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The FTSE 100’s risen 12.5% in 2025 and 25% over two years, hitting new records along the way. Investors in the index will obviously be very satisfied with this, especially when dividends are thrown into the mix.
However, that’s small potatoes compared to the returns of 3i Group (LSE:III). Shares of the private equity firm have exploded more than 100% higher in two years and 330% over five years. Only Rolls-Royce and NatWest have beaten that in the FTSE 100 since August 2020.
This certainly disproves the theory that only juicy returns can be delivered across the pond in New York!
3i at a glance
I think it’s fair to say that 3i isn’t a household name. Yet it has a meaty £39bn market-cap, which makes it larger than well-known businesses like Tesco (£28bn) and Vodafone (£21bn).
So how exactly does the firm make money? It does so primarily through buying stakes in unlisted businesses. As they grow (higher sales, profits, and valuations), 3i’s net asset value (NAV) rises. Or vice versa.
Eventually, it sells these investments, generating capital gains. For example, in June, 3i sold its stake in MPM (a premium cat food manufacturer) for total gross proceeds of about £400m. This was more than triple what it originally invested.
However, 3i’s portfolio is dominated by Action, which makes up a whopping 71% of it (worth over £19bn). This is the Dutch discount retail chain that’s like a cross between Aldi and Poundland. It’s been expanding aggressively across Europe.
In June, Action opened its 3,000th store. This jewel has driven spectacular outperformance due to 3i’s massive 58% stake in it.
The company also owns 29% of the FTSE 250’s 3i Infrastructure, a stake that was valued at £921m in June. 3i Infrastructure paid 3i Group a £17m dividend in Q1 (covering the three months to 30 June). So it gets regular income from here.
Other portfolio holdings include Royal Sanders, a European manufacturer of personal and home care products, and Baltic Sea ferry operator Scandlines.
Latest quarter
In Q1, the value of the portfolio rose almost 7% quarter on quarter to 2,711p. Action increased sales 18% to €7.4bn in the first half of 2025, with like-for-like sales up 6.8%. It opened 125 new stores and remains on track to add 370 in 2025. It’s going great guns.
The risk here though is that 3i’s currently trading at roughly a 50% premium to NAV. So investors are having to fork out to grab a slice of the action (no pun intended). If anything negative happened to the discount retailer, then 3i shareholders would immediately feel it.
Another thing worth mentioning here is the way Action is valued. To arrive at the value of its stake, 3i applies quite a steep EBITDA multiple for a retailer. Then again, Action regularly delivers strong growth and is taking market share, so this helps justify the valuation.
Overall, it’s hard not to be impressed with the returns 3i generates. Its roots go back to 1945, so it has its company-picking methodology down to a fine art.
Due to its high quality, I think this is one for investors to keep on the radar, though waiting for a dip might be wiser given the chunky premium.
