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Private equity write-downs plague Credit Suisse

The Swiss bank’s CHF599m in private equity write-downs contributed to an overall yearly loss of CHF1.1bn in the asset management division. The bank is overhauling its asset management division to focus more on alternatives.

Credit Suisse wrote down CHF599 million (€731 million; $944 million) in private equity and other investments in the fourth quarter of 2008, contributing to a total net loss of CHF1.1 billion in the bank’s asset management division for the full year.

The losses in asset management were part of an overall net loss of CHF8.2 billion for the whole of 2008.

Credit Suisse is in the process of refocusing its asset management division more on alternative investments and asset allocation.

Alternatives are “scalable, high-margin businesses that provide excellent investment opportunities”, according to the bank’s chief executive Brady Dougan and board chairman Walter Kielholz in a letter to shareholders included in the bank’s financial report.

As part of the shifting focus, the bank closed some money market funds and sold the majority of its traditional funds business to Aberdeen Asset Management, a UK-based lower mid-market firm, for a stake of up to 24.9 percent in the firm.

Credit Suisse’s private equity business consists of DLJ Merchant Banking Partners, which is investing from a $2.1 billion fund closed in 2006. The bank also has a secondaries business, a fund of funds division and a private equity real estate arm. Overall, Credit Suisse's private equity business has CHF 37.2 billion in assets under management.

A Credit Suisse spokesperson declined to comment whether the bank's private equity write-downs included the private equity real estate funds.

Credit Suisse joins a list of other banks that have made extensive write-downs in private equity investments contributing to overall losses.

Morgan Stanley’s merchant banking division had $355 million in losses in 2008 driven by $100 million in write-downs in its infrastructure, real estate and private equity investments. Much of Morgan Stanley’s private equity losses came from its investments in Asia, and in its infrastructure and real estate funds.

Goldman Sachs suffered a 5 percent loss in its alternative investments in the fourth quarter last year, part of an overall $3.9 billion decline in its principal investment area in 2008. The declines included yearly losses of $2.5 billion in corporate principal investments and $949 million for real estate principal investments.