The former Babcock & Brown affiliate Everest Capital looks set to face another challenge. There is talk at least one rival investment firm is hoping to snare control of another of the embattled group's funds.
It is rumoured the same Isle of Man-domiciled hedge fund that wrested management control of the listed Everest Babcock & Brown Alternative Investment Trust in February is looking for seconds.
Laxey Partners, which was chosen by an overwhelming vote to replace Everest as the responsible entity of the Alternative Trust, is believed to be planning to lobby unitholders in the Everest fund that invested in the "deal flow" (aka debt) produced by B&B - the Babcock & Brown Income Fund.
This was the same $170 million fund from which one Everest founder, Jeremy Reid, withdrew his own funds just months after pledging to put more money into a July 2007 raising, which was later aborted.
Reid and his co-founders did not include that original pledge to double their investment to $60 million in the documents that later accompanied its September 2007 raising.
Reid's withdrawal of the bulk of his units in the Income Fund in 2008 seems not to have impressed some investors who are yet to redeem all of their investments. The biggest investor is the eastern suburbs anaesthetist Joe Ross, who put $50 million into the fund. He is now suing Reid and Everest, claiming to have been misled when he injected $25 million in the 2007 raising.
COUPLE OF COINS
Another former associate of Babcock & Brown, GPT, has showcased its ability in reading investment cycles. The property firm announced yesterday that it was "pleased" to sell its London-based Halverton asset management arm for ?2 ($3.20). GPT and B&B bought their initial half stake in Halverton in 2006 for $25 million.
PALM IN A GALE
Philip Adams, the co-founder of the sunken Gold Coast financial engineer MFS (aka Octaviar), could be forgiven for having a sense of deja vu.
Adams, who left Australia to help MFS's expansion into Dubai before the firm's multi-billion dollar collapse, might be getting the wobbles living on one of the fronds of the giant man-made palm tree island which juts out of the emirate.
Yesterday Nakheel, builder of Palm Jumeirah, was desperately seeking a reprieve from the repayment of a $US3.52 billion ($3.9 billion) bond issue that is due. At the time of its listing, it was the largest listed sukuk (Islamic bond) on issue.
Adams, meanwhile, continues to keep a low profile. Last month he was sent a bankruptcy notice from the liquidator of Lift Capital, McGrathNicol.
Adams and MFS co-founder Michael King took $13.7 million in loans from Lift. Altogether, they had $127.2 million in margin loans over their now worthless 13 per cent stake in MFS. While King struck a two-year insolvency agreement with creditors in August to avoid bankruptcy, Adams has so far proved harder to track down.
PRICE IS RIGHT
Adams appears to be struggling to find clientele for his corporate consultancy in Dubai, Agilis Global. The firm still has Stuart Price listed as its chief executive, despite the former head of MFS's international (aka Dubai) operations having returned to Australia midway through the year.
Price is now chief executive of the Adelaide law firm Kelly & Co. On the Kelly & Co website Price appears coy about his recent job history. It notes his time as head beancounter at Elders Rural Bank but makes no mention of MFS, where he worked for two years before helping set up Agilis.
When the Herald contacted Price he said he was tied up in a business lunch and would have to call back. He failed to call and also appeared to have his phone on message bank for a large part of yesterday afternoon.
FLYING ROCK
The Qantas budget offshoot Jetstar has played down speculation it is the The Rock Building Society of the airline sector. One week after Westpac's retail banking boss, Peter Hanlon, declared the bank was not the Jetstar of the financial sector, the low-cost airline has refused to say which bank it compares itself to.
"We're not the Jetstar of banking but we do know we are the Jetstar of airlines," was the response of the airline spokesman, Simon Westaway.
Meanwhile, the Westpac of banking has again failed to provide a translation or internet video of a really complicated transaction it engaged in yesterday. The credit agency Moody's announced the bank had issued $1 billion of residential mortgage-backed securities and assigned an Aaa rating to the largest tranche of the debt. "The ratings also take into account the liquidity facility and the experience of Westpac in servicing residential mortgage portfolios," said Moody's.
What the ratings agency was trying to say was that Westpac had borrowed a very large bunch of bananas. It then broke up the bunch and lent single bananas at a higher interest rate to a large group of monkeys. These bananas were turned into a bunch of profits for Westpac. When the bananas were returned Westpac liquefied them into a giant banana smoothie.
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Frequently Asked Questions about this Article…
What’s happening with Everest Capital and Laxey Partners over the Everest/Babcock & Brown trusts?
The article says an Isle of Man–domiciled hedge fund that took control of the listed Everest Babcock & Brown Alternative Investment Trust in February is rumoured to be targeting another Everest-linked fund. Laxey Partners was chosen by an overwhelming unitholder vote to replace Everest as the responsible entity of the Alternative Trust, and is believed to be planning to lobby unitholders in the related Babcock & Brown Income Fund.
Which Everest-linked vehicle is reportedly under pressure next — the Babcock & Brown Income Fund?
Yes. The piece reports that the hedge fund (the same one involved earlier) is believed to be aiming to take control or influence the unitholders of the Babcock & Brown Income Fund, the debt or “deal flow” vehicle tied to Babcock & Brown.
Why is Everest founder Jeremy Reid mentioned and should investors be concerned?
Jeremy Reid is mentioned because he pledged additional money into a 2007 raising but then withdrew the bulk of his units from the $170 million Income Fund in 2008. The article notes he did not include his earlier pledge in later documents. Some remaining investors were unhappy and have not fully redeemed, which is a reminder for investors to watch founder actions and disclosure when assessing fund stability.
Are there any legal claims connected to the Everest/Babcock & Brown funds?
Yes. The largest investor in the Income Fund, Joe Ross (an eastern suburbs anaesthetist), invested $50 million and is reported to be suing Jeremy Reid and Everest, claiming he was misled when he invested $25 million in the 2007 raising.
As an everyday investor, what practical steps should I take if I hold units in these Everest/Babcock & Brown funds?
Based on the article’s coverage, investors should review recent disclosures, track any changes in responsible entities (for example Laxey replacing Everest), monitor investor communications about potential lobbying or control changes, consider the implications of founder withdrawals or legal actions, and decide whether to seek independent advice or redeem holdings depending on your risk tolerance.
What happened with GPT and the Halverton asset management sale mentioned in the article?
The article reports that former Babcock & Brown associate GPT sold its London-based Halverton asset management arm for a small amount (reported as ?2, approximately $3.20 in the story). GPT and Babcock & Brown had bought their initial half stake in Halverton in 2006 for about $25 million, illustrating how timing and market cycles can affect asset values.
What does the article say about Philip Adams, MFS/Octaviar and related financial fallout?
Philip Adams, a co‑founder of MFS (also known as Octaviar), left Australia to expand into Dubai before the firm’s multi‑billion dollar collapse. He has faced a bankruptcy notice from the liquidator of Lift Capital. The article notes Adams and MFS co‑founder Michael King took $13.7 million in loans from Lift and together had $127.2 million in margin loans over a now‑worthless 13% stake in MFS; King reached a two‑year insolvency agreement while Adams has been harder to track down.
How did Westpac’s recent mortgage‑backed securities deal get described and what does Moody’s say?
The article reports Westpac issued $1 billion of residential mortgage‑backed securities, and Moody’s assigned an Aaa rating to the largest tranche. Moody’s said the ratings take into account the liquidity facility and Westpac’s experience servicing residential mortgage portfolios — a high rating but one the article explains with a colourful banana metaphor to describe repackaging loans into securities.
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