3i to raise £1bn for small caps

PRIVATE equity giant 3i has spotted a raft of investment opportunities in international growth companies as the world economy improves.

The firm is planning to raise £1bn for a growth capital fund that would take minority stakes in small caps. The venture, first mentioned during 3i’s half-year results in November, marks a move by chief executive Michael Queen to bring the listed buyout group back to its roots.

A fundraising would be the first time 3i has brought in significant external cash for growth capital investment rather than using its own balance sheet. It has £1.6bn of assets in its growth capital portfolio but just £28m of that is external money.

A source said the nascent economic recovery meant growth companies were now ripe for investment.

“As companies come out of recession there’s going to be a big demand for equity,” the source said. “They’ve all cut down on working capital and capital expenditure and when we come out of a period like that there’s a big financing need.”

Growth capital is 3i’s oldest business, but its investment in the area fell from £990m in 2008 to £343m last year. The news comes a year after Philip Yea was ejected from the top job as debts soared and shares fell.