EUROPE NEWS: More still to come

Nobody truly knows the number of occasions that the management of a private equity real estate fund has transferred to a different manager in Europe. This is partly due to the secretive nature of ‘change of control’ deals. What is clear, however, is that there are examples still emerging even though five years have elapsed since the catalyst of many of them – the global financial crisis.

Last month, PERE revealed one such instance when limited partners agreed to a change of control for the German Commercial Properties Fund from Corestate Capital to London’s Tristan Capital Partner. The reason for Corestate stepping back from the fund, which has €280 million of gross assets in Germany, is linked to the Zug-based firm’s decision to turn to club deals rather than manage traditional funds in the wake of a difficult fundraising climate.

Internos Global Investors has taken over no fewer than seven funds since it was established in March 2008 and currently is working on another transaction. “These are all different situations, but typically it falls broadly into four broad categories,” explained Jos Short, co-founder of the London-based firm. “Either limited partners are unhappy with the performance of the general partner; the banks have control and are unhappy with the GP; the board of directors of a listed company has decided to replace the manager for whatever reason; or a firm decides to shut down and out of that comes a manager replacement opportunity.”

Internos’ most-recent announcement in the fund consolidation and takeover arena was announced in June. It involved the publicly-traded Local Shopping REIT, for which Internos has been brought in as investment manager to handle a liquidation process. However, experts noted that there have not been many examples of changing GPs, citing a number of factors such as the complexity of the process and costs.

In the case of Corestate, its fund was scheduled to mature in July and, ahead of that, the firm held discussions with its investors whether to extend the fund or not. Investors including Partners Group, CBRE Global Investors and Finland’s Pohjola have not commented on the decision, but PERE has learned that Corestate entered into discussions to ‘sell’ the fund to a private equity firm over the summer. Instead, Tristan arrived on the scene to take over management of the fund.

Market participants have wondered whether Tristan, led by Ric Lewis, suddenly had moved into a new investment area of fund recapitalizations or successor asset management. The firm declined to comment as did Corestate, but sources suggested that Tristan’s decision to step in should be viewed as “friends helping friends.” Indeed, a number of LPs in the Core-state fund are clients in Tristan’s funds.

The question that needs to be answered presently in Europe is whether there will be less or more management consolidation. On the one hand, there seem to be many firms in need of a solution to issues facing them regarding continuing management of certain funds. On the other, US investors are showing more appetite for opportunistic funds, meaning managers could be more focused on raising capital than in taking over other group’s vehicles.

“It is hard work taking over other people’s funds,” said Short. “One has to integrate them, sort out the IT, absorb teams and so on. A lot of time and management goes into it.”