Thursday, May 17, 2007
3i, the private equity fund adviser listed on the London Stock Exchange, yesterday announced that it would publicly list a new £400 million private equity fund on the LSE (see The Deal report here). The fund is to be called 3i Quoted Private Equity, or 3IQPE. Its investment strategy will be to acquire substantial or controlling stakes in eight to 12 small or medium-sized companies in the United States and Europe. The companies would still retain a public shareholder base. In adopting this strategy, the fund will attempt to fill a gap between activist investors who take smaller stakes and private equity firms who acquire 100% of a company.
3i's fund follows Carlyle's announcement last Friday of a mortgage-backed securities investing fund listed on Euronext Amsterdam. Private equity and hedge funds are currently prohibited from public offerings of this nature in the United States under Investment Company Act restrictions dating to 1940. Due to this prohibition Europe has become a haven for these investments. And the largest so far is the $5 billion KKR Private Equity Investors listed on Euronext Amsterdam. Given the investor interest in these funds, the benefits they offer in terms of risk-adjusted extraordinary returns and diversification and the reality that they are likely to become increasingly prevalent and popular, it might be time to examine their propriety in the United States. Otherwise, Europe may gain an insurmountable lead in this important capital market product.