Headland to focus on unrealised investments

Headland Capital Partners’ announcement that it was to halt fundraising for its seventh fund last month should perhaps have not been a huge surprise.

Private Equity International broke the news of the launch of its seventh Asian fund last November, with Headland understood to be targeting a $1 billion close.

It was to be the first raised as a standalone entity, after the firm had spun out from HSBC Asia in 2010, and Headland’s popular duo, then chief executive George Raffini and current chief executive Marcus Thompson, would have been encouraged by a number of successful recent exits and a jump in distributions back to investors.

PEI understands that HSBC was expected to take a significant stake in its seventh vehicle as it had done in its previous funds. 

Headland’s sixth fund was closed at $1.34 billion with industry sources indicating that HSBC was by far the biggest investor.

As well as its own stake, HSBC had placed Fund Six through its own private bank, and high net-worth retail clients took its total commitment to “more than half the fund”, according to two sources familiar with the situation.   

However, changes to the regulatory backdrop meant the bank decided not to make any new commitments and to hold onto its stake in Headland instead, although the latter has confirmed to PEI it has now bought back the entire stake.

With its biggest backer gone, and a smaller base of committed LPs, the $1 billion target looked more ambitious, especially as overall performance on Fund Six had been poor, although fundraising agent MVision is understood to have worked hard to raise capital.

Palico data benchmarking Headland’s performance against all 21 funds that closed between 2007 and 2009 with the same pan-Asian remit showed an average return of 6.8 percent IRR, with a top quartile average of 10 percent IRR, as of the end of December 2014.

Between June and December 2014 Headland’s sixth fund saw its net IRR rise to 6 percent from 1.3 percent – although net IRR had been just
0.4 percent in December 2013.
Since then, the firm has received a number of setbacks which have pushed the fund’s IRR back toward negative territory. 

Further substantial write downs in two Singaporean oil and gas firms have also weighed heavily on Fund Six and the firm admitted to PEI that it had bought back control of serviced office operator The Executive Centre through a mix of new and existing capital this year.

That had been sold to CVC Asia for a 2.5x multiple in mid 2014, but irregular accounting was behind the decision to buy it back.

Headland CEO Thompson told PEI the incident had been a “very unfortunate situation involving some accounting”, but that that it had now been resolved. He added: “The company today is enjoying very strong growth and record levels of revenue and profitability.”

Thompson said the focus now was on keeping the team together and maximising value from the eight remaining companies in Fund Six as well as a further five in its smaller third venture capital fund, to improve its overall track record.