UK team at UBS Capital forms portfolio-management company

03 May 2002

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The UK team at UBS Capital has bought out Phildrew Ventures (which was acquired by UBS in 1998), renaming it IRRfc, with the intention of focusing on portfolio management and achieving better exits for private equity investors. IRRfc will not be making new investments or raising funds. The news follows press reports in February and March that UBS has decided to wind down its private equity activity, after incurring losses of EUR 700m in 2000. IRRfc, which was due to open for business on 15 April, will commence its operations by managing The Phildrew Funds, which have around Â£300m invested in a portfolio of 28 companies, with UBS as general partner.

The concept behind IRRfc â€“ that of an outsourced portfolio-management company â€“ was identified by the UBS Capital team as a gap in the market. Frank Neale of IRRfc states that demand for the service will come from large institutions, which are looking to terminate their private equity activities in order to concentrate on more profitable core activities. In return for a management fee of around 1.5% and 15-20% of the carry IRRfc will come in and manage existing portfolios until exit, with the aim of realising the full potential for returns, which institutions looking for a rush exit from their portfolios might otherwise miss out on through what Neale terms â€˜panic sellingâ€™. IRRfc has a network of business associates whom it can call upon to help run the companies and the team behind it has around 20 years of private equity experience. Neale suggests that this, and the fact that IRRfc will be devoting 100% of its time to achieving successful exits, should attract interest within the industry. It has released a list of some fifteen UBS Capital investee companies, entitled â€˜track record highlightsâ€™, detailing the approach taken to maximise returns on the investment, or â€“ in the case of some of the companies on the list â€“ to minimise the loss incurred. The list includes Kosset Carpets (40% p.a. IRR in less than three years); Maccess (90% IRR over three years); and Network Si, for which the blurb reads: â€˜Following the loss of a major contract and the failure of the management team to develop the business to the agreed strategy we were forced to write off this investment. We subsequently changed the management and restructured the balance sheet via a deal with the bank. We were able to restore value and exited with a 5% IRR over four years rather than 100% loss over three yearsâ€™.

The name IRRfc is derived from the combination of IRR â€“ what the company hope to achieve for its clients â€“ with â€˜fcâ€™ for football club: the five-strong team likening themselves to a five-a-side football team. Coincidently, the first letters of the Christian names of the five, Ian Hawkins, Robert Jenkins, Ruth Storm, Frank Neale and Chris Tennant, also spell out IRRfc. The group will be located in Covent Garden.