10 Feb 2016
Investcorp, a global provider and manager of alternative investment products, today announced its fiscal half year (H1 FY16) results for the six months ending December 31st, 2015.
Despite heightened levels of volatility and uncertainty in global markets, Investcorp grew its net income for the period by 12% to $50.9 million (H1 FY15: $45.3 million), driven by continued strong transactional activity and placement momentum and solid asset-based returns on the Firm’s portfolio of co-investments. Fully diluted earnings per share for the period was in line with the previous year at $0.71 per share. Return on equity for the period was 12% on an annualized basis.
Fee income for the period was $134.7 million compared with $156.7 million in H1 FY15. The decline in fee income was primarily due to the exceptionally high performance fees from the successful sale of Berlin Packaging in the comparative period last year.
Overall, gross operating income for H1 FY16 was up 16% to $178.4 million (H1 FY15: $154.0 million).
The period was marked by strong transactional fee income and a record deployment of investment capital of $658 million (an increase of 41% year-on-year) for corporate investment and real estate as the Firm continued its transactional momentum in those two businesses. Investcorp maintained its prudent approach with a focus on delivering sustainable returns through the cycle, and continued to see strong appetite from its growing base of investors for attractive, global and diversified investment opportunities.
The strong growth in asset based income to $43.7 million versus a H1 FY15 loss of $2.6 million was driven by a robust performance in the corporate investment portfolio. In aggregate, the Firm’s portfolio companies delivered robust EBITDA growth of close to 10% during 2015, contributing to this growth in asset based income. Asset based income for the real estate business was $4.6 million compared with $5.6 million in H1 FY15.
Aggregate placement of corporate investments and real estate was $482 million, a similar level to the $490 million placed in H1 FY15. This result highlights the Firm’s inherent strength in being able to tap into a diverse source of investment products across three continents and across different product classes, based on where the risk-reward opportunities are more attractive. The Firm was able to offer more real estate investments and grew its real estate placement activity by 47% to $249 million from $169 million placed in H1 FY15 which offset the slow period for corporate investment activity during Q3 2015. Demand for both asset classes remained strong with particularly high levels of placement activity in November and December.
The Firm’s hedge funds (HF) business outperformed industry benchmarks across all its client portfolios in what were exceptionally volatile markets for the industry. Its funds were either top decile or top quartile and over the past three years the HF business has delivered very strong performance. The period saw the acquisition of SSARIS Advisors which added $810 million in discretionary and advisory AuM. Coupled with the Firm’s investment in building a world class product, this acquisition positions it very well for attracting additional funds from investors. Despite the extreme market volatility, asset-based returns on Investcorp’s co-investment in hedge funds were virtually flat during the period with a $1.9 million loss compared to a $10.3 million loss in the comparative period last year.
Operating expenses increased 14% to $89.0 million (H1 FY15: $78.2 million) reflecting Investcorp’s commitment to investing in the right infrastructure and talent to support the Firm’s future growth plans. In particular, the Firm made several prominent hires across its business teams in the US as well as adding to its senior hedge fund personnel through the acquisition of SSARIS Advisors. Total Firm headcount grew to 319 from 296 twelve months ago.
The balance sheet remains well capitalized with total assets as at December 31, 2015, at $2.3 billion, up from $2.2 billion as at June 30, 2015. Total liquidity remains strong at $0.7 billion. The Bank’s capital adequacy ratio, at 28%, is more than double the requirements of the Central Bank of Bahrain (12.5%). The Bank remains well within the required leverage ratio and there are no outstanding debt facilities maturing in the next twelve months.
Mohammed Al Ardhi, Executive Chairman, said: “This has been a half of continued momentum for Investcorp as we’ve continued to grow our profitability and maintain a strong balance sheet in what have been tough markets in almost all asset classes, in all markets. We have maintained our prudent approach to investing, and we believe this approach enables us to deliver sustainable returns to our loyal and growing community of investors throughout the cycle. The performance of our corporate investments, the outperformance of our hedge funds, and the continued strength of our US real estate business underlines this ability.
“At the same time, we recognize the importance of investing in the long term growth of the Firm. We have seen our investor base expand on the back of our investment in growing our presence in the Gulf to four countries, and throughout this period of solid performance we continued to attract and retain the highest calibre of investment talent and executional excellence available in the market today.”
“Looking ahead as we embark on the delivery of our growth strategy, we intend to retain our vigilance in these markets and to continue to meet our commitment to our investors to provide attractive alternative investment opportunities in the Gulf, in Europe and in the US.”
Highlights for the period:
Aggregate fee generating equity deployed in new corporate investments during H1 FY16 was $314 million across three deals: POC, a revolutionary manufacturer of skiing and cycling helmets, gear and accessories; Bindawood, a leading chain of supermarkets and hypermarkets; and SecureLink, the leading cybersecurity infrastructure and managed services provider. Corporate investment placement was $233 million across these three deals, with SecureLink targeted to be placed in Q1 2016.
The aggregate equity deployed in new real estate investments in H1 FY16 was $344 million invested primarily into two portfolios – a residential real estate portfolio of eight properties in the metropolitan areas of Las Vegas, Denver, Chicago, Atlanta and Dallas and an office and industrial real estate portfolio of properties in Atlanta, San Francisco and Boston. Real estate placement was $249 million, with the residual piece of the Office & Industrial portfolio targeted to be placed in Q1 2016.
The acquisition of the hedge fund of funds business unit of SSARIS Advisors added $810 million in discretionary and advisory assets, and clients across the U.S., Europe and Asia to help grow Investcorp’s existing Hedge Funds platform.
In November 2015, Executive Chairman Mohammed Al Ardhi announced an ambitious new growth strategy to consolidate Investcorp’s position as a leader in the global alternative investment management industry.
Investcorp continues to invest in its people and infrastructure as well as adding talent inorganically through acquisitions, most notably from the acquisition of SSARIS and the hiring of David Tayeh in August 2015 as Head of Corporate Investment – North America.