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Absolute Capital Man (ACMH)

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Wednesday 19 September, 2007

Absolute Capital Man

Funds Update

Absolute Capital Mgmt Holdings Ltd
19 September 2007


         Absolute Capital Management Holdings ('ACMH' or the 'Company')


                                  Funds Update


Following the recent resignations of former Chairman and Chief Executive Officer
Sean Ewing and Co-Chief Investment Officer Florian Homm, the Board of ACMH has
begun a review of the equity fund business and in particular the portfolios of
the investment funds previously under Florian Homm's immediate control. The
preliminary results of this review indicate that seven of the eight Absolute
Capital equity funds contain quoted investments which the Board believes are not
immediately realisable at their stated values due to their illiquid nature. All
such equity investments are carried at market price as reported through the
US-based Over the Counter Bulletin Board / Pink Sheets and have been marked to
market in accordance with industry practice. However, as liquidity adjustments
are not contained in the funds' valuation methodologies, current net asset
values do not reflect the immediately realisable value of such investments.
Subsequent to Florian Homm's resignation, the Company has received in excess of
$100 million in redemption notices, which, combined with the illiquid positions
described above, will force the suspension of the calculation of the funds' net
asset values and investors' ability to redeem fund shares in the normal course.


The Board estimates that approximately $440 million to $530 million of the
equity funds' assets are affected in this way. The bulk of these investments are
in the funds previously managed directly by Florian Homm. However, a smaller
amount is present in the Company's other equity funds as a result of Florian
Homm's ability to effect trades on all of the Company's equity funds.


It is believed that the following funds hold illiquid positions in the following
amounts:

Assets Under Management        31st August       Illiquid Positions
                                2007, $m             % of assets
EQUITY
Absolute Return Europe             490                 35-40%
Absolute European                  273                 25-30%
Catalyst
Absolute Germany                   381                  1-5%
Absolute East West                 222                 15-20%
Absolute Octane                    342                 40-45%
Absolute Large Cap                 137                   0%
Absolute Activist Value            241                 10-15%
Absolute India                     18                   1-5%
Sub total Equity                 $2,104



As a result of the foregoing, the Board is intending to implement, subject to
investor approval, a restructuring of the equity funds to create a 'side pocket'
share class structure. The illiquid positions would be transferred into separate
portfolios to which newly issued side pocket shares will relate. Following the
restructuring, fund investors will hold two classes of shares in each of the
funds, the first tracking the funds' liquid portfolio and the other the illiquid
portfolio. The funds' liquid portfolios would continue to be traded in the
normal course using current NAV calculation methodology, whilst the illiquid
portfolio would be re-priced following extensive due diligence with the
assistance of independent outside advisors. The funds' illiquid portfolios would
be managed with a view to orderly realisation. As part of this proposed
restructuring, the equity funds would seek a 12 month lock-in from all
investors. The effect of this action will be to close the affected funds to
redemptions for the period, thereby ensuring that all investors in the funds are
treated equally. The management fee will remain in place and some adjustment to
the performance fee structure will be proposed. The Company is confident that
the orderly liquidation of the illiquid positions in the foregoing manner will
maximise realisation to fund investors. The Company has held discussions with
large fund investors, who have indicated their preliminary support for the
proposal.


The Company believes that the proposed restructuring of the equity funds and the
imposition of the lock in period will provide stability to its equity fund
business and additional flexibility to create value for all stakeholders.


The Board of ACMH wishes to emphasise that a large part of the company's assets
under management comprising its fixed income and real estate business, which are
managed independently and have approximately $1 billion and $130 million
respectively under management, are not affected by these matters.


The Company has received notification from the vendors of the Argo Group
(acquired in February, 2007), that as a result of the above events, they
consider that the Company has breached certain representations and warranties
given pursuant to the purchase agreements. Under those agreements, the Argo
vendors had reserved the right to veto increases above 20% to the Company's
employee bonus pool. Florian Homm's resignation letter alludes to disagreement
with the Board over the size of the Company's bonus pool. The arrangement that
resulted in these veto rights for the Argo vendors was borne of the insistence
by Florian Homm and others that the Company's bonus pool should remain at 20%,
which resulted in the Company's then shareholders retaining a bigger part of the
enlarged group. It is disingenuous that Mr. Homm has sought to portray himself
as the employees' champion. For the avoidance of doubt, the Company's
remuneration committee approved the payment of bonuses in the amounts
recommended by Florian Homm. The Argo vendors and the Company have undertaken to
negotiate in good faith the resolution of the above issues.


The Board intends to appoint senior investment professionals to head the
Absolute Octane Master Fund, the Absolute Activist Master Fund and the Absolute
European Catalyst Fund, as well as appointing a new Co-Chief Investment Officer
in due course.


Jonathan Treacher, Chief Executive Officer of ACMH, said, 'At this stage the
Board is focused on exploring all options which will assist in maximising value
for investors in the both the funds and in ACMH. It is also focused on ensuring
that recent events do not overshadow the fact that the majority of the business
is unaffected and our investment professionals will continue to trade as
normal.'


Further announcements will be made as appropriate


Enquiries:


Absolute Capital Management Holdings Limited
Jonathan Treacher CEO                            T: +34 971 76 55 53


Panmure Gordon
Dominic Morley                                   T: +44 (0)20 7614 8388


Cardew Group
Tim Robertson                                    T: +44 (0)20 7930 0777
David Roach




                      This information is provided by RNS
            The company news service from the London Stock Exchange
                                                                                                                                                                                                                                                    

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