THE last five years have been excellent for 3i, with an average compound return of 23.4% as the country recovered from the deep recession of the early 1990s.

However, the current year will be tougher given a slowing economy, particularly in manufacturing, which is bound to curtail the deal flow. There remains a lot of development capital around and competition for the better deals will be stronger.

But there remains huge scope across the Channel, where venture capital is still in a state of relative infancy, though growing fast. And 3i is in a good position to grab a significant slice of the business. It is beefing up its operations there and will soon have five offices in the largest market, Germany. It now has 278 investments and has had some major successes, notably MobilCom in Germany.

With corporate restructuring all the rage on the Continent there is likely to be an increasing flow of management buy-outs and buy-ins and the European proportion of the 3i portfolio will rise.

Further afield, 3i has earmarked #150m for investment in the Far East but is awaiting the right opportunity.

After a good showing on Wednesday, 3i shares are selling on a 7.7% premium to asset value. Investment trusts usually sell at a discount but the premium is fully justified by the group's track record and fund management business. Investors using 3i's expertise have placed #1343m with the group, against just #487m a year ago.

This generates fee income which could reach #25m this year. Analysts reckon the value of this business adds a further 75p to net assets.

If stock markets hold up, and it is quite a big if, then 3i should push asset value further ahead, though at a slower pace.