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COMMENT: Mutual gain, zero pain

Not all opportunistic tail-end fund disposals mean pain for the seller, as was demonstrated in Niam’s sale from its 2004 vintage Nordics fund to Partners Group this week.

In April, we said in this column to “behold the goal hangers”, a set of opportunistic investment managers tracking other firm’s funds that were coming to the end of their natural lives with the purpose of picking off straggling assets on the cheap.

We positioned this type of investing as a boon for those firms able to spot such assets, and a negative for those firms that had mistimed their realisation strategies.

Like the soccer player who hangs around the goal waiting to score after others have done all the hard work to get the ball up the field, the investment manager able to snaffle such investments has to do relatively little work for its return.

For the latter, despite having already done the heavy lifting for their assets, they typically end up selling after receiving pressure from their investors, their lenders, or both. Investing can be cruel sometimes.

This week we learned, however, that not always are these scenarios representative of one firm’s gain for another’s pain. On Monday, one such transaction that could be labelled as ‘goal hanging’ was announced. But the deal – on the face of it at least – actually saw all sides move on happy.

Zug-based private markets investor Partners Group acquired 4 million square feet of retail and office properties in Sweden and Finland from Stockholm-based Niam’s Nordic Fund III at an attractive discount. And yet this transaction happened with total endorsement from the fund’s investors.

As it turns out, Niam already had generated the opportunistic returns that it had targeted for the investors in the 2004 vintage vehicle. Ten years after it was raised, and with these properties still residing in the vehicle, they were quite contented to exit and be replaced via a sale of their units to Partners – even if there potentially is more value to be extracted from them.

Though the Swiss firm paid less than the assets’ €300 million valuation, the investors were gifted further liquidity on top of a job already well done. The risks associated with exposure to these assets could also be passed on.

For Niam, it was good business too, for the firm could continue to execute on an asset management strategy for the assets via a newly-structured joint venture. That means a new incentive package, similar to that of a GP in a fresh commingled fund. The firm now has another five years on the clock and, via its co-investment, management fees and carried interest can be bolstered with capital gains from the assets.

True, these properties no longer are expected to generate the high teen IRRs they previously were. But Niam’s seniors believe they are still good for a lower teen, value-added style return. That is income innovatively retained, even if it has been recalibrated on a lower basis.

So, just as Partners has a relatively easy “tap in goal”, in this instance, Niam is kicking the ball every bit as much as its new bedfellows from Zug.