3i Shares Keep Falling

Private equity firm 3i has seen its share price continue on its downward trend. They have fallen from 356p on December 9 to 333p yesterday. In this morning’s trading they dropped to 315p, or by 5% from the day before, suggesting that investor fears about private equity are growing.

A year ago, shares in the FTSE 100 company were trading at around 1000p.

Buyout activity has dropped off sharply in Q4 2008 as private equity investors are struggling to raise leveraged finance to support deals.

The fact that 3i also has a portfolio of geared companies is also worrying investors in the listed private equity firm. Moreover, last week, 3i announced it was to make 15% of its staff redundant.

Research released earlier this week, however, showed that investors in limited partner private equity funds are still backing the asset class. The Global Private Equity Barometer produced by Coller Capital revealed that 57% of limited partners expect to maintain and 40% of LPs to increase their allocations to private equity in 2009.

Although appetite remains, there has been a marked growth in the private equity secondaries market over the last quarter.

Some LPs are seeking liquidity from their positions in private equity funds as a fall in value of other assets leaves them exposed above their set allocations to private equity, the valuations of which have not fallen to the same extent as more liquid investments such as stocks and bonds.

As a more liquid representation of private equity than its limited partner-structured rivals, 3i could be more vulnerable to investor sell-off as some investors seek to reduce private equity exposure and avoid allocation breach.

Source: Thomson Merger News