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Private Equity Feeling The Pinch, Warns 3i

by Robin Pilgrim,, London

10 November 2008

In its results for the six months to September, released on Thursday, private equity firm 3i reported losses for the first time in half a decade, and warned that a similarly "challenging" second half of the year was anticipated.

Although the firm argued that it had shown a "resilient performance in the face of challenging markets", it reported pretax losses of GBP143m in the year to September, compared to profits of GBP515m over the same period in 2007.

Investment over the six months to September was GBP668m, compared with GBP1.23bn in 2007. Explaining the drop, Chairman Baroness Hogg stated, according to the Telegraph, that:

"While we continue to invest, we are doing so highly selectively, and management is also focused on maintaining liquidity to meet the needs of the portfolio."

The decline has been attributed mainly to difficulties in selling on companies in which investments have been made, and reflects the difficulties being experienced by the sector in general, according to 3i Chief Executive, Philip Yea, who commented of the results that:

"The credit and stock markets have deteriorated since late September and the outlook for the global economy continues to weaken. Despite a resilient first six months of the year, we would expect a more challenging second half as the squeeze in credit markets persists, the economic slowdown affects portfolio earnings and M&A markets remain subdued."

He went on to reveal that:

"In such an environment our focus is on managing the portfolio, maintaining liquidity, remaining highly selective with investment and controlling costs. 3i's sector expertise, active partnership approach and close engagement with the strategy of the portfolio companies all provide additional strength in these economic conditions."

Observers have suggested that the somewhat gloomy picture for the private equity sector presented by 3i's most recent results is likely to persist into 2009, with further writedowns expected to be announced in March.

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