3i’s portfolio is reported to have shrunk by more than GBP1 billion.
3i, the European private equity group, was once known for its focus on old-style manufacturing business. Recently, however, 3i has become known for its technological focus, having one of the broadest portfolios of technology investments in the industry.
While the company has earned significantly from many of these investments in the past, the downturn in the technology and telecommunications markets is now starting to hit 3i’s portfolio. Analysts estimate that the total value of 3i’s portfolio has fallen by about GBP1.1-1.2 billion in six months, down from a value of GBP8.3 billion in September 2000. As a result, 3i’s share price has come down from a high of GBP17.70 in September 2000 to a low of GBP10.20 last Thursday.
3i’s finance director, Michael Queen, has admitted a slowdown in the rate of growth in the group’s technology investments, but claims this is due to businesses maturing rather than a result of the state of the market. Further, Mr Queen says it is the general state of the economy that determines 3i’s investment strategy, not individual fluctuations in the market. Consequently, 3i will continue pursuing an investment strategy where about 50% of new investments are made in the technology sector.
As technology stocks are currently cheap compared to a year ago it may be a sane strategy to invest in the technology sector. But the fact that 3i’s portfolio has lost about 14% of its value over the last six months should not be overlooked. It could be a wiser move for 3i to diversify its portfolio further, adopting a more traditional measure for valuing companies and their investment potential.
The online bubble may already have burst, but even grimmer times may be ahead of us. The winners in this highly volatile market may therefore prove to be the companies that aim to manage this volatility, take a somewhat cautious view on future investments, and opt not to get deeper into the jumbled market of technology stocks.
