Quarter End Review - 30 June

RNS Number : 5476A

Bear Stearns Private Equity Limited

04 August 2008

 



Bear Stearns Private Equity Limited ('BSPEL')

30 June 2008 Quarter End Review

Objective

BSPEL seeks to opportunistically build a well-balanced, diverse, global private equity portfolio through secondary investments, co-investments, and selective primary fund allocations. 

Launched 30 June 2005

Company Summary

	Ordinary Share	Zero Dividend Preference Share
Net Asset Value ('NAV')  per share	US$ 1.85	51.31p
No. of shares in issue	292.64 mm	59.20 mm
Currency of Quotation	US$	£ Sterling
Ticker	BPLE	BPLZ
Sedol	B07V0H2	B07V0R2
ISIN	GB00B07V0H27	GB00B07V0R25
Market Makers	Cazenove Collins Stewart  Dresdner  HSBC Bank	ABN Amro Cazenove Collins Stewart Dresdner  HSBC Bank Winterflood

All figures as at 30 June 2008.

Company Description

Bear Stearns Private Equity Limited ('BSPEL' or the 'Company') is a London Stock Exchange listed investment company that seeks to invest with the world's leading private equity fund managers. BSPEL invests in private equity partnerships and direct investments primarily in Europe, North America, and Asia. BSPEL pursues the following strategies to meet its investment objectives:

•           Acquires secondary portfolios of direct investments, significantly invested partnership investments, and partially drawn
 commitments, in order to accelerate NAV development

 

•          Obtains exposure to individual companies by co-investing alongside private equity sponsors in companies that offer the
 potential for substantial equity appreciation

 •       Opportunistically invests in buyout, venture capital, and other special      situations funds and investments throughout the world based on attractive transaction values, advantageous market conditions, and compelling risk-adjusted return potential

 

•          Diversifies its portfolio by manager, industry, geography, investment stage, and vintage year

The Company's capital structure consists of two classes of shares: Equity Shares and Zero Dividend Preference Shares ('ZDP Shares'). 

Manager's Comments

Performance Through 30 June 2008

NAV of BSPEL's Equity Shares has grown 8.8% year to date.

The Company's unaudited net asset value ('NAV') per Equity Share increased from $1.83 at the beginning of the quarter to $1.85 as at 30 June, representing an increase of 1.1% for the quarter and an 8.8% increase year to date. The unaudited NAV of the ZDP Shares also rose during the quarter, improving from 50.42p per share to 51.31p per share. Distribution activity remained robust with total distributions of $21.7 million while new investment activity was also strong with capital calls reaching $33.4 million. 

BSPEL's Equity Shares responded positively to the completion of the JPMorgan Chase & Co. merger with The Bear Stearns Companies Inc., ending the quarter at $1.74 per share, a 16.6% increase over the 31 March 2008 Equity Share price. At quarter end, the Equity Shares traded at a slight discount of 3.9% to the last reported NAV of $1.81. This performance places BSPEL in the top of its peer group. For the quarter, BSPEL's Equity Shares outperformed the S&P 500 Index as well as the FTSE 100 Index, which declined 3.2% and 1.3%, respectively. When compared against the LPX® Composite Index over the same period, BSPEL's Equity Shares outperformed the
 index by 26.7%(1). 

BSPEL's portfolio continued to benefit from strong performance across several investment strategies and geographic regions. In particular, the Company's exposure to special situations funds served to protect BSPEL's NAV against recent market turbulence. The portfolio's focus on both non-US investments and on the smaller end of the buyout market again led to positive performance in a difficult market. During the quarter, BSPEL received several large distributions from its investments in Olympus Capital Asia III (Offshore), L.P., Global Opportunistic Fund and Esprit Capital I Fund. 

Overall, the Manager is pleased with the portfolio's performance, particularly given the difficult market environment.  

(1) See Listed Private Equity Index at www.lpx.ch. The LPX® Composite is a global Listed Private Equity (LPE) index with a broad number of constituents. The index is well diversified across regions and LPE investment styles and represents the development of all LPE companies covered by LPX that fulfill certain liquidity constraints.

Data as at 30 June 2008

Summary of Portfolio as at 30 June 2008
Number of Funds	161
Buyout Funds	87
Special Situations	32
Venture Capital	35
Real Estate	7
U.S. Funds	75
Non-U.S. Funds	86
Co-investments	11

Source: Manager.

Fund total includes private equity fund interests indirectly owned through the purchase of secondary interests in Private Equity Access Fund II Ltd, Bear Stearns Private Opportunity Ventures, L.P., Bear Stearns Global Turnaround Fund, L.P., and BoS Mezzanine Partners Fund, L.P. (BoS company-level exposure includes estimated pro rated fund-level leverage) and BSPEL Australia Limited (formerly known as Macquarie Private Capital Group). Co-investment total includes 4 co-investments that were acquired as part of the Macquarie Private Capital Group transaction.

Balance Sheet Information as at 30 June 20081
Investments at Market Value	$612.1 mm
Bank Deposits	$25.0 mm
Net Asset Value	$602.0 mm

Source: Manager

Diversification as at 30 June 2008

Fund Level - Investment Strategy1
Buyout	59.3%
Special Situations	26.6%
Venture Capital	11.8%
Real Estate	2.2%

Fund Level - Investment Type1
Secondary	69.6%
Funded Primary	15.1%
Co-Investment	10.1%
Primary	5.2%

Fund Level - Vintage Year1, 2
1995-1998	1.5%
1999	1.6%
2000	14.2%
2001	8.0%
2002	3.0%
2003	3.3%
2004	3.9%
2005	27.7%
2006	27.7%
2007	8.9%

Company Level - Geograpy1
Europe	50.0%
North America	25.1%
Asia	15.8%
Other	9.1%

Company Level - Industry Diversification1
Energy	4.0%
Materials	4.9%
Industrials	16.6%
Consumer Discretionary	19.3%
Consumer Staples	7.5%
Media	12.9%
Health Care	11.9%
Financials	10.1%
Information Technology	8.9%
Telecommunication Services	2.0%
Utilities	1.9%

1 The diversification charts above are based on Net Asset Value as at 30 June 2008 and use underlying company-level and fund-level values. In addition, they include private equity fund interests indirectly owned through the purchase of secondary interests in Private Equity Access Fund II Ltd, Bear Stearns Private Opportunity Ventures, L.P., Bear Stearns Global Turnaround Fund, L.P., and BoS Mezzanine Partners Fund, L.P. (BoS company-level exposure includes estimated pro rated fund-level leverage) and BSPEL Australia Limited (formerly known as Macquarie Private Capital Group). 

2 Excludes co-investments and debt-related strategies.

  Investment Activity 

During the quarter, the Company committed $182.6 million in 3 private equity fund transactions and 2 add-on investments to existing co-investments. The majority of this activity was in relation to the Macquarie Private Capital Group ('MPCG') acquisition, a public-to-private transaction representing approximately $146.5 million or 80% of new commitments over the quarter.  

Secondary Commitments

On 12 June 2008, BSPEL completed the acquisition of Macquarie Private Capital Group in an all-cash, take-private transaction at an adjusted purchase price of approximately A$106.5 million (US$100.7 million). MPCG was an Australian Stock Exchange listed private equity fund that invested in a broad range of unlisted companies and assets. The transaction provided BSPEL with the opportunity to increase its exposure to Asian markets; the region now represents 15.8% of the Company's private equity portfolio. BSPEL also acquired a €3.5 million secondary interest in Montagu III, L.P., a fund that focuses on mid-market pan-European investments and typically backs management buyouts and similar private equity deals. In addition, the Company committed $30 million to Liberty Partners II, L.P., a fund that concentrates on the education sector. This commitment follows last quarter's investment in Leeds Equity Partners IV, L.P., a fund that is also focused on education, an industry that the manager believes to have counter-cyclical attributes.

Co-Investments

The Company completed small follow-on investments in two existing co-investments. BSPEL added to its investments in Luxury Optical Holdings Company LLC, a premier optical retailer, and Rocket Dog Brands Holdings LLC, a footwear manufacturer.  

Market Commentary

Ongoing issues surrounding the banking sector, coupled with the continued rise in energy and commodity prices, have hampered the private equity markets. The slowdown has been most apparent in the US, where private equity deal flow and exit activity has come down substantially from their 2007 levels.  

The Manager believes that BSPEL's portfolio, which is focused primarily on non-US lower and middle market buyout assets as well special situation investments, is well situated for the current market. In addition, there continues to be unique and attractive global opportunities in the secondary market as investors seek liquidity in constricted credit markets. 

Company Actions

On 6 August 2008, the Company will tender 18,478,066 Equity Shares at $1.85 per share and 1,233,836 Zero Dividend Preference Shares at a price of 51.31p per share. Following the tender offer, BSPEL will have 274,166,383 Equity Shares and 59,963,001 Zero Dividend Preference Shares in issue.

On 5 June 2008, BSPEL announced that the entire investment management team responsible for managing the Company since its IPO in 2005, has become part of JPMorgan Asset Management following the acquisition of The Bear Stearns Companies, Inc. by JPMorgan Chase & Co on 31 May 2008. The investment management team will continue to be responsible for all of the Company's investment decisions and its other day to day activities. Further information about the acquisition of The Bear Stearns Companies Inc. by JPMorgan Chase & Co. can be found at www.jpmorganchase.com. 

On 8 May 2008, BSPEL entered into a $100 million secured credit facility. The Company intends to draw under the facility in order to take advantage of an attractive secondary private equity environment as well as for general corporate purposes.  

  Company Overview

Investment Manager 

BSPEL is managed by Bear Stearns Asset Management Inc. ('BSAM Inc.'), a wholly-owned subsidiary of The Bear Stearns Companies Inc. BSAM Inc. currently manages private equity portfolios that include over 175 separate private equity funds with total commitments of approximately US $2.6 billion.

On 31 May 2008, JPMorgan Chase & Co. completed the acquisition of The Bear Stearns Companies Inc. Following the acquisition of The Bear Stearns Companies Inc. by JPMorgan Chase & Co., the investment management team within BSAM Inc. has become part of JPMorgan Asset Management. JPMorgan Asset Management is one of the world's largest asset managers with approximately $1.2 trillion in assets under management.

JPMorgan Chase & Co. (NYSE: JPM) is a leading financial services firm with assets of $1.6 trillion and operations in over 60 countries. The firm is a leader in investment banking, financial services for consumers, small business and commercial banking, financial transaction processing, asset management, and private equity.  

Further information about the acquisition of The Bear Stearns Companies Inc. by JPMorgan Chase & Co. can be found at www.jpmorganchase.com   

Contacts - Investment Manager

Troy Duncan

US [phone]

[e-mail]

Rosemary DeRise

US [phone]

[e-mail]

Bear Stearns Asset Management Inc.

237 Park Avenue 

New York, NY  10017 USA

Board of Directors

Chairman

Trevor Ash (Guernsey Resident) 

Members

John Loudon (UK Resident)

Troy Duncan (US Resident)

Christopher Paul Spencer (Guernsey Resident)

All of whom may be contacted through

St Martin's House

Le Bordage

St. Peter Port

Guernsey GY1 4AU

  Secretray, Administrator and Registered Office

HSBC Management (Guernsey) Limited

St Martin's House

Le Bordage

St. Peter Port

Guernsey GY1 4AU

AUDITOR

KPMG Channel Islands Limited

2 Grange Place

PO Box 235

St. Peter Port

Guernsey  GY1 4LD

SOLICITOR

Herbert Smith LLP

Exchange House

Primrose Street

London  EC2A 2HS  UK

REGISTRAR

Capita IRG (CI) Limited

1 Le Truchot, 2nd Floor

St. Peter Port

Guernsey  GY1 4AE

This document may only be issued to or passed on to persons to whom it may be lawfully communicated pursuant to the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, or otherwise only to professional clients and eligible counterparties and should not be used for the purpose of an offer or solicitation in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or unauthorised. In addition, this document may not be given to a U.S. citizen or resident who is not a 'Qualified Purchaser' within the meaning of the U.S. securities laws. 

This document is issued on behalf of BSPEL and has been approved by Bear Stearns Asset Management Limited, which is Authorised and Regulated by the Financial Services Authority ('FSA') in the United Kingdom. The information in this document is provided solely for information, does not constitute investment advice or personal investment recommendations, and is neither an offer to buy or sell, nor a solicitation to buy or sell, any investments or units or shares in BSPEL. To the extent that this document is issued in the United Kingdom, it is being issued to persons who are professional clients or eligible counterparties for the purposes of the FSA's rules. Past performance is not necessarily a guide to future performance.

Some information contained in this document may have been received from third party or publicly available sources that we believe to be reliable. We have not verified any such information and assume no responsibility for the accuracy or completeness thereof. The information stated and opinions expressed constitute best judgment at the time of publication, and are subject to change without prior notification. The price of units or shares (and the income from them) can go down as well as up and may be affected by changes in rates of exchange. An investor may not receive back the amount invested. Current tax levels and reliefs are liable to change and their value will depend on individual circumstances. The market prices of units and shares in BSPEL do not necessarily reflect their underlying net asset value.

© Bear Stearns Asset Management. All rights reserved. No information in this document may be reproduced or distributed in whole or in part without the express written prior consent of Bear Stearns Asset Management.

 

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