Over the first half-year of the financial year 2002/2003 (April 1 - September 30, 2002), the fair value per share of Private Equity Holding AG declined from CHF 213.52 to CHF 168.49. As in the first quarter of the current financial year, downward value adjustments considered of nonpermanent nature (classified as unrealized depreciation) were made for numerous investments across the portfolio. The main reasons for the value reductions were again (i) the adjustments of the valuations to the prevailing weak market conditions, and (ii) operational issues and failure to meet business targets. In contrast to the first quarter of the reporting semester, the currency exchange rate had a lesser impact between July and September. In parallel, the share price continued to decrease and amounted to CHF 38.25 as of September 30, 2002, further widening the trading discount to 77%.
Between April 1 and September 30, 2002, total assets declined from CHF 1.20 billion to CHF 1.10 billion. The net change in fair value reserve of CHF 124 million includes a change in unrealized depreciation of CHF 147 million on securities available for sale and a positive net contribution of CHF 23 million from hedging transactions.
Over the 6-month reporting term, outstanding commitments decreased by CHF 150 million to CHF 501 million. This reduction was brought about by capital calls met and, especially in the first quarter of the financial year, the impact from the USD-CHF currency exchange rate. Accordingly, total commitments declined from CHF 1.97 billion as of April 1, 2002, to CHF 1.82 billion as of September 30, 2002. The ratio of invested capital to total commitments remained at 0.6.
Another tranche of CHF 50 million of the credit facility was drawn in September bringing total long-term borrowings to CHF 350 million.
No new commitments were made in the second quarter of the financial year 2002/2003. The funds held in the portfolio made capital calls amounting to CHF 46 million in total for their investment activities. Distributions, predominantly from the buyout segment, totaled CHF 24 million.
The downward value adjustments again related predominantly to venture funds. The largest write-downs were made for several venture funds, which are active in the sectors IT, software, internet and communications. More positive developments can be reported from the buyout portfolio. As compared to the first quarter ended June, the investment activity has picked up slightly in the second quarter and trade sales are gaining importance as exit opportunities.
In summary, the reporting half-year closed with a net loss of CHF 73 million and a loss of CHF 38 million in the second quarter alone.
Outlook
Despite challenging times, we see a sustained investment activity by the funds held in the portfolio which continue to identify attractive new opportunities - especially in the technology sector - and make new investments at favorable valuation levels. In the buyout sector, we increasingly witness spin-offs of non-core businesses as companies continue to restructure their operations.
Notwithstanding possible further declines in valuations and an uncertain timing of a rebound, we reiterate our fundamentally positive outlook. Although on the surface the market situation looks unimproved, this dramatic shake-out has enforced substantial readjustments in the private equity sector, from which patient investors will be able to benefit in the future. A recovery in the public markets and a pick-up in M&A and trade sale activity, however, are prerequisite in this respect.
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Private Equity Holding AG (SWX: PEHN), managed by Swiss Life Private Equity Partners, offers investors the opportunity to invest, within a simple legal and tax optimized structure, in a broadly diversified and professionally managed private equity portfolio. As of September 30, 2002, the company held fund investments in 84 funds and direct investments in 24 companies.
For further information: www.peh.ch or Eva Kalias, Investor Relations and Communications (phone +41 41 726 79 80).
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