Investcorp announces its half year results: $511m loss but maintains $1.5bn of liquidity

Although Investcorp continued to be profitable in its fee generating activities by providing and managing investment products for clients, it saw a decline of $526m on balance sheet co-investments, a significant amount of which was unrealized and driven by mark-to-market accounting requirements. As a result, Investcorp made a net loss of $511m. However Investcorp still maintains $1.5bn of liquidity in cash and liquid co-investments on its balance sheet.

As with other financial institutions, Investcorp's asset portfolio was also impacted by the exceptionally severe market conditions of the last six months. The scale of recent market turmoil was such that, notwithstanding the relative out performance of alternatives, all asset returns became correlated and witnessed unprecedented levels of value declines over a very short period of time.

Highlights for the period:

Management fee income grew 10% to $62.0m, underpinned by record AuM growth in the two previous fiscal years.

A Tier I preference share capital increase is currently underway, targeting a minimum of $250m.

The fall in total assets reflected in the table below is a result of the aggressive deleveraging of the balance sheet, primarily by redeeming hedge fund co-investments and using the proceeds to prepay debt.

Firm action has been taken to manage costs, lowering fixed expenses by almost 25%, helping offset the decline in fee revenues due to lower transactional activity.

Client Assets Under Management of $10.3bn (vs $12.8bn at June 2008).

Investcorp remains strongly capitalized, with a capital adequacy ratio of more than 13%, exceeding BIS minimum requirements of 8% and the Central Bank of Bahrain's target levels of 12%.

Investcorp maintained high levels of liquidity, with over $1.5bn of cash and liquid co-investments. A significant proportion of debt is long term, and refinancing needs over the next 24 months are fully covered through available liquidity.

Investcorp's new real estate credit fund has made $175m of investments in distressed loans over the last eight months.

The Gulf private equity business closed Gulf Opportunity Fund I, has completed one acquisition and expects to close its second acquisition in the near future.

The buyouts business closed a new acquisition, N&W Global Vending, in November, and several portfolio companies made accretive add-on acquisitions over the period.

Nemir A. Kirdar, Executive Chairman & CEO, said:

"We all know that the last six months have seen extraordinarily devastated financial markets and an unprecedented downturn across asset classes, fuelled by a dramatic loss of liquidity. Along with other financial institutions around the world, Investcorp's asset portfolio has been equally impacted. We continued to be profitable in our fee generating activities by providing and managing investment products for our clients, although we had a decline in our balance sheet co-investments, a significant amount of which are unrealized and driven by mark-to-market accounting requirements."

"Investcorp remains strong and is fully equipped to seize the new investment opportunities being offered by current market dislocations. We have already seen results as we broaden our array of alternative investment products to leverage our expertise and distribution network in new ways. So while this is a disappointing result, we can confidently demonstrate that we have taken swift action to mitigate its impact."

"We are cautiously optimistic about the outlook for the coming six months. Overall, based upon publicly available information, our private equity portfolio is in better shape than that of many competitors, and we believe that our long practiced private equity value enhancement model will likely prove to be the key to success in this difficult environment. In hedge funds, we have refocused our portfolio with continued emphasis on risk management in every aspect of the business, and we are encouraged by its strongly positive performance in December and January across our hedge fund products." he added.