3i: three eyes

Has 3i joined the "do as I say, not as I do" school of investment? The private equity company has finished a three-year restructuring. It is much healthier now than when boss Simon Borrows took over in 2012. Debt is down; profits, net asset value and the share price are up - the latter by more than 180 per cent. Congratulations, Mr Borrows. But the new 3i remains an odd proposition for shareholders.

At the core of the group is a PE business that invests in midsized companies: retailers, widget makers and the like. In 2014 the value of its investments rose 24 per cent - a good year. 3i is deliberately shrinking its portfolio from 125 companies in 2012 to 30-40 over the next few years. Any new investments that 3i does make will come from its own capital, not from the third-party money that most other PE firms target.

That is a real contrast with the group's attitude towards its other two businesses, which manage debt and infrastructure funds. There, the aim is very much to attract third-party cash, and 3i no doubt has some slick sales pitches prepared. But the group is cautious about putting its own money into these funds. The returns, evidently, are not as attractive for 3i as they are in PE.

3i counters that investors in its debt and infrastructure funds have different return targets to the group itself. Fair enough. But there remains the question of what sort of company 3i is. Does PE (investing 3i's money) belong with asset management (investing other people's money)?

Asset management provides steady fee income, in contrast to the lumpy cash flows of PE. But this is not a reason to keep them together. The worry is that management retains the fee businesses as a source of funding for illiquid years in private equity - despite the fact that they might be worth more to a buyer with more scale than 3i. And asset management is a scale game.

The businesses are not utterly disjointed; the same intellectual capital can be deployed in all three. But at the same time, a separation would make all three a much more straightforward proposition for shareholders.

Email the Lex team at [email protected]

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation