In what constitutes one of the UK’s first hostile removals of a private equity management company, institutional investors have forced the general partner of a mid-market private equity fund to hand the running of its portfolio to a new manager.
Albemarle Private Equity, a London-based investor in the UK mid-market led by David Wills and Graham Barnes, has been removed as manager of a £44 million private equity fund that was organised in 1996.
According to people close to the situation, almost 90 percent of the limited partners in the fund, Albemarle’s third, joined forces to replace the incumbent general partner with Nova Capital Management, a London-based acquirer of private equity and venture capital direct investment portfolios.
Sources familiar with the situation report that prior to moving to oust the original management team, the investors sought to reach agreement on terms under which Albemarle would resign.
The LP syndicate was led by Martin Currie. The Edinburgh-based asset manager is the largest investor in the Albemarle fund. Other LPs in the fund who are believed to have supported the removal of the general partner include Rover Pension Fund, Axa Equity Law and Insight Investment.
Newgate Partners, a specialist private equity advisory firm based in London, acted as advisor to the investor group.
Yet to be resolved is the issue of how much compensation the departed manager is owed at this point. Albemarle declined to comment beyond confirming that it has “issued proceedings in the High Court for the compensation to which it is entitled under the Limited Partnership Agreement.”
A Nova Capital spokesperson declined to comment.
Limited partners in private equity funds are increasingly concerned about managers that they believe are failing to deliver returns whilst continuing to charge fees for the management of mature but unrealised investment portfolios.
Once completed, the Albemarle case is likely to inspire other investors in funds that they feel are under-managed to think about similar measures against the general partners advising these funds. The result could be a significant increase in involuntary consolidation activity in the asset class.
However, whether other investor groups keen to remove a manager of a limited partnership will come to the fore depends in part on how much confidence they have that they are legally in a position to effect change. This will in turn depend on the documentation that governs the partnerships in question. Fund formation experts describe Limited Partnership Agreements entered into in the 1990s as often written in terms favouring the general partner – not least in situations where limited partners may be seeking to force a change of manager.