Investcorp hedge funds assets halve in loss-making year
Bahrain-based Investcorp has become the latest private equity investor to be hit by a diversification into other alternative assets, as a halving in the value of its hedge fund investments contributed to the group reporting its first yearly loss on record.
Investcorp’s hedge fund assets halved in value from $7.9bn (€5.6bn) to $3.95bn over the year to the end of June, according to the group’s annual results published today.
The group said the fall in the value of these assets contributed to a decline in its fee revenues, which fell from $382.9m to $129.4m during the period. This in turn fed into the group’s net loss of $780.6m for the year.
Investcorp was one of the early private equity firms to adapt a diversified alternative asset strategy, using its reputation as one of the leading private equity businesses in Europe to build a hedge fund business in 1996.
Other private equity firms such as the Carlyle Group and Kohlberg Kravis Roberts have also run into difficulties in their respective diversified product lines. Carlyle had to wind down its debt hedge fund - the Carlyle Capital Corporation - after the business ran into difficulties last year, while the founders of a similar KKR operation - KKR Financial - left the business at the end of 2008 following large falls in its share price.
The assets managed by Investcorp’s private equity business, which had been overtaken in size by hedge fund assets, only fell by 13.4% to $6.2bn, while overall assets under management fell from $17.7bn to $11.7bn.
However, the group’s hedge fund business also provided a fillip to its results in the second half, with a 12.3% return on investments. The group said mark-to-market falls based on the fair value of its private equity and real estate businesses also contributed to its loss.
One of the reasons the firm’s hedge fund assets fell significantly was because it did not stop investors from leaving its funds through so-called gating, according to Deepak Gurnani, head of hedge funds at Investcorp.
Other firms such as Man Group and GAM, which also decided not curb withdrawals, have reported falls in assets under management this year. However, market participants close to and apart from Investcorp have said that in the long term, Investcorp and other funds’ strategies may help their relationships with investors, unlike funds which have used gating.
--write to tlewis@efinancialnews.com; dwalker@efinancialnews.com
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