US buyout firm Forstmann Little & Co has rejected claims by Connecticut state pension plan officials that it has mismanaged two funds in which Connecticut has invested over $100m.
The disagreement centres around investments made by Forstmann in two now troubled telecomm companies, XO Communications and McLeodUSA. Connecticut is unhappy about the investments being made in the moribund telecoms sector. It is also unhappy that the buyout firm elected to invest further capital in the firms despite making write offs ($1.5bn of the $1.9bn the firm had put into XO Communications has been written off).
State treasurer Denise Nappier is demanding the return of the $96m the state invested in the Forstmann Little funds and the cancellation of total further commitments of $200m. McLeodUSA filed for Chapter 11 bankruptcy protection in January of this year, whilst XO is reported by Bloomberg to have missed debt payments.
The suit also was prompted by the Forstman Little's allegedly inadequate communication with its LPs, although as yet no other investor in the Forstmann funds has stepped forward to join Connecticut in its claim.
Forstmann Little has stated that the suit is without merit and that it will fight the claim. In a statement it said: 'The State of Connecticut is a sophisticated institutional investor which was fully informed about the nature and scope of these investments and didn't question them at the time.'