The Investment Column: 3i seeks high return from small firms

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VENTURE capital group 3i has had a good run ever since it floated back in 1994. That's no surprise: the group's unique portfolio of quoted and unquoted companies has produced a compound annual return of 23 per cent over the period. In the year to last March the total return was 22.4 per cent on shareholders funds - an increase of 56 per cent on the previous year. Total assets rose by 19 per cent to pounds 5.23bn and 3i invested over pounds 1bn for the first time, increasing its UK market share.

That said, more capital is chasing buy-out opportunities, while the UK economy faces a slow-down. Even 3i's own barometer of industrial confidence went negative yesterday, raising the question of whether the group can sustain its performance.

It hopes to do so by concentrating on smaller companies, which have outperformed the top 100 shares since February. It is also focusing on services and technology firms where the prospects look better.

The outlook in Continental Europe, where 3i invests more than 10 per cent of its funds, also looks bright.

The pace of new investment seems to have slowed slightly since the year- end but the performance of quoted companies since then suggests net asset value may have risen to around 615p. At 655p - up 5p yesterday - 3i shares are above that value. But stockbrokers Kleinwort Benson say the company deserves a premium as a manager of pounds 1.3bn of outside money in addition to its own funds. The shares are a strong hold.

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