Investment column: 3i's `partnership' funds rake in an extra pounds 38m

Investment Column

3I, THE VENTURE capital group that recently lost a pounds 1.25bn hostile bid for its rival, Electra, is immune to the temptation to fix its strategy by hunting for another acquisition. Judging by the jump in its share price when it lost the takeover battle, the City is in no hurry to see a rapid expansion. But yesterday's results suggest they may get one anyway.

3i's business is picking unquoted stocks with growth potential. The skills and resources required here are rare and command a premium. Brian Larcombe, chief executive, has taken the logical step of developing a string of "partnership funds". These funds mirror 3i's existing investments, but are available to City institutions in exchange for a fee and a share of capital profits.

Until yesterday these funds looked like a sideline. But the annual results showed the fees to be a substantial business - pounds 53m against pounds 15m the previous year.

The strategy extends 3i's traditional role as a liquid, FTSE-100 stock which can benefit from rapid growth in illiquid, unquoted companies. By taking on fund management clients, 3i is boosting income but spending little extra because the research has already been done.

3i is looking undervalued in any case. True, it is one of very few investment trusts which consistently trades at a premium to the value of its investments; yesterday the shares closed up 1.5 per cent at 701.5p, 16 per cent higher than the NAV per share of 601p. But part of the premium comes from 3i's status as a FTSE stock. Now positioned at 76, it is in little danger of falling out of the 100. The valuation seems less stretched, however, after considering 3i's investment management methods. To arrive at its NAV, 3i applies a price/earnings multiple taken from the average of the small- cap index. Last year's small-cap meltdown meant it used a multiple of just 8.8.

Given that 3i's investments are increasingly in technology stocks, this is over-cautious. 3i last year returned pounds 177.1m, or 5.1 per cent - 12 per cent better than the small cap index. And 3i's NAV will have risen since 31 March, the end of the reporting period.

Add to this the fact that the partnership funds business is barely priced in, and 3i looks rather cheap. Taking a conservative multiple of 12, the partnership business could add pounds 1 or more to the valuation, making this a buy up to pounds 8 a shar

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

Day In a Page

The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
John Palmer: 'Goldfinger' of British crime was murdered, say police

Murder of the Brink’s-MAT mastermind

'Goldfinger' of British crime's life ended in a blaze of bullets, say police
Forget little green men - aliens will look like humans, says Cambridge University evolution expert

Forget little green men

Leading evolutionary biologist says aliens will look like humans
The Real Stories of Migrant Britain: An Algerian scientist adjusts to life working in a kebab shop

The Real Stories of Migrant Britain

An Algerian scientist struggles to adjust to her new life working in a Scottish kebab shop
Bodyworlds museum: Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy

Dying dream of Doctor Death

Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy
UK heatwave: Temperature reaches 39.8 degrees on Central Line - the sweatiest place in London

39.8 degrees recorded on Tube

There's hot (London) and too damn hot (the Underground). Simon Usborne braved the Central line to discover what its passengers suffer
Kitchens go hi-tech: From robot chefs to recipe-shopping apps, computerised cooking is coming

Computerised cooking is coming

From apps that automatically make shopping lists from your recipe books to smart ovens and robot chefs, Kevin Maney rounds up innovations to make your mouth water
Jessie Cave interview: The Harry Potter star has published a feminist collection of cartoons

Jessie Cave's feminist cartoons

The Harry Potter star tells Alice Jones how a one-night stand changed her life
Football Beyond Borders: Even the most distruptive pupils score at homework club

Education: Football Beyond Borders

Add football to an after-school homework club, and even the naughtiest boys can score
10 best barbecue books

Fire up the barbie: 10 best barbecue books

We've got Bibles to get you grilling and smoking like a true south American pro
Wimbledon 2015: Nick Bollettieri - Junk balls and chop and slice are only way 5ft 1in Kurumi Nara can live with Petra Kvitova’s power

Nick Bollettieri's Wimbledon Files

Junk balls and chop and slice are only way 5ft 1in Kurumi Nara can live with Petra Kvitova’s power
Ron Dennis exclusive: ‘This is one of the best McLaren teams ever – we are going to do it’

‘This is one of the best McLaren teams ever – we are going to do it’

Ron Dennis shrugs off a poor start to the season in an exclusive interview, and says the glory days will come back
Seifeddine Rezgui: What motivated a shy student to kill 38 holidaymakers in Tunisia?

Making of a killer

What motivated a shy student to kill 38 holidaymakers in Tunisia?
UK Heatwave: Temperatures on the tube are going to exceed the legal limit for transporting cattle

Just when you thought your commute couldn't get any worse...

Heatwave will see temperatures on the Tube exceed legal limit for transporting cattle