SVG enjoys strong first half

SVG Capital, Permira’s largest investor, has delivered a healthy first half performance and is confident for the future despite the buyout firm’s lack of deals in the same period.

SVG Capital, the quoted investment business part-owned by buyout firm Permira, has reported strong interim results including “first-rate” performance from SVG Advisers, its fund management business, according to its chairman Nick Ferguson.

Ferguson: healthy results

SVG Advisers grew its funds and commitments under management by almost 50 percent in six months to €2.8 billion, enjoying a stong half-year performance to the end of June.

The growth in funds under management is due to the successful marketing of a number of structured funds of funds and the increase in assets under management in its public investment business run by Tony Dalwood.

Ferguson said SVG Advisers stood to benefit significantly in the second half of the year from the closing of several feeder funds into Permira IV, the buyout firm’s €11 billion vehicle.

He said: “It is high quality business. The fees are based on the commitment over 10 to 12 years. It is not volatile.”

It highlights the increase in interest in public vehicles investing in private equity, underlined by the success enjoyed by Kohlberg Kravis Roberts and Apollo Management in floating funds on Euronext, the Dutch exchange.

SVG Advisers reported external fees of £8.3 million, an increase of 70 percent over the corresponding period. The unit expects to finish the year with more than €3 billion under management.

Andrew Williams, chief executive of SVG Capital, said in a statement: “We have long believed that as global savings markets mature the private equity industry will need to look at alternative markets for funding.”

He said SVG Capital was established 10 years ago to provide smaller institutions and individual investors access to the private equity asset class and is now the largest investor in Permira’s funds, accounting for 20 percent of their funding.

Critics have said SVG’s decision in May last year to concentrate its investment activity in Permira was a risk, which appeared to be growing as Permira’s investment pace slowed in the first half of 2006. At the same time SVG increased its exposure to the firm with a €2.8 billion commitment to Permira’s latest fund.

Ferguson said: “You don’t perform by doing deals. You perform by making returns on deals. It is all about returns. The timing will be variable. They are doing chunky deals and the outcome is binary: they win or they lose. I would never say you are not investing fast enough.”

He said Permira continued to review a steady supply of high quality deal-flow and there had been a spate of investments by the firm outside of the reporting period.

Ferguson said: “The underlying trend in the performance of the portfolio companies was very positive in terms of cashflow and earnings. There is no sign that is deteriorating.”

SVG’s fully diluted net assets per share increased by 6.8 percent to 713.1p. The increase in net assets was driven by significant distributions and the strong overall operating performance of the underlying portfolio companies, with many successfully growing earnings. 

There were a number of valuation increases, most notably Travelodge and the AA, which together added £52.9 million (36.1p per share) to net assets.

Distributions from the portfolio in the six months were £200.9 million, predominantly through the secondary sale of quoted holdings or recapitalisations of portfolio companies.

Ferguson said SVG Capital had reported an average increase “on realisations to previous valuations of approximately 33 percent, excluding recapitalisations, and a net multiple of 2.2x original investment cost.”