Last checked at 
19 May 2008 10:42
Bear Stearns Private Equity Limited ("BSPEL")
31 March 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
|
| Equity Shares | Zero Dividend Preference Shares | Packaged Units |
| Net Asset Value ("NAV") per share | US$1.83 | 50.42p | US$2.83 |
| No. of shares in issue | 260.27 mm | 59.20 mm | - |
| Currency of Quotation | US$ | £ Sterling | £ Sterling |
| Ticker | BPLE | BPLZ | BPLU |
| Sedol | B07V0H2 | B07V0R2 | B07V102 |
| ISIN | GB00B07V0H27 | GB00B07V0R25 | GB00B07V1026 |
| Market Makers | Cazenove Collins Stewart Dresdner HSBC Bank | ABN Amro Cazenove Collins Stewart Dresdner HSBC Bank Winterflood | Collins Stewart Dresdner HSBC Bank |
All figures as at 31 March 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 31 March 2008NAV of the Equity Shares has grown 79.4% since BSPEL's inception on 30 June 2005.
The Company's unaudited net asset value ("NAV") per Equity Share increased from $1.70 at the beginning of the quarter to $1.83 as at 31 March, representing an increase in NAV of approximately 7.6% for the quarter. The unaudited NAV of the ZDP Shares also rose during the quarter, improving from 49.54p per share to 50.42p per share. Capital calls of $25.5 million outweighed distribution activity of $8.5 million over the quarter, although distribution activity since the quarter-end has increased.
During the quarter, BSPEL's Equity Shares reached an intra-quarter high of $1.57 per share. However, following the JPMorgan Chase & Co. proposed merger announcement with The Bear Stearns Companies Inc., BSPEL's Equity Shares declined and ended the quarter unchanged at $1.49 per share. The stock has appreciated since quarter-end and traded at $1.68 as at 6 May 2008. This represented a 2.4% discount to the most recently released NAV of $1.72 per share and placed BSPEL among the best performing listed private equity vehicles. BSPEL's Equity Share price has risen 11.3% since 30 June 2007 versus a 19.1% decline in the LPX® Composite Index(1) over the same period.
BSPEL's portfolio benefited from positive performance across several investment strategies and geographic regions. In particular, the significant exposure to special situations funds, which include mezzanine and distressed/turnaround strategies, proved to be a strong counter against recent market turbulence. The portfolio's focus on both non-US investments and on the smaller end of the buyout market also led to positive performance in a difficult market. Of particular note, BSPEL recently received a significant distribution from the sale of Arysta LifeScience Corporation, resulting in greater than a 2.5x gain in less than a year, and a NAV gain of approximately $8.5 million. In addition, the Company maintains significant Euro exposure and benefited from its continued appreciation against the US Dollar.
Due to various stresses in the global economy, BSPEL's real estate holdings, which comprise approximately 3.0% of private equity NAV, continued to show weakness. Additionally, BSPEL's position in SCAN Geophysical, a publicly listed stock, lost significant market value when it announced further delays in the delivery of new seismic acquisition vessels.
Overall, the Manager remains pleased with the continued performance of the portfolio. BSPEL's portfolio emphasises lower middle market buyout and special situations funds - strategies that are somewhat insulated against the current credit tightening and economic slowdown. Furthermore, the Company has avoided significant exposure to those private equity strategies that it believes are most susceptible to various stresses in the global credit markets, including large cap US and European buyout and real estate funds.
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 31 March 2008
| Summary of Portfolio as at 31 March 2008 | |
| Number of Funds | 100 |
| Buyout Funds | 47 |
| Special Situations | 23 |
| Venture Capital | 23 |
| Real Estate | 7 |
| U.S. Funds | 61 |
| Non-U.S. Funds | 39 |
| Co-investments | 7 |
Source: Manager Fund total includes 54 private equity fund interests (12 of which were already held by BSPEL) indirectly owned through the purchase of secondary interests in Private Equity Access Fund II Ltd., Bear Stearns Global Turnaround Fund, L.P., Bear Stearns Private Opportunity Ventures, L.P. and BoS Mezzanine Partners Fund, L.P.
| Balance Sheet Information as at 31 March 2008 | |
| Investments at Market Value | US$478.2 mm |
| Bank Deposits | US$60.5 mm |
| Net Asset Value | US$536.1 mm |
Source: Manager
Fund Level - Investment Strategy1
| Leveraged Buyout | 54.6% |
| Special Situations | 31.3% |
| Venture Capital | 11.1% |
| Real Estate | 3.0% |
Fund Level - Investment Type1
| Secondary | 62.6% |
| Funded Primary | 18.1% |
| Co-Investments | 12.5% |
| Primary | 6.8% |
Fund Level - Vintage Year1,2
| 1997 | 1.9% |
| 1998 | 0.1% |
| 1999 | 2.0% |
| 2000 | 17.7% |
| 2001 | 10.4% |
| 2002 | 1.7% |
| 2003 | 6.0% |
| 2004 | 1.7% |
| 2005 | 25.0% |
| 2006 | 23.5% |
| 2007 | 10.0% |
Company Level - Geography1
| Europe | 54.4% |
| North America | 26.6% |
| Asia | 8.4% |
| Other | 10.6% |
Company Level - Industry Diversification1
| Consumer Discretionary | 17.1% |
| Industrials | 14.9% |
| Media | 13.5% |
| Financials | 12.4% |
| Health Care | 11.4% |
| Information Technology | 8.7% |
| Materials | 7.0% |
| Consumer Staples | 6.8% |
| Energy | 3.7% |
| Telecommunication Services | 2.6% |
| Utilities | 1.9% |
1 The diversification charts above are based on Net Asset Value as at 31 March 2008 and use underlying company-level and fund-level values. In addition, they include 54 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.
2. Excludes co-investments and debt-related strategies.
Source: Manager.
Investment Activity
During the quarter, the Company committed $48.9 million to 5 private equity fund investments. BSPEL focused its investing efforts on expanding into strategies that may outperform in stagnant economic environments, as well as on acquiring assets in regions that may exhibit more attractive growth characteristics in the near term. BSPEL expanded its global footprint to include more significant allocations to the Middle East and Asia and believes it will benefit from growth and activity in those regions.
Secondary Commitments
BSPEL completed three secondary investments over the period, representing approximately 65% of the capital committed during the quarter. The Company invested in Leeds Equity Partners IV, LP, a fund that focuses on investments in the education, training, and business services industries. BSPEL invested in Bear Stearns Private Opportunity Ventures, LP, a fully invested, 2000 vintage year private equity fund of funds. BSPEL was able to acquire this interest at a significant discount to unrealised value. The Company also made a significant investment in Global Opportunistic Fund, which invests in equity and equity related IPO and pre-IPO securities across the Gulf Cooperation Council countries. These investments were approximately 95% funded at close with seasoned assets.
Primary Commitments
The Company made two primary commitments during the quarter, both of which were 'funded primary' commitments with significant amounts of capital already drawn. BSPEL committed capital to Hupomone Capital Fund, L.P., a lower middle market fund that focuses on China and China-centric companies. At quarter end, this investment was approximately 60% drawn. BSPEL also committed capital to Global Buyout Fund, L.P. This was completed in conjunction with the secondary investment in Global Opportunistic Fund, and at quarter end this investment was over 35% drawn.
Upcoming Transaction - Macquarie Private Capital Group
On 18 February 2008, BSPEL announced that it had signed a conditional agreement to acquire all of the issued and outstanding stapled securities of Macquarie Private Capital Group ("MPCG") in an all cash take-private transaction valued at AUD$115.5 million. MPCG is an Australian Stock Exchange listed private equity fund (ASX: MPG) that invests in a broad range of unlisted companies and assets. Its portfolio consists of exposure to 44 private equity fund managers and over 300 underlying portfolio companies.
The acquisition will continue to enhance BSPEL's geographic diversity and position its portfolio to capitalise on several favourable current macro trends in the Australian and Asian markets. With approximately 62% of the underlying MPCG portfolio companies located in Australia and Asia, the transaction will significantly enhance BSPEL's exposure to those regions. 14% of the underlying companies are in Europe, with the remainder located in North America. The transaction is expected to close in June 2008.
Market Commentary
The quarter ended 31 March 2008 witnessed continued volatility and uncertainty amid a prolonged credit contraction. As liquidity issues become more pronounced across the globe, the Company continues to observe an increase in unique secondary market deal flow. The Manager believes that BSPEL's diverse investment mix that emphasises lower middle market buyout and special situations funds as well as its strong pipeline of investments will continue to generate positive performance in the current environment.
The Bear Stearns Companies Inc. - Recent Events
On 24 March 2008, JPMorgan Chase & Co. (NYSE: JPM) and The Bear Stearns Companies Inc. (NYSE: BSC) announced an amended merger agreement regarding JPMorgan Chase's acquisition of Bear Stearns. For further information on the merger, please visit www.bearstearns.com.
Company Actions
On 7 April 2008 and 11 April 2008, the Company sold from treasury 17,847,750 and 5,780,346 redeemable participating preference shares of 1 pence each designated as Equity Shares. The Equity Shares were each sold for cash at $1.72 and $1.73, respectively, and rank pari passu with the existing Equity Shares in issue. As a result of the sale, the Company holds 1,397,764 Equity Shares and 274,822 redeemable non-participating preference shares designated as zero dividend preference shares in treasury.
On 3 April 2008, BSPEL's Board of Directors announced that the Company's formal fundraising announced on 11 March 2008 would be postponed pending the completion of JPMorgan Chase & Co.'s (NYSE: JPM) acquisition of The Bear Stearns Companies Inc. (NYSE: BSC).
On 2 May 2008, the Company issued 8,743,857 redeemable participating preference shares of 0.01 pence each designated as Equity Shares. The Equity Shares were issued for cash at $1.75 each and will rank pari passu with the existing redeemable participating preference shares in issue.
Contacts - Investment Manager
Troy DuncanUS (212) 272-9959tduncan@bear.com
Rosemary DeRiseUS (212) 272-8756rderise@bear.com
Bear Stearns Asset Management Inc.237 Park Avenue New York, NY 10017 USA
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.
The Bear Stearns Companies Inc. (NYSE: BSC) serves governments, corporations, institutions and individuals worldwide. The company's core business lines include institutional equities, fixed income, investment banking, global clearing services, asset management, and private client services.
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.
Board of Directors
ChairmanTrevor Ash (Guernsey Resident)
Members
John Loudon (UK Resident)Troy Duncan (US Resident)Christopher Paul Spencer (Guernsey Resident)
All of whom may be contacted throughSt Martin's HouseLe Bordage St. Peter PortGuernsey GY1 4AU
SECRETARY, ADMINISTRATOR AND REGISTERED OFFICEHSBC Management (Guernsey) LimitedSt Martin's HouseLe BordageSt. Peter PortGuernsey GY1 4AU
AUDITOR KPMG Channel Islands Limited2 Grange PlacePO Box 235St. Peter PortGuernsey GY1 4LD
SOLICITORHerbert Smith LLPExchange House Primrose StreetLondon EC2A 2HS UK
REGISTRAR Capita IRG (CI) Limited1 Le Truchot, 2nd FloorSt. Peter PortGuernsey 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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