3i Group - venture capital

3i have been one of the leading venture capital companies in the UK for decades. The share price performed really well. The share price has risen strongly this year but has pulled back and currently having a battle at the moving average.

Note last week from the WSJ: “3i Group’s update suggests continued healthy growth, Numis says in a note after the London-listed investment manager noted the resilient performance of its portfolio. The company is on track to deliver another year of net asset value growth, analysts say, noting its ability to generate high returns from “rolling over the portfolio” without having to raise new funds and its relatively low risk profile. “With conditions in the funding markets generally tightening, the value of this position relative to many other [private equity] companies is only increasing,” they write. Numis raises its rating on the stock to buy from add given the recent share performance, they add.”

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I’ve been tempted to buy III, partucularly over the past 12 months or so when it’s been available on a relatively rare discount to NAV.

However, the concentration risk has always bothered me: I think I’m right in saying 50-60% of the portfolio is in a single company.

As well as Action has done over the years (III has made a 60ish-fold return on it), I think the risks may now outweigh the potential rewards.

Yes 50% in Action which I guess can be compared to Aldi. Action increased sales 30% in 2022 and have 2300 stores. It will be interesting to see what 3i does with the Action investment but they’ve stated an intent to develop some of the other investments to provide growth.

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I’ve never quite felt comfortable enough with that level of concentration to invest.

It’s a great trust though, right up there with SMT and one or two others as the best performing over the very long term.

I wouldn’t buy it while it’s at a double-digit premium to NAV and other well-run private equity trusts with good track records such as HGT, OCI and HVPE are available at 20-50% discounts

I think those discounts provide more of a margin of safety. After all, it’s important to remember you’re investing in relatively illiquid underlying assets. If I’m to take on that additional risk, I don’t want to pay a hefty premium for doing so.