GMT Dot-Com Era Fund Restructuring Said to Hit Pay SnagKiel Porter
GMT Communications Partners Ltd.’s attempts to let investors recoup commitments they made to a fund during the dot-com bubble are hitting a snag: some of the private equity firm’s backers want dealmakers to hand back part of their compensation, people with knowledge of the talks said.
GMT, which traces its origins back to U.K. merchant bank Barings, hired Park Hill Group LLC to find buyers for investors’ stakes in a 368 million-euro ($506 million) pool the firm raised in 2000, said the people, who asked not to be identified because the talks are private. Managing partners Timothy Green and Jeffrey Montgomery appointed Park Hill after struggling to sell all the fund’s investments.
The private equity firm is at least the eighth since January 2013 to restructure a fund to raise capital or get more time to sell companies as they try to sell previous investments and return money to backers, most usually pension plans. London-based Argan Capital started talks in January to sell stakes in the 425 million-euro fund it manages.
“Fund restructurings and liquidity solutions, if done correctly, can provide an exit for longstanding investors while allowing the firm further time to maximize the value of their portfolio and possibly access new capital,” Nicolas Lanel, managing director and head of European private capital advisory at Evercore Partners Inc. said by telephone. “However, meeting the diverging objectives of all stakeholders is a balancing act which few will be able to pull off successfully.”
GMT’s talks are stalling over calls that the executives should repay some of the profit they received from earlier asset sales because the restructuring would force investors to crystallize a loss, the people said. GMT’s current and former executives are divided over whether to hand the money to investors, the people said.
Green and Montgomery didn’t respond to telephone and e-mail requests seeking comment. Officials at GMT and Park Hill declined to comment on the negotiations.
Private-equity deal makers typically keep 20 percent of the profits from the sale of companies, known as carried interest. They usually receive the money only once investors have received a sum equal to their original commitment plus an agreed rate of interest, usually 8 percent.
In GMT’s case, that condition didn’t apply and executives immediately received a share of the profit from each company sold by the fund, the people said. In return, investors were given the right to claw back that money if the fund didn’t meet agreed return targets, the people said. If the pool were wound up today, executives wouldn’t be able to keep all their profit, two of the people said.
The GMT fund has sold assets, including an 8 percent stake in Dutch cable operator Casema NV to Cinven Ltd. and Warburg Pincus LLC in August 2006. It still owns stakes in Spanish billboard operator Redext and German business-to-business publisher DOCUgroup AG, according to GMT’s website.