3i in plea for patience amid investor anger

DIRECTORS at 3i are set to plead for patience with key investors amid calls for change at the under-pressure private equity house.

A group of shareholders, the total size of which is unknown, has demanded the firm sell off assets after a long period in which shares have traded below the underlying value of investments.

They spoke out after activist investor Laxey Partners seized on Michael Queen’s announcement last week that he would stand down as chief executive to call on 3i to quicken the return of cash from investment sales to shareholders, and freeze new investments until its poor share price improves.

Insiders say, however, that 3i has already taken major steps forward. The firm is three years into a programme of change, which has cut £100m from the operating costs, and directors argue that it takes longer for changes to show through in the private equity arm.

The infrastructure and debt management arms are performing well, but the group as a whole posted a total negative return of £523m for the six months to 30 September 2011.

Britain’s oldest private equity house has, however, left the door open to adopting a more aggressive approach following the departure of Queen, who ran the firm conservatively.

A spokesman for 3i said: “There has been a huge amount of change at 3i over the last three years. The business has transformed in terms of the financial position in terms of investment quality, costs and management. We have received the Laxey letter and acknowledged it and said we will give it proper consideration.”

PROFILE LAXEY PARTNERS
COLIN KINGSNORTH

COLIN Kingsnorth’s Laxey Partners has a reputation for agitating for change on issues such as dividend policy and corporate governance and, as such, Kingsnorth might seem like the typical hedge fund manager.

He has a higher profile than many of his peers, however, and has publicly defended his type of shareholder activism on several occasions.

Last year, as the row with Alliance Trust developed, he said: “Everyone likes to look at everyone else's activism and say, ‘They have crossed the line there, they are a pain...’ But the activist is almost always of the mindset, ‘I am not doing enough.’”

Kingsnorth appears to be living up to the maxim of trying to do more, all by way of generating returns for investors in Laxey, which describes its “investment universe” as European value investments in quoted operating companies, global discount arbitrage strategies and general global special and arbitrage situations.

Kingsnorth once said that activism is “really good and useful, as long as it’s done properly” and a “real pain in the backside” if it is done wrongly.

The next few months, and the future direction of 3i, will prove whether Kingsnorth really is going about it “properly”.