Work | 29th August 2019

Phase 1 – Appointed by activist investor to stimulate a shake-up

APPOINTED AT INSTIGATION OF A NEW YORK BASED HEDGE FUND MANAGER, IN ITS CAPACITY AS A SHAREHOLDER TO THE BOARD OF AN AIM LISTED JERSEY COMPANY OPERATING AS A REGULATED COLLECTIVE INVESTMENT FUND INVESTING IN BULGARIAN PROPERTY

Goal

To reduce expenditure on fixed overheads, primarily the investment manager’s fee fixed as a proportion of capital raised at IPO, rationalise the structure, and achieve active realisation of the fund’s assets and the return of realised value to investors.

My involvement

A closed-ended, AIM listed Jersey company operating as a real estate fund investing in Bulgaria. The promoter/investment manager failed to react to changes in the real estate market after 2007. On recommendation from the fund’s lawyers, I was approached by a significant investor, a New York managed hedge fund, with the request to assume a directorship as part of a complete board change. With encouragement from the investor, the incumbent board was persuaded to appoint successors and then resign. Led a difficult negotiation with the investment manager against resistance, involving settlement of claims against the investment manager in relation to performance, and achieved first an immediate drastic reduction in the investment manager’s fee and subsequently the termination of its contractual appointment on favourable terms. Terminated the appointment of third-party property consultants in Bulgaria engaged by the former board on opaque terms and settled ensuing dispute over contractual entitlements on termination. 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. Established an investment management subsidiary in Bulgaria and recruited staff to manage the real estate investments and the divestment programme. Secured shareholder approval. The re-structuring produced immediate cost savings in the region of £1.5 million per annum for the duration of the divestment programme. Unravelled a number of bizarre financial investments in property developments.

Outcome

The board achieved the gradual complete realisation of assets in an orderly way to secure the best returns achievable for investors in a deteriorated real estate market, concluding after full asset realisation with the distribution of net proceeds to investors at the end of the company’s planned life-cycle.