SVG's NAV falls 18%, CEO 'cautiously optimistic'

The listed Permira investor is upbeat about its prospects, despite half-year results detailing a 5% drop in portfolio value and the unlikelihood of many distributions in the next 18 months.

Improved performance at Permira portfolio companies means that SVG Capital chief executive Lynn Fordham has changed her view of prospects from “very cautious” to “cautiously optimistic”.

In an interview with PEO, she hailed improved recent performance at UK retailer New Look, Chinese casino operator Galaxy, UK financial services business Acromas and German mobile firm Debitel (in which Permira retains a residual stake, having sold the business last year).

SVG, the London-listed funds of funds manager which has 72 percent of its total investment in Permira funds, today announced interim results revealing an 18 percent fall in its net asset value to 171p per share for the six months to June 2009.

Private equity is still a bit quiet. I'd like a sustained rally because I'm an optimist and because the industry has had enough bad news.

Lynn Fordham

The value of SVG’s portfolio fell during the reporting period by 5 percent, although the firm said that £80 million of the £116 million decline was accounted for by “the significant negative effect of foreign exchange on translation to sterling”. Permira’s funds are denominated in euros, but SVG reports in pound sterling.

“It’s ups and downs with currency exchange,” explained Fordham. “Sometimes we benefit from it and sometimes we don’t. We don’t hedge against it ourselves because our investors don’t have appetite for that. They tend to do their own foreign exchange hedging, so the impact seen in our results will not be seen in their books.”

The firm said in a statement that “Permira continues to work closely with management teams in addressing the challenges caused by the downturn, with many already reporting the benefits of strategic and cost saving initiatives in addition to a number taking market share from competitors”.

SVG said funds under management remained unchanged at €4.2 billion, with profits before tax and exceptional costs of €6.1 million. It argued that the full impact of cost-saving initiatives implemented in the first half would feed through to the bottom line in 2010.

In April, the listed fund of funds said it would not be making any meaningful new fund commitments for up to two years. The decision resulted from a 5-month strategic review process, which also saw the firm develop separate management companies for SVG Capital and SVG Advisers, the listed trust’s wholly-owned manager of third party fund of funds. Two SVG Capital board members – Damon Buffini, chairman of Permira, and Anthony Habgood, the newly appointed chairman of publishing group Reed Elsevier – also stepped down from the board.

Conducted by investment banks JPMorgan Cazenove and Hawkpoint, the review was prompted by concerns that rapidly deteriorating economic climate would leave the investment trust unable to honour its private equity fund commitments.

As for market conditions today Fordham said: “There’s been a bit of a rally in the markets and we hope it’s sustained but commentators are divided on the likelihood of that. Private equity is still a bit quiet. I’d like a sustained rally because I’m an optimist and because the industry has had enough bad news.”

At press time, SVG shares were trading at 128.6p per share, down nearly 7 percent from its opening price.