Australian firms battle over track record

The court case between PEP and spin-out Adamantem shows why attribution is crucial.

Pacific Equity Partners’ lawsuit against spin-out firm Adamantem Capital shows that attribution of track record means everything, especially in a market like Australia, which is dominated by a handful of well-established private equity players.

PEP lost its New South Wales Supreme Court legal action in late September against former managing directors Anthony Kerwick and Rob Koczkar, founders of Adamantem, over a case of potential breach of contract. The Sydney-based buyout firm filed a claim in April this year alleging the Adamantem team might have used confidential information such as the financial performance of PEP’s funds and portfolio companies in its fundraising materials, which “would cause significant damage to PEP’s business”.

Kerwick and Koczkar disputed the claim and maintained they have acted appropriately at all times, pursuing other interests in business and philanthropy after leaving PEP in 2014 and before establishing their own fund in July 2016. The pair were reportedly instrumental in delivering much of the early track record of PEP, having managed more than 10 investments between them from 2004-14. Their firm Adamantem reached a A$300 million ($235 million; €200 million) first close on its debut fund late last year, and is expected to hold a final close by the end of the year.

A lot of work goes into track record attribution when it comes to spin-outs. If the old sponsor won’t give permission to use the attribution, it has to be reconstructed from publicly available information and interviews – often with an independent third party –for the protection and legitimacy of the spin-out. The concept of attribution itself can be a grey area. A firm of PEP’s size will have multiple investment professionals working on a deal and it can be tricky to attribute its performance to one managing director.

PEP claimed that Adamantem included confidential information on its investments in integrated facility services company Spotless, poultry company Tegel Foods and credit information company Veda, among others. The Adamantem team, on the other hand, said private equity deals are reported by the press, by public market investors in private equity and by subscriber databases.

PEP is Australia’s largest and oldest private equity firm with more than A$2 billion in total assets under management. Its legal action was described by one Sydney-based consultant as “completely unusual”.

With PEP and Adamantem, there’s clear incentive for both sides to protect their claim to as much as the track record as they can. Any uncertainty on track record could dissuade LPs from investing in Adamantem’s debut fund, while for PEP it has a signalling effect; reassuring the market that their investment expertise remains in situe, while warning other potential spin-outs that it won’t be a soft touch on attribution.

The firms declined to comment beyond statements emailed to press.