Two prominent private equity firms are catching the headlines in their respective regions: London's 3i Group plc and Bahrain's Investcorp B.S.C. Both are struggling with the fallout from the credit crunch; both are earning downgrades from the rating agencies. Investcorp's reaction? Sack the rating agency. It canceled its contract with Standard & Poor's. 3i's response -- admittedly to its poor results, soaring debt and falling share price, not to the ratings which followed their disclosure -- was to
sack its CEO, Philip Yea.
So where's the connection? Well, before he took over the reins at 3i, Yea was running Investcorp's private equity division.
Are we being unfair? Yes, certainly. Yea's been at 3i for more than
four years, plenty long enough for any misjudgments at his previous
employer to have been corrected; just as Yea himself has spent his time
at the top of 3i clearing up the legacy of his predecessors and moving
the business away from early-stage to late-stage investments. In fact,
the man's been widely praised for his work. Analysts say the main blot on his copybook was the decision to return £2.2 billion ($3.2 billion) to investors via share buybacks in 2006 and 2007 -- particularly the return of £800 million in 2007 -- and leverage up the balance sheet to do so.
Which brings us back to those initial acts of petulance and the
shooting of messengers. No doubt Investcorp was happy with its ratings
in the good times. And 3i chairman Sarah Hogg and shareholders would
have been in full support of the share buybacks, back when leverage was
still in fashion. -
Jonathan Braude
