on many factors, not least portfolio earnings and multiples prevailing at the end of March 2009. However, given the deteriorating economic environment, and lower levels of activity in the mergers and acquisitions markets affecting realisations, the outlook is clearly to the downside,” Yea wrote in the firm’s earnings report.

Lower multiples, drops in the value of its quoted portfolio and increased provisions and impairments caused the firm to write down £411 million on its investments.

The firm’s buyout and infrastructure businesses provided positive returns of 6.5 percent and 7.2 percent, but were offset by a negative 26.1 percent return from its quoted business, negative 8.7 percent for venture capital and negative 6.7 percent for growth capital.

Its buyout business’ performance was “satisfactory” in light of current market conditions, the firm said. It had £326 million in realisations, the largest of which was the £166 million sale of Italian toy company Giochi Preziosi.

Both realisations and investments experienced declines compared to last year: the firm invested £668 million this year, down from £1.2 billion, and realised £597m, down from a little over £1 billion last year.

Yea noted the firm had chosen to “be highly selective” and completed just 10 deals in the first part of the year. He added: “Whilst debt financing remains available for certain mid-market buyouts with strong franchises and good visibility of earnings, it is otherwise hard to secure as the major banks rebuild their balance sheets following losses elsewhere.”

Despite the negative returns, Yea called the results “resilient” given credit and stock market deterioration and said the firm’s expertise, selective approach and close relationship with portfolio companies would “provide additional strength in these economic conditions”.