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3i Group Says Stock Markets Don’t Reflect The Real Economy as its Investment Returns Lag Behind Equities

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Private equity holding group 3i Group (LSE: III) said that the recent stock market rallies do not reflect the real  economy, according to 3i many major economies remain fragile despite strong rises in stock markets in 2009 as it released its half year results to the 30th September. The group’s private equity investments have not provided the same level of returns in proportion to publicly traded capital markets.

According to 3i, its businesses have generated strong cash flows through a cautious approach to investment across the group; total returns of £81 million represent a 3.2% return on opening shareholders' funds. Meanwhile equity markets have rallied substantially, for example the FTSE 100 has climbed approximately 35% since March.

Investors appear to have been disappointed with the ‘market-lagging’ returns, sending 3i shares down 4% today on the London Stock Exchange.

However the company does appear to have attained substantial improvements to its financial position since it conducted a £732m rights issue earlier in the periodIt revealed it had reduced net debt by over a billion pounds to £854m, gearing has reduced from over 100% in March to 31% by the end of the period. Additionally, the group doubled its liquidity to £2 billion, providing greater capacity to invest in the upturn.

Going forward, the company said it would be taking a measured approach to investment, and continuing to focus on cost discipline.

3i chief executive Michael Queen commented on the group's re-positioning following the company’s rights issue during the period: "With our shareholders' support, we have transformed our financial position. We remain cautious about the economy but confident in the strength of our portfolio and business model. 3i is ready for the upturn."

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