Richardson returning investors’ funds

Hey there, time traveller!
This article was published 30/06/2010 (5572 days ago), so information in it may no longer be current.

Richardson Capital Ltd. has done something rarely seen in the private equity business — it’s giving money back to its investors rather than force investments into a challenging market.

Richardson Capital, which raised more than $1 billion in two funds, is effectively exiting the private equity fund business. Over the last month, its dozen-plus institutional investors were told by the Winnipeg fund managers that it will not make any more cash calls on funds that were committed, nor will it charge fees on those funds.

“We made a decision not to stay in the fund business long-term,” said Sandy Riley, one of the fund’s managing directors. “We will continue to be private equity investors for our own account and also potentially in partnership with others, but the fund structure as a way of doing business is not one we really want to be in going forward.”

After raising about $700 million in commitments for its second private equity fund in 2007, Riley said Richardson Capital and the entire investment community was hit with an asset valuation bubble driven by the availability of easy credit. It was the end of a cycle punctuated by a massive global credit crunch and financial services meltdown in 2008.

In 2009, a decision was made to scale back the fund, which was followed by the call earlier this year to essentially wind the fund down. To date, only 20 per cent of the original $700 million in commitments has been placed. Richardson Capital raised more than $300 million in its first fund earlier in the decade.

Riley said Richardson Capital is managing assets worth about $300 million to $400 million in its private equity funds and will continue to do so on behalf of its investors. It will also continue to make private equity investments on its own account.

Riley pointed out the Richardson family’s 150-year track record, which already included private equity holdings before it raised money for the funds, was based on patient, long-term investing. The Richardson family continues to be the largest unitholders, by far, in the fund.

“For the last period we realized that our perspective on time was quite different than most of the people who have co-invested with us,” he said.

But that is not to say investors are dissatisfied with the decision to return funds uninvested.

Teachers Retirement Allowances Fund (TRAF) of Manitoba is an investor in both Richardson funds. Jeff Norton, CEO of TRAF, said it is an uncommon scenario to have a private equity fund manager effectively return capital, but it will not create an issue for his portfolio structure.

“They were a major investor in the fund themselves,” Norton said. “They have the luxury of saying, ‘We don’t think we can earn the returns we thought, so we don’t intend to go forward.’ There is some honour in that.”

Another Winnipeg private equity fund that also closed its fundraising in 2007 continues to forge ahead.

Canterbury Park, managed by Marty Weinberg, closed its fund with $171 million. Weinberg agreed with the analysis of the poor market that it faced heading out in 2007, but says the fund has been successful in investing 40 per cent of what it has raised.

He said the fund has four letters of intent on potential investments right now and other deals it is looking at. “The deal flow dramatically slowed down in the last three years,” Weinberg said. “But we see it picking up this quarter.”

In a recent report, Canada’s Venture Capital & Private Equity Association (CVCA) agreed the market is showing signs of recovery.

“The data indicate that the Canadian buyout market stabilized in Q1, largely as a result of increased investment by Canadian funds both here and abroad,” said CVCA president Gregory Smith in a statement last month.

While the deal flow may be up, returns to investors may be another matter. Weinberg said, thanks in part to one exit that has already netted Canterbury a 25 per cent return, the net asset value of the fund is higher than the purchase price paid for the holdings.

As for the Richardson fund, Riley said, “In the context of the market we will deliver a reasonable return to investors over time.”

But according to California Public Employees’ Retirement System (CalPERS), the book value of its holdings in the Richardson fund was worth less than a third of its market value as of June 30, 2009.

martin.cash@freepress.mb.ca

Equity funds’ holdings

Richardson Capital Private Equity LP’s holdings:

Mechtronix

Ocean Nutrition Canada

Plastic Moulders Ltd.

Poraver North America Ltd.

Strad Energy Services

Trident Exploration Corp.

Trillium Health Care Products Inc.

Value Creation Inc.

Canterbury Park Private Equity LP’s holdings:

Allegro Corp.

Paragon Pharmacies Ltd.