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ADIA’s position in Deutsche Annington revealed

The sovereign wealth fund’s position has been disclosed amid a change of structure at Deutsche Annington, in which investors in a private equity real estate fund owning a majority of the company are being offered an exit not in cash but in shares in the company.

The Abu Dhabi Investment Authority (ADIA) has emerged as a 13.4 percent shareholder in Deutsche Annington, Germany’s largest publicly traded owner of residential property with 180,000 units.

Up until now, that detail was not public, however the sovereign wealth fund has been required to make the disclosure under Germany’s financial market rules after Deutsche Annington proposed to alter its investment structure.

The German public property company is currently at the centre of an innovative exit strategy organised by London-based private equity firm Terra Firma, which took it public in 2013.

Under the strategy revealed last week, investors in a 2006 Terra Firma Deutsche Annington Fund (TFDA) that owns 67.3 percent of the company would be offered the chance not to cash out their investment but to be paid out in shares in the company instead.

ADIA is now known to have been one of the largest investors in the €1.4 billion (TFDA) fund.

Terra Firma’s plan to make a distribution ‘in specie’ has been received with interest among the private equity industry because of its unusual nature.

Terra Firma took Deutsche Deutsche [delete] Annington public when investors in the fund with just one investment saw their holding reduced from 82.5 percent to 67.3 percent giving them a partial return.

In a statement about the plan for the rest of their investment, Terra Firma said the exit strategy meant investors could now “enjoy the opportunity to take advantage of stock market liquidity to realise returns over their own desired holding period.” As a result of the strategy, Terra Firma is foregoing five years’ of fees.

Sources suggested that limited partners were happy with the arrangement which has also piqued the interest of the fund management community because normally distributing in specie is limited at least during the life of the fund to distributing liquid securities.

One European LP said: “Most of them [LPs] can’t hold listed shares since these are part of a different allocation (listed stock). As a consequence most LP’s start selling and prices drop due to the high supply of the PE holders who like to sell,” he added.

The Deutsche Annington fund was set up to hold a specific entity and investors bought into the fund knowing the entity they were buying as opposed to a typical blind pool.

“I imagine a lot of investors will know the asset well and may want to continue holding that asset in the long term so it may be in this case investors were much more positive about distribution in specie,” said a fund lawyer. “They may think there is more life left in this investment.”

Indeed, last week, JP Morgan Private Equity said it had participated in selling about one quarter of its stake and would receive three quarters of its stake in-kind via shares in the company.

JP Morgan reportedly gained exposure to Deutsche Annington by investing in TFDA and in 2008 acquired a larger stake still.