3i is one of the biggest private equity firms in Europe. Private equity companies are in the business of buying and selling businesses, usually those that are not currently listed on a stock exchange, although they sometimes list a company from their portfolio as a means of exiting that business.
The skill of private equity managers is measured on their ability to improve the companies they invest in and make them more attractive for a future buyer. They are the fixer uppers of the financial world and 3i is one of the biggest kids on this particular block.
3i has over $8 billion currently in private equity assets under management, but has also diversified into other areas, like infrastructure investment.
Private equity is a popular investment with many professional investors at the moment, as they see it as a means to grow capital while insulating it from the vagaries of public markets and short term economic shocks. Private equity firms like 3i can sit on a company and sell it when they think the time is right and experience less of the short term pressure of owners of listed assets, where it is much clearer what the value of the portfolio is (e.g. a UK equity fund).
So why buy 3i shares?
3i shares represent the opportunity to buy a stake in one of the biggest private equity firms in Europe, if not the world. You don’t have to lock your money in a fund for five years like institutional investors do. 3i shares are not a runaway growth story, mind you.
A year ago the 3i share price stood at 953.50. At the time of writing 3i shares were trading around 926. There is not much in it really. There was a spike in 3i stock in May, but the shares quickly went back to sleep after that.
There has been a lot of buying of 3i stock by insiders recently, however, which does indicate that the share price may be about to head north again. Sadly, unlike private equity funds, 3i shares do not seem to perform well in a bear market, and were subject to heavy selling during the Great Financial Crisis in 2008-09.
3i paid an annual dividend of 22 pence on the share in July. Last year it paid out 18.5 pence. There is also a half year dividend paid in January, which has been 8 pence per year for the past two years.
Right now Barclays Capital says it is overweight on 3i shares, while Societe Generale has 3i stock rated as a buy. We see it as a short term buy, certainly until the price gets close to its previous year high.
