In the interim management statement, chairman Jonathan Carr said the £182.4m portfolio’s positive return was outweighed by “adverse foreign exchange movements”, in particular the 6.3% depreciation of the greenback against the pound.
Manager Alex Barr, of Aberdeen SVG Private Equity Managers said confidence has returned to the private equity space, with global private equity deal activity increasing over the first three quarters this year to $216bn, up from $184bn in the same period last year.
European deal flow enjoyed its strongest quarter by value for three years, with almost €20bn of deals completed, meanwhile US deal activity rose by 39.2% on the previous quarter.
Barr said the global IPO market was expected to continue its momentum into 2014 as investor sentiment picked up.
“Private equity has been a key driver of IPO activity in Europe, accounting for 56% of proceeds in deals over $100m. This is to be contrasted with 2012 where private equity backed deals accounted for just 10% for the whole year,” he said.
He added that debt markets have enabled cheaper and longer-dated financing, in addition to a rise in recapitalisations during the first three quarters in 2013, the highest level since the comparable period in 2007.
Contributing a loss of $7.2m, the biggest drag on performance was the write-down of the legacy holding in venture capital fund DFJ Athena, which invests in businesses connected to the South Korean technology sector.
Barr explained: “All the companies are still at an early stage in their respective markets and are likely to require further rounds of financing to establish long term commercial viability. In this case the fund has little additional cash to fund these expected financing rounds.”
“After a detailed review of the underlying companies, we do not believe shareholders' interests would be best served by providing further funding and we have an ongoing dialogue with the general partner about realising value from existing stakes. As a result, we feel it prudent to mark this portfolio down by 80% of the last reported manager valuation until such time we have greater visibility on outlook for the underlying portfolio companies.
He planned to continue balancing his portfolio across the principal asset classes of buyout, growth, venture capital and distressed, with the largest exposure to buyout, at 31% by fair market value.
He also said he had no intention to increase his allocation to venture capital, which was currently 27%, believing it to have too high a dispersion of assets and was seen as too high risk when compared with more established businesses.
However Barr added: “There are however many talented managers out there which we continue to monitor and develop relationships with an eye to a potential future allocation.”
