News: Buyside

Mixed results for UK private equity
The BVCA Report on Investment Activity 2001 has produced a mixed bag of findings that will give those involved in the asset class cause for cautious optimism.

On the downside, performance figures were at their lowest level for ten years, with venture capital funds suffering the biggest drop in performance (?35.7 per cent year on year.) On the whole, private equity funds recorded a one-year return of ?7.1 per cent, which whilst disappointing, still represented a better return than those seen for UK pension funds (-9.1 per cent) and all other FTSE indices except the FTSE 250 (-6.7 per cent).

Evidence of a fall in investments did nothing to dissuade investors in the asset class, suggesting that investors are no longer basing their investment strategies on short-term measurements. UK private equity continues to enjoy strong performance rates, with three, five and ten year returns producing 13, 15.7 and 17.4 per cent respectively. 2001 saw private equity firms attract over £12bn in commitments, a 36 per cent increase on the total for 2000. Of the £12bn raised, 71 per cent is destined for MBO/MBI activity, with half of this figure directed towards very large MBOs.

The results did reveal that write-offs were at their highest level for five years with £826m written off investments in 2001. The value of the write-offs was more than seven times higher than in 2000. However, at just under 1,600, UK private equity firms made a greater number of investments in 2001 than in 2000. The total amount invested by UK private equity firms fell by over £2bn to £6.16bn, a drop of 25 per cent.

The increased investment in private equity represents a vote of confidence for the industry. Foreign institutions were the biggest investors, contributing 71 per cent of the total funds raised in 2001, against 64 per cent in 2000.

Benchmark returns funds to investors
US technology venture capital firm Benchmark Capital is to cut the total size of its European fund from $750m to $500m. The move is in response to the trend widely seen across Europe of reduced investment value by VC firms. Research from Initiative Europe shows that Q1 2002 investment by European venture capital firms stood at €2.1bn into 146 companies, down from €2.7bn in Q4 2001. To date, Benchmark has invested around $150m of the $750m it received in commitments from its investors.

Benchmark says that it expects the $500m fund's investment lifespan to be about five years, the same period over which it expects to invest its most recent fund in the United States. Since moving into the European market, Benchmark has made 14 investments from its London headquarters.

Patriot Act compliance deadline put back
The USA Patriot Act, the US Treasury's anti-money laundering policy announced in the aftermath of September 11, has been put on hold until October 2002 in order to evaluate the necessity of the act's compliance procedures to private equity firms. The Treasury Department said that it had granted an exemption to a range of institutions, including private equity funds, private bankers and insurance companies, in order to avoid imposing ?unreasonable regulatory burdens with little or no anti-money laundering benefits.? The Treasury will use the time to assess the money laundering risks posed by the institutions exempted.

Corrections
?High net worths and private equity investing?, published in the May 2002 issue of PEI, contained errors regarding Schroder Ventures International Investment Trust plc (SVIIT) and Schroder Private Equity Fund of Funds. On p. 32, SVITT should have been referred to as an independent investment trust listed on the London Stock Exchange and investing in Schroder Ventures and Permira funds. Brokers have been publishing research notes on the company for a number of years. Minimum investment in SVIIT is the cost of a share. SVIIT is a closedended fund and does not charge a management fee. The Schroder Private Equity Fund of Funds is a separate and independent vehicle investing in various buyout and development capital funds. It is listed on the Dublin Stock Exchange and has three classes of shares with differential minimum investment and fees. A fee of 1.25 per cent is charged on a €125,000 investment. Stuard Ballard is a member of Schroder Ventures (London) Limited and does not work for Pemira.

The Placement Agent Directory published in the April 2002 issue of PEI contained an incorrect telephone number for Global Private Equity on p. 33. The correct contact number for Global Private Equity is +33 (0)1 44 43 31 50.

On p. 35 of the same directory 3i, The Blackstone Group and Candover should have been listed as sample clients of UBS Warburg.