European LP News, March 2011

Atria Transfer Dissected in Court

A complex legal battle has erupted over the asset transfers at French private equity firm Atria Capital Partners, involving such investors as Axa Private Equity, British fund Pantheon Ventures and pension fund California State Teachers’ Retirement System.

Paris-based family office Massena Partners initiated the case after the sale of Atria Private Equity Fund 1’s stake in industrial carpenter FPEE to Atria Private Equity Fund 3 in 2009, shortly before Atria 1 was wound up.

Massena and certain other investors in Atria 3 have several concerns about the deal, including: the independence of Pragma Capital, which joined Atria 3 in the FPEE purchase; the €60 million ($81 million) paid by Atria 3 and Pragma, €48 million more than Atria 1’s stake cost in 2003; and potential conflicts of interest.

The FPEE sale earned Atria managers carried interest totaling €11.5 million ($15.5 million), but Massena has pointed out that two Pragma managers held rights to €1.2 million, although Pragma sold those rights shortly before the sale.

Atria and Pragma have denied all of Massena’s allegations, claiming the family office is trying to avoid its funding obligations.

Atria 3 management allegedly told limited partner Pantheon before the sale that the team confirms that it is aware that its reputation is more at risk with this transaction than with any other planned investment.”

The facts are sourced from an in-depth report on the case by French site Mediapart.

CDC Mission Under Evaluation

Britain should widen the remit of the Commonwealth Development Corp. (CDC), its development finance organization, beyond its current fund-of-funds model, according to the country’s international development secretary.

Andrew Mitchell told a parliamentary committee that the CDC had strayed from its core mission of alleviating poverty in developing countries.

It has been proposed that the institution shift focus from third-party-managed funds to direct investment.

Earlier this year, the CDC invested £10 million ($16 million) in Frontier PE, the first private equity fund dedicated to Bangladesh.

Mitchell also stated that the government has yet to see any money from Actis, the private fund manager set up by the CDC in 2004.

Hands off EMI as Citi Moves in

Investor trust in Terra Firma has been questioned after Citigroup seized music label EMI from the British private equity firm, leaving Terra and its limited partners to nurse £1.7 billion ($2.8 billion) of losses.

Although the value of its investment had long been written off, many expected Terra to hang on to EMI at least until March, when it faced its next covenant test.

Citi itself wrote off $2.2 billion ($3.5 billion) of loans used to finance Terra’s $4.2 billion ($6.8 billion) EMI purchase in 2007 at the height of the private equity bubble, considered one of the worst takeover deals in history.

In recent months Terra boss Guy Hands fought and lost a court battle over the purchase, claiming he had been deceived by Citi bankers.

Responding to Citi’s takeover, Terra issued a brief statement saying it was “pleased that EMI’s debt burden [had] been reduced.”

Although Terra’s limited partners have been relieved of any requests to sink more cash into the label, with roughly a third wiped off Terra’s last two funds, their commitment to future investment has been rocked.