MANAMA: Bahrain-based Investcorp saw an improvement in performance in the second half of its fiscal year to the end of June. In spite of the continuation of highly challenging business conditions, hedge fund returns rebounded strongly with a return of 12.3 per cent for the period.
At the same time, Investcorp took a conservative view towards marking-to-market its portfolio of private equity and real estate co-investments in light of continued uncertainty surrounding the global economy and its emergence from the current recessionary environment.
This resulted in a net loss of $269.5 million for the second half of the year, marking a significant improvement over the net loss of $511.1m in the first half of the fiscal year.
The overall loss for fiscal year 2009 was therefore $780.6m, of which a significant portion related to unrealised market valuation adjustments for private equity and real estate co-investments on the balance sheet.
"The fiscal year has seen the worst period of sustained stress to the world economy and financial markets in living memory, and this has had a severe impact on Investcorp and its clients, as it has on financial institutions and investors worldwide," a company spokesman said.
"It has been the most challenging year since the formation of the firm in 1982."
During the second half of fiscal year 2009, Investcorp concluded its preference share issue, with subscriptions of over $500m. Tier 1 capital adequacy ratio now stands at 20pc compared to 18pc last year, which is 250pc of the Bank for International Settlements capital adequacy guideline of 8pc and 167pc of the Central Bank of Bahrain's minimum requirement of 12pc.
This puts Investcorp amongst the strongest capitalised banks globally, providing a strong platform to benefit from an anticipated recovery in global economies and markets.
With total liquidity now at $1.8 billion, the new preference share issue has boosted Investcorp's economic capital, helped meet its deleveraging objectives and will support new business growth initiatives.
A new streamlined management structure was announced following the fiscal year-end, designed to enable Investcorp to leverage its strong franchise and successful track record for future growth. Reporting to executive chairman and chief executive officer Nemir A Kirdar, is a team of four senior partners.
This comprises Investcorp's chief financial officer Rishi Kapoor, formerly head of direct investment and now president of US and European business Christopher O'Brien, newly appointed president, Gulf business, Mohammed Al Shroogi, and newly appointed chief administrative officer Mark Slaughter.
"We have taken decisive action to position the firm for the future and for the business opportunities that will present themselves as the market recovers," said Mr Kirdar.
"The capital increase is a strong vote of confidence in Investcorp's franchise by all our key stakeholders.
"Our new management structure, combining experienced new talent with home grown, will accelerate product development and the evolution of our distribution network as we drive the performance of our business to its fullest potential," he said.
"The systemic shock to the financial system that occurred from September 2008 impacted financial performance in two areas, reducing fee income and lowering the book value of balance sheet co-investments largely due to unrealised mark-to-market valuation declines," the spokesman said.
"Fiscal year 2009 was Investcorp's first-ever loss. Prior to this, it has had a consistent record of profitability for over a quarter of a century. The timely action taken to manage costs has fed through, with total operating expenses of $206.3m, 22pc lower than in 2008, helping offset the decline in fee revenues due to lower transactional activity.
"The full year effect of the cost reduction programme will be felt in 2010," the spokesman said.