3i mulls growth capital fund launch

The publicly listed firm could target as much as €3bn for its first growth capital fund to raise third-party capital.

3i, the FTSE100 listed private equity firm, is weighing up the launch of a stand alone fund for growth capital investments.

It is the only one of the firm’s product lines investing solely from the group’s balance sheet.

The buyout team led by Jonathan Russell, the quoted equity business under Bruce Carnegie-Brown and Michael Queen’s infrastructure group all raise third-party money.
The growth capital team, which invested around €1 billion ($1.6 billion) last year, could target as much as an estimated €3 billion, giving it fire power for several years if it were to maintain its recent pace of investment. The firm declined to comment on the fund’s potential capacity.
But Guy Zarzavatdijan, a managing partner at 3i, said in a recent interview with PEO about the growth capital business he heads: “Today 3i's Growth Capital business is funded from our own balance sheet. Our track record and market position mean we may consider management of LP capital in the future at some point.”
To date the team has £2.5 billion under management and since 2004 its reinvigorated growth unit has consistently generated internal rates of return in excess of 26 percent, peaking at 43 percent in 2006 but dipping to 17 percent last year.
Its gross portfolio return has not fallen below 21 percent.
Zarzavatdijan said his team was focussed on partnering with entrepreneurs in fast-growing profitable companies which were looking to take advantage of 3i’s international network.
He said: “Our long-term positioning allows us time to develop relationships with people; they in turn would become deals.”
Control was less important than investing in growth businesses: “These are minority shareholdings per se but as a consequence of entrepreneurs looking for equity funding to grow their business. We tend to be impactful shareholders.”
At its recent results 3i said it was well-placed to cope with tougher economic and financial conditions and it set a target of almost doubling assets under management to €20bn (£15.8bn) by 2010.