September 26, 2020

Kerr under pressure in fund revolt [domiciled in Cayman Islands]

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10553647By Tim Hunter From Stuff

Investors in a secretive private equity partnership are rebelling against its manager, enigmatic Kiwi businessman , as scandal threatens to engulf the $240m fund.

The Torchlight Fund, now domiciled in the , was formed in 2010 to invest in distressed assets such as South Canterbury Finance.

The identity of its partners has never been formally disclosed but Fairfax NZ understands they include New Zealand government entities Crown Asset Management and ACC, whose estimated respective exposures stemming from the South Canterbury collapse are about $30m and $2.5m.

NZX-listed Pyne Gould Corporation, whose majority shareholder and managing director is Kerr, also has a 27 per cent stake in Torchlight valued at $59m. Another big investor is the Bear Real Opportunities Fund run by Australian financial advisory firm , which is understood to have an exposure of $60m.

On Thursday the Australian Financial Review reported Van Eyk’s Sydney offices had been raided by the Australian Securities and Investments Commission as it investigates alleged irregularities at its fund management division.

The concerns stem from another Van Eyk fund’s A$31m investment in London-based Artefact Partners that is believed to have also been channelled into Torchlight.

When the money could not be repaid on demand, Van Eyk was forced to freeze its Blueprint International Shares fund in early August – a move that led to its own collapse into administration on September 15.

Amid regulatory probes into Van Eyk on both sides of the Tasman, the Torchlight general partner is under increasing pressure over its handling of Torchlight.

Among sources’ worries is an apparent discrepancy in Torchlight’s accounting of a land deal on the outskirts of Wanaka.

The land, in an area known as the Outlet where the lake flows into the Clutha River, is part of a residential development planned by Queenstown-based investor Chris Meehan and his wife Michaela, a former Danish Olympic sailor.

According to property records, the 108-hectare plot was acquired by Torchlight entity Real Estate Southern Holdings in June 2010 for $17 million. Two years later, in July 2012, it was sold to Michaela Meehan for $32.5m.

That’s a remarkable gain, but Torchlight investors are curious about how the fund’s accounts appear to have recorded the transaction. Audited financial statements seen by the Star-Times show Torchlight recorded a loss on disposal of investment property of A$6.6m ($7.2m) in the year to March 2013.

The Wanaka land was transferred in May to a company apparently owned by trustees whose sole director is also the sole director of Real Estate Southern Holdings.

One Torchlight investor expressed frustration at the fund’s disclosure.

“I’ve found getting information out of Torchlight near on impossible,” he said. Accounts were late and very hard to interpret.

Fairfax NZ asked Kerr why the accounting treatment of the land sale did not appear to match the property record. In a statement, he said the transaction was “only a few million dollars – nothing like $32.5m”. The land was sold for cash and a future right to receive 100 lots subject to zoning.

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Meanwhile, investors say they are mystified by a A$10.3m performance fee claimed by Torchlight’s general partner, a subsidiary of Pyne Gould, after the shift to the Cayman Islands in November 2012. Kerr said the restructuring made the partnership more tax efficient for overseas investors and allowed it to raise A$100m.

But it is also subject to potential legal action by receivers of the previous vehicle, Torchlight Fund No 1 LP, chasing an alleged debt of A$33.6m. The claim relates to A$37m borrowed in August 2012 by Torchlight from Australia’s John Grill, founder and former CEO of engineering firm Worley Parsons.

The loan was for 60 days, with any extension carrying a fee of A$500,000 a week. Torchlight’s accounts say the loan was outstanding by March 2013 and it had agreed to repay A$57m in principal and fees. Only A$37m has since been repaid.

Receiver, Kare Johnstone of McGrathNicol, said the transaction shifting assets to the Caymans was being investigated. “Our key duty is to gain control of the assets,” she said.

Kerr said the general partner was confident it has the support of the overwhelming majority of limited partners.

THE TANGLED WEB

George Kerr, New Zealand businessman, managing director and 77 per cent shareholder of: Pyne Gould Corporation, a listed investment company which is 27 per cent shareholder and managing partner of: Torchlight Fund Limited Partnership, whose London-based executive is: Richard Boon, founder of Artefact Partners, a hedge fund co-owned by George Kerr whose investors included: Macquarie Bank and the Blueprint International Shares Fund, whose manager was: Van Eyk Research, on whose special investment subcommittee was: George Kerr and whose responsible entity was: Macquarie Investment Management whose former shareholder was: Torchlight, and whose products included: The Bear Real Opportunities Fund, a A$55m investor in: Torchlight Fund LP

IMAGE: George Kerr Fairfax NZ

For more on this story go to: http://www.stuff.co.nz/business/industries/10553642/Kerr-under-pressure-in-fund-revolt

 

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