Investcorp Posts First Loss; Private-Equity Firm Hammered by Plunge in Hedge-Fund Asse

Investcorp Posts First Loss; Private-Equity Firm Hammered by Plunge in Hedge-Fund Assets
Bahrain-based Investcorp Bank BSC became the latest private-equity investor to be hit by a diversification into other alternative assets, as a halving in the value of its hedge-fund investments contributed to the group reporting its first yearly loss on record. Investcorp's hedge-fund assets fell to $3.95B from $7.9B over the year to the end of June, according to the group's annual results published Wed. The group said the fall in the value of these assets contributed to a decline in its fee revenue, which fell to $129.4M from $382.9M in the period. This in turn fed in the group's net loss of $780.6M for the year, down from a net profit of $151.1M in 08. Investcorp was one of the early private-equity firms to diversify its investment strategies, using its reputation as one of the leading private-equity businesses in EU to build a hedge-fund business in 96. Other private-equity firms like Carlyle Group & Kohlberg Kravis Roberts also have run into difficulties in their respective diversified product lines. Carlyle had to wind down its debt hedge fund -- Carlyle Capital -- after the business ran into difficulties last year, while the founders of a similar KKR operation, KKR Financial, left the business at the end of 08 following large drops in its share price. The assets managed by Investcorp's private-equity business, which overtook in size by hedge-fund assets, fell by 13.4% to $6.2B, while overall assets under mgmt. fell to $11.7B from $17.7B. However, its hedge-fund business also provided flip to its results in the 2nd half, with a 12.3% return on investments. The group said mark-to-market declines based on the fair value of its private-equity & real-estate businesses also contributed to its loss. One reason the firm's hedge-fund assets fell significantly was because it didn't stop investors from leaving its funds through so-called gating, according to Deepak Gurnani, head of hedge funds at Investcorp. Other firms like Man Group & GAM, which also decided not curb withdrawals, reported falls in assets under mgmt. this year. However, market participants close to & apart from Investcorp said in the long term, Investcorp & other funds' strategies may help relationships with investors, unlike funds that used gating. In London, Investcorp shares closed up 3.7%, or 13