3i, the listed UK private equity group, said it was well-placed to cope with tougher economic and financial conditions as it set a target of almost doubling assets under management to €20bn (£15.8bn) by 2010.

Pointing to 3i’s total return of £792m, down from £1.08bn last year but above most analyst expectations, Philip Yea, chief executive, said: “We believe we face these market conditions from a position of strength.”

The credit squeeze and more bearish economic climate took their toll on 3i’s annual results, as provisions against potential losses more than doubled from £71m to £188m. It also booked a £162m write-down on its portfolio for lower valuation multiples.

However, Mr Yea said 3i had partly offset this with continued earnings growth at its portfolio companies, resulting in a £461m increase in its portfolio value from earnings growth and first-time uplifts on recent acquisitions.

“Clearly these markets are uncertain and everybody is predicting changes in consumer behaviour, but I think it is fair to say that we haven’t seen that flow through yet,” said Mr Yea.

3i said it had established an €800m debt warehouse facility last October, funded with €160m of its own funds and €640m of debt. The warehouse bought €275m of leveraged loans by the end of March, but it booked a €15m loss on the loans.

To refinance €550m of convertible bonds maturing in August, 3i said it was launching an offer for about £425m of unsecured convertible bonds handled by Dresdner Kleinwort and Lehman Brothers.

Mr Yea said 3i had been “more selective in our new investment”, but total investment still increased from £1.58bn to £2.16bn as it completed fewer but bigger deals.

Income from disposals fell from £2.44bn to £1.74bn “due to the relative immaturity of the portfolio”. Assets under management rose by more than a third to £9.79bn. 3i shares were up 26p at 895p.

FT Comment

● Asked why anyone should buy 3i shares, given the grim outlook for credit markets and the economy, Mr Yea has a simple reply: “Because we are cheap.” Its shares have fallen by a quarter in a year and have a discount of 17 per cent to net asset value of £10.77, a measure of portfolio value less net debt. 3i usually trades at a premium to NAV and its discount is wider than even its dark days of 2002 after the dotcom bubble burst. Gearing has increased from zero to 40 per cent just as debt became unfashionable and bears expecting an economic slump will fear more provisions, falling valuation multiples and slowing realisations. But investors looking for a long-term private equity play may find 3i’s mid-market position attractive. For its discount to NAV to be justified, £750m would have to be wiped off its portfolio.