Fenway tries again to cash out LPs in its 1998 fund

Perhaps the third time will be a charm for Fenway Partners.

The firm is trying for at least the third time to give LPs in one of its older funds the option to cash out of the pool. Fenway had explored two other separate restructuring processes, but both fell apart.

This time, the firm is shooting for a less ambitious target. It has lined up Hollyport Capital, a London secondaries firm, to buy interests from existing LPs in Fund II, a 1998 vintage with about $75 million of gross asset value, according to two people with knowledge of the process and to Fenway’s Form ADV.

Fund II raised $909 million, making it one of the larger funds in that era. Fund II was generating a 4.9 percent net internal rate of return and a 1.24x multiple as of Sept. 30, 2017, according to  Oregon Public Employees Retirement Fund.

Existing LP stakes would be sold at a discount, though it’s unclear what pricing looks like. Priced into the deal is an obligation the GP owes existing LPs for taking a share of fund profits too early, known as a clawback, sources said.

It’s not clear whether the transaction is structured as a tender offer, with LPs simply choosing to sell their stakes in the fund, or if it’s a restructuring in which Fund II assets will be moved into a special-purpose vehicle with existing LPs deciding whether to cash out or roll their interests into the new vehicle.

Fund II LPs are currently deciding whether to approve the deal, sources said. It’s not clear if an adviser is working on the process.

Fenway Managing Directors Richard Dresdale and Peter Lamm did not respond to an email request for comment. John Carter, chief executive officer of Hollyport, said, “we do not comment on media speculation.”

Last year, a much broader restructuring process of Fenway’s second and third funds collapsed because LPs were not happy with the steep discounts offered on their fund stakes, sources previously told Buyouts.

LPs also were frustrated with the lack of a status-quo option in the process, which would have enabled them to stand pat on the terms they originally committed to, sources said.

Prudential was set as the buyer in that process, which was run by Moelis & Co. Pricing on the process looked like this: For Fund II, the offer was 42 percent of net asset value as of year-end 2016; for Fund III, the offer was 65 percent of NAV as of year-end, a source said at the time.

Fenway raised about $700 million for Fund III in 2006. That pool was generating a 3.6 percent net IRR and a 1.24x multiple as of Sept. 30, 2017, Oregon said.

Prior to that, Fenway and Fortress Investment Group ended talks on a fund-restructuring process for Funds II and III in 2015, the Wall Street Journal reported. Moelis ran that process as well.

Fenway lists four active investments on its website: American Achievement, which makes “achievement products” like class rings and yearbooks; sports-equipment maker BRG Sports; Fastfrate, a transportation and logistics company; and Preferred Freezer Services, which builds refrigerated warehouses. Fenway acquired BRG and American Achievement in 2004, which would appear to make them Fund II investments.

Principal owners of Fenway Partners LLC are Peter Lamm and Gregg Smart. As of Dec. 31, 2017, Fenway managed $428 million of discretionary assets.

The firm and several of its partners settled with the SEC in 2015, agreeing to pay a combined $10.2 million to investors harmed by its failure to disclose payments to an affiliated consulting firm. The firm and partners didn’t admit or deny wrongdoing.

Action Item: Check out Fenway’s Form ADV here: https://bit.ly/2EEjdzI

Boston Red Sox batter David Ortiz stands in the on-deck circle in Game 4 of their American League Division Series against the Oakland Athletics, at Fenway Park in Boston on Oct. 5, 2003. Photo courtesy Reuters/Brian Snyder