Court Finds Against LP Who Didn’t Fulfill Commitment
Limited partners breaching their investment commitments to private equity funds risk a legal backlash, following an unprecedented court ruling in the United Kingdom.
The Financial Times recently reported a High Court judgment that Robert Adair was in breach of contract for refusing to put more money into Advantage Capital’s buyout fund.
Adair had allegedly promised £37.5 million ($58 million) to London-based Advantage’s second fund of £40 million ($62 million) in 2006, only to cease payments in 2009 citing financial difficulties, according to the FT.
At that point, Adair—chairman of British-based oil and gas exploration business Melrose Resources—had invested roughly £17 million ($26.3 million) in the fund, which was subsequently suspended.
Damages are yet to be decided. With Advantage seeking tens of millions in lost fees and profit share, private equity observers are waiting to see what sort of signal the court sends to investors and funds alike.
The damages are “in dispute and this issue will be determined in due course at trial with the assistance of expert evidence,” Adair told the FT. He added that he has not yet filed a defense or counterclaim.
Castle Bullish on Asian PE Prospect
Fund-of-funds manager Castle Private Equity has raised its Asian exposure to 13.8% in the last two years and is targeting a 20% allocation in the region.
China remains the key market for Castle, where it has focused on growth capital investments in private companies and small-sized buyouts of state-owned enterprises undergoing privatization.
Exposure to Shenzen Development Bank and NVC, a lighting company, has driven the increased total exposure, which may drop in the short term once those investments are realized.
“India is another area of interest, although the competitive intensity of this market and higher valuations must be taken into account,” said Hans Markvoort, lead manager of Castle Private Equity.
Castle predicted that Asia would remain a long-term allocation for its funds, due to the region’s ability to weather economic downturn, lower use of debt to finance transactions and significant numbers of IPOs.
Swiss-listed Castle PE is the private equity arm of LGT Capital Partners.
German Family Office to Merge with Investment Firm
German multi-family office Spudy & Co. and investment management firm Döttinger/Straubinger have agreed to merge to increase their business presence and share expertise.
Hamburg-based Spudy has taken a 50.1% stake in Munich’s Döttinger/Straubinger, while founder and CEO Werner Döttinger has acquired 10% of Spudy.
“Our common goal is to pool the know-how of both firms and to develop into a leading, bank-independent financial services provider in Germany,” said Jens Spudy, founder and managing partner of Spudy.
Although both firms will maintain their individual brands, the merger will allow Spudy to raise its profile in southern Germany, while also affording Döttinger/Straubinger access to Spudy’s wealthy clients.
These include the Murmann family, which has close ties to hydraulics giant Sauer-Danfoss.
“The merger optimizes the size of our company, allows us to combine our investment management skill with Spudy’s family office, and will enable us to attract even bigger fortunes,” Döttinger said in a statement.
The deal brings together a team of 80 employees and assets totaling €4.5 billion ($5.7 billion).
CDC Backs Indian Development
CDC Group, the U.K.-based development finance institution, has committed £20 million ($30 million) to India’s Multiples Private Equity Fund I.
This is the first fund raised by Multiples Private Equity, which is led by Renuka Ramnath, who previously led ICICI Venture.
Investing in such sectors as financial services, health care, infrastructure, shipping and retail, the Multiples PE fund will target Indian businesses that support economic development across the country. The fund aims to raise £290 million ($450 million) from international and Indian investors. Its investments will average between £13 million and £19 million ($20 million and $30 million).
CDC first invested in India in 1987 and has committed more than £710 billion ($1.1 billion) to funds investing in Indian companies since 2004.
The CDC is part of the Department for International Development, which, along with the National Health Service, is the only department that the British government has promised to protect from planned spending cuts.
ADIA Trains Its Eye on Fast Rail
The Abu Dhabi Investment Authority (ADIA), the world’s largest sovereign wealth fund, is considering a bid for the high-speed rail link between London and the Channel Tunnel, according to the National newspaper in Abu Dhabi.
Any investment by ADIA, which is said to be in “the very early stages” of preparing a bid, would be as part of consortium with Morgan Stanley and London-based private equity firm 3i.
The sale of rights to operate the 108-kilometers (68-mile) High Speed One railway, which allows train speeds of up to 300 kmph (186 mph) could fetch up to £2 billion ($3.1 billion) for the British treasury.
ADIA has not commented on supposed investment, but if a bid was mounted it could mark the sovereign fund’s second British infrastructure investment this year, following its purchase of a 15% stake in London Gatwick Airport.
Between 1% and 5% of ADIA’s speculated £ 420 billion ($650 billion) wealth fund is earmarked for infrastructure investments, while private equity, in comparison, commands between an estimated 2% and 8% of its portfolio.
Another possible bidder for the railway is Channel Tunnel operator Groupe Eurotunnel, backed by major shareholders Goldman Sachs Infrastructure Partners and Infracapital, the infrastructure arm of Prudential unit M&G Investment Management Ltd.
Dutch Pensioners Get PE Boost
Private equity outperformed other asset classes in Dutch pension fund TNO’s €2.1 billion ($2.7 billion) portfolio during the first half of 2010.
The fund for the Dutch institute of applied science returned 7.9% during the half, buoyed by a 17.4% return from private equity that helped offset a 3.8% loss from its property investments.
Of other asset classes, fixed income returned 5.9%, equity investments earned 5.3% and hedge fund exposure yielded 2.5%.
At the end of 2009, private equity represented about one-tenth of TNO’s portfolio.
PE Gains in Pension’s Equity Flight
Ireland’s €24 billion ($303 billion) National Pension Reserve Fund (NPRF) has upped its target allocation for private equity from 8% to 10% as it seeks to slash its equity exposure.
The fund said that previous targets were calculated during “materially” different circumstances, when Ireland’s public finances were in surplus rather than deficit.
Thus, the NPRF commission has updated its risk strategy to ensure that the fund outperforms the cost of government debt over rolling five-year periods.
Reuters contributed to this report.