European equity markets may be 40-50 per cent off their March lows, but what about private equity assets. Have they bounced? The answer from would appear to be no, judging by Monday’s news from 3i.
The listed private equity group has sold a portfolio of 29 stakes in European start-up companies for £130m to a consortium of investors made up Coller Capital, HarbourVest Partners and DFJ Esprit.
Now, these investments were heavily written down in March, but 3i has still recorded a loss on their sale of £25m, or 2.6p a share. Put another way, 3i has to write down the value of these assets by a further 16 per cent over a period when just about every other asset class in the world has been rising.
As Iain Scouller, funds analyst at Oriel Securities, points out – the sale valuation achieved by 3i has not benefited one iota from the 70 per cent rise in the FTSE Small index over the past six months:
Whilst these are non-core assets, we do think the price achieved does reflect the challenging realisation environment for private equity assets in general. 3i had already substantially written down the value of this portfolio in the year to March 2009, and yet it has still had to realise the investments at 16% below the March valuation, despite the strong recovery in stockmarkets in the meantime.
Today’s news backs up our view that there is a danger that the market may be getting too optimistic at the prospect of a sharp recovery in returns from private equity investment portfolios in the short term.
And if there is one private equity group that looks to have got ahead of itself, it could well be 3i. On the bright side, most of its portfolio is not made up of small European companies. Thankfully.
Related link:
3i achieves goal of halving net debt – FT Alphaville