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SVG overhauls strategy and returns £170m to LPs

SVG Capital will commit to a broader range of managers in the future, as part of a strategy re-think that also includes a return of capital to investors.

SVG Capital is diversifying beyond its core relationship with European buyout firm Permira, it said today. 

“Over time, the company will build on its Permira portfolio through commitments to funds managed by a limited number of other leading managers with strong track records focused on management buyouts and will make co-investments alongside funds,” the listed private equity investor said in a statement.

SVG will continue to invest substantial amounts of capital with Permira, but is likely to invest in about five or six other managers too, according to a source with knowledge of the situation.

The fund of funds manager also pledged to return up to £170 million to shareholders, initially via a tender offer, which is expected to raise up to £50 million, followed by further share buy-backs as necessary. SVG said it had substantially strengthened its balance sheet over the last year, taking its cash balance to about £125 million and reducing net debt to £137 million – equivalent to 13 percent of shareholders’ funds.

Lynn Fordham, chief executive of SVG Capital, said: “Since we published our interim results in August we have consulted with our major shareholders and advisors and have considered carefully the best course for us to take to maximise shareholder returns over both the short and longer term. 

“We have a strong belief in the quality of our assets. In the short term, our £170 million capital return programme will improve shareholder returns, whilst our proposal to evolve from a single manager concentrated investor to a strategy of committing to a limited number of private equity managers and co-investments alongside these managers in the future opens up new opportunities for our investors.”

Analysts reacted positively to the announcement. JPMorgan Cazenove analyst Christopher Brown wrote: “Overall, the market will be pleasantly surprised by the timing of the initial capital return.”

A Singer Capital Markets analyst said the announcement came after “an unjustifiably weak period for the [SVG] share price”, while Numis Securities said: “We believe that these proposals should be well received by shareholders as they involve an immediate return of cash, rather than just a promise. The future strategy appears sensible to us. A commitment programme to a handful of managers (including Permira) combined with the ability to make co-investments will result in a more diversified portfolio, albeit still far more focused that a typical fund of private equity funds.”

One of the shareholders likely to be toasting the new strategy and capital return is secondaries specialist Coller Capital, which amassed a stake in SVG during the financial crisis.