Every day counts - Deutsche Beteiligungs AG

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Optimization of monitoring
system on ongoing basis
VI. 2.1. Investments based on the portfolio strategy
Pursuant to the long years of experience which Deutsche Beteiligungs AG has in private
equity, a strategy has been laid down that targets a high yield potential on investments
while balancing the opportunities/risk profile. Beginning in the financial year 1996/1997,
Deutsche Beteiligungs AG has focused its investing activity on majority acquisitions or
investments in which the Company holds a majority interest jointly with other financial
investors. Investments in minority holdings are only made, if a public offering seems a
realistic exit option, or defined alternatives for the sale of a minority investment exist. To
minimize the risk inherent in early-stage and smaller enterprises, the Group companies
of Deutsche Beteiligungs AG principally invest in established enterprises that generally
achieve annual revenues clearly in excess of 50 million euros.
To spread risk exposure, the Company ensures that the maximum sum invested in
any particular portfolio enterprise is limited to ten percent of the consolidated financial
assets of the Group. At 10.7 percent, the investment in Bauer AG currently represents
the largest single holding, reaching this defined limit as a result of the reduced financial
asset volume.
Deutsche Beteiligungs AG invests in many sectors of the economy and the portfolio
is widely diversified. This minimizes risks that may arise from dependence on certain
industrial sectors, and from those industries’ susceptibility to business cycles. Nevertheless,
the portfolio exhibits certain focal points. At the closing date, investments in the machine
and plant construction sector accounted for 17.0 percent of the book value of the portfolio.
To reduce exposure to risks from economic cycles in different regions, we have continued
to diversify the geographical focus of the portfolio. We achieved our objective of
investing one third of the portfolio internationally several years ago. At October 31, 2003,
investments outside Germany totaled 35.9 percent of the book value of the portfolio.
Of this, the share of investments domiciled outside Europe amounted to 28.3 percent.
VI. 2.2. Building and sustaining the value of investments
To avoid or reduce exposure to risks, a comprehensive monitoring system has been
installed. This monitoring system is adapted and improved on an ongoing basis. Portfolio
companies basically report on their business development at monthly intervals. Additionally,
Deutsche Beteiligungs AG holds positions in supervisory or advisory bodies of major
portfolio companies. This places the Company in a position to take any necessary early
counteraction to negative developments. Only two international fund investments, constituting
a combined total of 1.1 percent of the portfolio, do not report on a quarterly
basis. In these cases, we solicit information on current developments through contacts
in the course of a year. Despite all risk reduction procedures, it will not be possible to
entirely prevent valuation adjustments on investments in certain individual cases. However,
their effects on the Company’s earnings should, among other things, be reduced
by the Company’s investment strategy.