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Saturday, June 23, 2012

Kinetic Partners, an award winning global professional services firm, offers solutions for investors in "Locked Up" or "Zombie" funds

A few days ago, we posted an article concerning remedies for investors in funds that have ceased honoring redemption requests. As discussed, in some instances investors may take action in court to compel distributions from such funds, referred to in the trade as "Locked Up" or "Zombie" funds.  

Kinetic Partners' recent press release, reproduced below, discusses another option - bringing on replacement fund managers: 

“Generally speaking, our mandate is clear – review and assess the situation and return value back to stakeholders in a prudent and efficient manner. We are not looking to raise new monies or make new investments, so in that way not a typical asset manager and therefore bring a different perspective/incentive to the table. We also attempt to interact as much as possible with investors to gauge their expectations and timing requirements with respect to recoveries. Getting a better understanding of the overall value involved and the time needed to monetize that value is of real significance to investors, particularly those parties that are themselves investing other people’s money in a fiduciary capacity.”

I welcome related inquiries.


Kinetic Observes Investors Becoming Eager to Find Ways of Recouping Value from “Locked Up” or “Zombie” Funds

NEW YORK--()--With a reported $100 billion of notional value of the total $1.5 trillion invested in private equity funds being categorized as “illiquid,” and potentially similar levels still tied up in gated/suspended hedge funds and side-pockets, investors are now considering options to recover their invested capital from these “zombie” funds.
Adding insult to injury, is that while these investors continue to wait for redemptions from these zombie funds, which generally trace their claims of illiquidity to the 2008 collapse, they continue to be charged fees, despite claims by the incumbent manager’s of its to sell assets at or close to the values being reported – raising questions by some as to whether these values are truly at market, or are simply being pegged at unrealistically high levels to generate on-going fees.
In opposition to this practice, and driven by their own liquidity needs, investors are becoming proactive, engaging financial and legal advisors to review valuations, or garner control of the funds through the outright replacement of the manager, or the appointment of a liquidator or receiver. Actions like these are also becoming more prevalent given the derisory bids for partnership interests in the secondary market.
Specifically, replacement managers are being sought to take proactive steps in assessing value and monetizing assets. While these replacement manager roles are technically different from the appointment of a liquidator, the general premise and mandate is the same, resulting in certain advisory firms expanding their practices to actively pursue and take on these roles.
“If investors have concerns over the valuation of the underlying assets and/or the manager’s efforts to effectively monetize them, then they should take steps to independently ascertain what the portfolio is worth, or alternatively seek to bring in new management to proactively wind-down the portfolio in an expeditious yet effective manner,” said Geoff Varga, global head of Kinetic Partners’ Corporate Recovery and Restructuring Practice. Kinetic Partners, who routinely act as liquidator to many troubled funds, has also recently been brought in as the replacement fund manager to the Louisiana-based Commonwealth and Sand Spring funds which filed for Chapter 11 in late 2011. Varga added, “Generally speaking, our mandate is clear – review and assess the situation and return value back to stakeholders in a prudent and efficient manner. We are not looking to raise new monies or make new investments, so in that way not a typical asset manager and therefore bring a different perspective/incentive to the table. We also attempt to interact as much as possible with investors to gauge their expectations and timing requirements with respect to recoveries. Getting a better understanding of the overall value involved and the time needed to monetize that value is of real significance to investors, particularly those parties that are themselves investing other people’s money in a fiduciary capacity.”
Regardless of the route taken to cede control of these zombie funds, the presence of “new management” can generally eliminate the external stigma and frustration of former management, even though “new management” may make use of the former management’s knowledge and skills. And while the replacement process will come with a cost, in most instances, there can usually be an overall reduction of the ongoing fees that were potentially being unduly charged, replaced with a new fee structure that is better aligned with investors’ interests. Additional cost savings can also usually be achieved through various administrative reductions.
About Kinetic Partners (www.kinetic-partners.com):
Kinetic Partners is an award winning global professional services firm providing regulatory consulting & compliance, corporate recovery & forensic services, remedial, risk consulting & monitoring, tax and audit & assurance services to the asset management, investment banking and broking industries. Launched in 2005, Kinetic Partners has grown rapidly, and has a team of 140 across its eight offices in London, Dublin, Cayman, New York, Geneva, Hong Kong, Luxembourg and the Channel Islands. Kinetic Partners services over 1,300 clients and has attained a reputation as the leading provider of professional services in its chosen market sectors.
2012 highly commended for “Best regulation and compliance advisor” at the HFM European Performance Awards
2011 winner of Hedgeweek's "Best regulatory advisory firm" in the US
2010 winner of Funds Europe's "European advisory firm of the year"
2009 and 2010 winner of HFM Week's "Best regulatory advisory firm" in Europe and US
2008 winner of Fund Domiciles "Best consulting firm" in Ireland and Cayman

Contacts

Spotlight Financial Marketing
For Kinetic Partners
Marc Weinstein, 212-521-5902
Marc.weinstein@spotlightfm.com
or
P.J. Kinsella, 212-521-5908
Patrick.kinsella@spotlightfm.com



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