A big barrel with one bad apple

APPOINTED AT THE INVITATION OF INCUMBENT BOARD MEMBER TO THE BOARD OF AN AIM LISTED JERSEY COMPANY OPERATING AS A REGULATED COLLECTIVE INVESTMENT FUND INVESTING IN TURKISH PROPERTY

My involvement

A closed ended, AIM listed, Jersey regulated, alternative investment fund with a pre-2008 vintage, suffering high fees and annual costs to the promoter/investment adviser and, in a collapsed market and with a stagnant board of directors, failing to produce gains for its investors.

Initial challenges included discussions with influential hedge fund shareholders vying for board positions, which in one or more cases ended with them selling their stakes at market prices heavily discounted from NAV, rather than staying to deal with the uncertain outcomes of challenges to realise assets at or around NAV. Negotiated with the regulator the re-classification of the fund for Jersey regulatory purposes to enable internalisation of investment management. The board then itself assumed the asset management and divestment functions on successful termination of the outgoing investment manager’s appointment. Handled the consequent change of administrative services provider (since the former incumbent relied on a portfolio of business from the outgoing investment manager to meet its threshold criteria), identified and negotiated terms with a successor service provider. Managed the company’s relationship with its Jersey regulator. Assessed the risks associated with property development in Turkey in light of uncertainties in the political, economic and professional environments and concerns over the effectiveness of the Turkish legal system. Determined not to enter into deals with property developers as the means of extracting value (in stages throughout the development period) from the company’s portfolio of investments, and then identified, negotiated terms with, and appointed, a third-party property adviser in Istanbul to assist the board, and developed a strategy for value extraction by way of sale of the investments. Identified and appointed lawyers and accountants to assist the board in negotiating the myriad complexities involved in extracting from Turkey efficiently the proceeds of sales of the assets.

In a slowly recovering real estate market, eventually resolved opportunistic litigation and other barriers preventing asset realisation and sold the portfolio of assets. Uncovered a fraud against the company by the CFO of its Turkish subsidiaries who had embezzled in the region of US$ 1.3 million via devices including spurious claims for travel and other expenses, the manipulation of bank authorisation limits, and forging signatures. Pursued the embezzler through the inefficiencies of the civil and criminal legal systems in Turkey and successfully resisted his counterclaims. Managed the relationship throughout that process with the company’s Jersey regulator.

Outcome

Settled the company’s claims against the embezzler and recovered cash, and beat off the opportunistic claims against the company. Distributed all cash to shareholders, in total around £87 million, and liquidated the company albeit, due to the foregoing circumstances and without any objection from shareholders, who were kept updated throughout, at a date later than the planned termination date.