Private Equity Holding AG: 9-month results burdened by ongoing correction in the venture capital market

The cumulative net loss for the first nine months of the financial year 2001/2002 amounted to CHF 88.9 million (first nine months of 2000/2001: net profit of CHF 59.3 million). A reversal of the downward trend in the capital markets in the reporting quarter allowed for securities gains of CHF 8.7 million. Similarly, capital gains on investments amounting to CHF 5.1 million and foreign exchange gains of CHF 1.8 million were positive contributions to the result. However, additional write-downs in the order of CHF 25.2 million primarily related to the portfolio of direct investments led to a net loss of CHF 18.3 million.

Between April 1, 2001, and December 31, 2001, consolidated shareholders' equity declined from CHF 1.36 billion to CHF 1.13 billion. Under the new accounting standard IAS 39 unreal-ized appreciation/depreciation of a non-permanent nature is accounted for under equity. Valua-tion changes of permanent nature are accounted for in the income statement. In accordance with the new accounting standard, net unrealized depreciation of CHF 135.6 million was booked against equity as of December 31, 2001.

Out of the credit facility of CHF 500 million provided by Swiss Life/Rentenanstalt, a portion of CHF 200 million was drawn as of December 31, 2001. The remaining CHF 300 million will be used for ongoing financing needs over the coming quarters and only leave room for selective follow-on investments. The company is fully invested with total commitments amounting to CHF 2.14 billion.

In the reporting quarter (1.10.2001-31.12.2001) the fair value per share showed a contraction of approx. 5% or CHF 13.47 to CHF 259.73 mainly due to additional write-downs and new fund reports. Compared to the evolution in the previous quarters since April 1, 2001, the decline in fair value slowed significantly.

In the near-term, we expect the fair value to continue to retreat somewhat. Although it seems that the greater part of re-evaluations have already taken place, we believe that some addi-tional adjustments will be necessary before a rebound in the private equity industry can be expected. In addition, the difficult fund raising conditions are likely to hamper the development even of promising companies as it puts pressure on their liquidity status. On the positive side, recent vintage funds were able to conclude promising investments at interesting valuations. In the buyout segment, with valuations holding up well, the effect of the market weakness mani-fested itself only in a general slowing of activities with extended fund raising schedules. Our outlook with regard to the mid-term development remains cautiously optimistic.

Besides the management of the portfolio, the focus of the reporting quarter was the realization of the new direction of Private Equity Holding. Important steps in its execu-tion were the implementation of the new corporate governance and the fee structure:

Effective December 1, 2001, Marinus W. Keijzer assumed the function of Delegate of the Board of Directors in addition to his responsibilities as Chairman of the Board. This newly appointed role charges him with certain corporate executive responsibilities whilst Swiss Life Private Equity Partners is responsible for the investment advisory and management, finance, reporting and the day to day operations of the Private Equity Holding Group.
As of January 1, 2002, the previous fee structure was replaced by a more performance ori-ented, flexible and transparent model. Based on fair values, the management fee follows the net asset value of the Private Equity Holding Group. The second part of the remuneration, the performance fee, is in addition by means of share options also coupled to the share price performance. Enhancing the transparence of the cost structure, corporate, transaction and certain administrative costs are budgeted separately and are submitted to the Board of Direc-tors for approval. With this competitive new cost structure, it is expected that the annual man-agement fee will be reduced by about 25%.

The full quarterly report as of December 31, 2001 is available on our website at www.peh.ch. from January 29, 2002. For this reason we will not provide a separate print copy or mailing at a later stage.

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