BoA Merrill Lynch completes $650m settlement with Asia LPs

The limited partners of Bank of America Merrill Lynch’s $2.65 billion Asian Real Estate Opportunities Fund have unanimously approved the bank’s offer of a settlement, following actions by the bank that were considered non-fiduciary.

The approximately 25-member investor pool has accepted a settlement valued at $650 million, the decision of which was made prior to – but rubberstamped at – an investor meeting in Hong Kong last week. 

The settlement, revealed by PERE, was provisionally agreed upon with the limited partners advisory committee (LPAC), which includes large LPs such as the Abu Dhabi Investment Council, the General Electric Pension Trust and French insurance group AXA, in late August.

The LPAC subsequently embarked on a roadshow to garner approvals from the remaining limited partners, ultimately gaining more than 97 percent backing – comfortably enough to push the settlement through. PERE understands the settlement, considered by many commentators as a ‘no-brainer’ for the LPs, was made up of cash and other items, including fee considerations. It is expected to be paid during the upcoming fortnight.

The settlement marks something of a landmark in private equity real estate in that it is the first major example of compensation paid to limited partners following the global economic downturn. Despite that, however, many commentators believe it will not spark a flurry of similar settlements, as the situation surrounding the settlement was particular to events occuring during the takeover by Bank of America of Merrill Lynch at the turn of 2009.

The settlement came about after the limited partners of the fund objected to certain actions by BoA ML that they considered to be non-fiduciary. These included an ill-timed foreign exchange trade and some poorly executed valuations adopted when transferring real estate assets, previously held on the bank’s balance sheet, into the fund.

As part of the settlement, Blackstone is expected to assume general partner and fund management duties from BoA ML, absorbing between 25 and 30 members of the platform’s approximately 50-person team. The platform had staff working on investments spread across both Asia’s emerging markets, like China and India, as well as the region’s more established markets, like Japan and Korea. 

The majority of the team to make the transition to Blackstone will be asset management focussed, rather than investment focussed, as the fund is fully invested. The team will fall under the leadership of Blackstone’s Asia triumvirate of country heads Alan Miyasaki in Japan, Chris Heady in Hong Kong and Tuhin Parakh in India.

For a detailed analysis of the events leading up to the settlement, check out the current issue of PERE.