This strong performance comes against a backdrop of continued turmoil and particularly difficult conditions in financial markets worldwide and demonstrates the resilience of Investcorpâs diversified revenue sources from its four lines of business.
Nemir A. Kirdar, Investcorpâs President and Chief Executive Officer, said: "These results are testimony to Investcorpâs core strengths. These include our twenty-year track record as a pre-eminent private equity investor and our leading position as a top fund-of-hedge-funds manager, underpinned by the strength of our placement franchise with Gulf investors."
Investcorpâs half year results are in strong contrast to the Firmâs results for the first quarter of 2002, reflecting how, due to the transactional nature of private equity investing, its net income can fluctuate from quarter to quarter in a way that is not indicative of annual performance. Variability in quarterly income flows is evident from an analysis of Investcorpâs historical income by quarter. In each of the last ten years, six of which were record years, there have been several quarters with negative income.
The large size and cyclical nature of transactional revenue is an important consideration for investors when evaluating Investcorpâs performance, which can only be judged an on annual basis.
Investcorpâs corporate investment line of business has been active in the second quarter of 2002, reaching an agreement with the Board of Directors of a US company in May to acquire the company. This investment is in a strong, established business, in line with the Firm's traditional focus. Benefiting from the strong operating performance of Neptune, a recent acquisition, Investcorp also successfully arranged a part refinancing of Neptuneâs preferred pay-in-kind debt with lower-cost bank financing. Looking forward, the corporate investment teams on both sides of the Atlantic are evaluating several opportunities and there is a promising pipeline of potential acquisitions under consideration.
The Investcorp Asset Management Program has continued to perform well,providing positive returns well over LIBOR for Investcorp and its clients, in an environment where every traditional bond and equity index is trading at near five year lows. The program's risk-adjusted returns since inception, which are uncorrelated to the general direction of financial markets, position it firmly as one of the top funds-of-hedge-funds in the world. In June, Investcorp launched and closed an innovative product, The Diversified Strategies CFO, through the securitization of $250 million of fund of hedge funds. This was the worldâs first market value collateralized fund obligation (CFO) and one of the first public issues of this type anywhere. Building on this track record, Investcorp expects the assets under management in this program to grow strongly, while continuing to deliver superior risk-adjusted returns.
The real estate line of business has been very active, taking advantage of the favorable interest rate environment and the adjustment of urban property pricing in the US to acquire a number of properties. In the first six months of 2002, the real estate team has sold two properties and acquired 10 new properties including two prestigious office properties in New York City and another large office property in downtown Chicago. These acquisitions have been bundled into three separate portfolios, two of which have already been placed with clients, with the third to be placed in the third quarter. Looking forward, the demand for investment in good, income-producing properties continues to be strong, and the Real Estate team is on track for having a record year in terms of total equity deployment.
Investcorpâs fourth, and most recent line of business, Technology Investment (TI) achieved a significant milestone with the successful exit of Acta at a value of almost two times the original purchase price. This investment was made through the $210 million Technology Fund that the TI team manages on behalf of clients and Investcorp. The team also successfully completed a second capital call for the Fund and made two new investments in established later-stage technology ventures in the United States.
With all the leading ratings agencies confirming Investcorpâs investment grade rating with a stable outlook, the Firm continues to diversify and lengthen the maturities of its liabilities, recently agreeing another 30-year private placement for $50 million at an attractive price for the Firm. As a result of these and other long-term financing initiatives, the average maturity of Investcorp's liabilities now exceeds 73 months and provides additional strength to its balance sheet. It also underlines the confidence felt in the Firm by the international financial community.
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