Kolade’s unintended spin-out

ISIS Equity Partners, led by Wol Kolade, will soon cease to be a captive operation – a move prompted less by a hunger for independence than a pragmatic view on hindering accounting rules, writes Jonn Elledge.

At the end of this month, Wol Kolade will find himself in control of an independent limited liability partnership. It will be responsible for the private equity funds and venture capital trusts (VCTs) previously controlled by ISIS Equity Partners (ISIS), the private equity arm of UK fund manager F&C Asset Management that is owned by Friends Provident, the listed UK insurer. In total, the new entity will oversee assets worth approximately £500 million ($906 million; €740 million).

In the long-term we had ambitions to raise more third party funds, but there was no timescale planned for it

Wol Kolade, Managing Director, ISIS Private Equity

Yet despite the transformation into a non-captive player being completed now, spinning out was not an ambition that has been at the front of Kolade’s mind. “In the long-term we had ambitions to raise more third party funds, but there was no timescale planned for it,” he says. “This came up as a result of Friends Provident having to resolve issues arising from accounting standards changing.”

Kolade is referring to the framework of accounting rules known as International Financial Reporting Standards (IFRS), which state that a company must account on its balance sheet for the finances of any subsidiary of which it owns more than 51 percent. IFRS was issued by the Board of the International Accounting Standards Committee in April 2001, after which the European Union, motivated by the success Enron had had in disguising the terminal problems in its subsidiaries by excluding them from its accounts, decreed that companies operating in Europe had to conform to it by the end of 2005.

This presented a problem for ISIS, which following the merger of ISIS Asset Management Plc and F&C (Group Holdings) Ltd last October became a subsidiary of F&C Asset Management – a business that in turn is a subsidiary of Friends Provident. Under IFRS, Friends Provident would have been required to include information about ISIS’ portfolio companies in its accounts – which according to Kolade, would have been “a bit of a nonsense”.

“It makes no sense for these companies to be included on Friend’s Provident’s balance sheet,” he says. “They’d just cloud its accounts.”  And in a publicly traded company, where shares are only worth what investors say they are worth, that would not be helpful.

Wol Kolade, managing director, ISIS Equity Partners

To avoid the clouds, ISIS is spinning out under the name ISIS Equity Partners LLP. F&C, which currently owns 100 percent of the group, will transfer 80 percent of ISIS’ equity to Kolade and his team in order to exempt itself from including the firm and its portfolio investments on its balance sheet.

But other than the ownership structure, according to Kolade, surprisingly little is changing at ISIS. The equity transfer to the ISIS team will take place at no consideration, and ISIS and F&C will maintain the same 80/20 split of ISIS’ profits that is in place already. ISIS will also continue to use F&C as a provider of marketing, distribution, legal, accounting, secretarial and other support services.

Moreover, ISIS will retain its current offices in London, Birmingham and Manchester, and it will also keep its staff, with Kolade at the helm.

That he didn’t plan to be in charge of an independent firm quite yet seems fitting for a man who says he didn’t plan a career in private equity in the first place.

Having graduated from King’s College, London, Kolade began his career in engineering. However, after taking an MBA from Exeter University, he took up a new role in strategic planning and credit analysis with Barclays Bank. It was while with the bank that he was seconded to one of ISIS’ portfolio companies. “I liked what I saw, and didn’t come back again,” he says.

After joining ISIS itself in January 1993, he rose through the ranks and became the group’s managing director in April 2000. Now that the task at hand is to grow his firm as a newly independent private equity operation, a return to engineering for Kolade seems less likely than ever.