Southern Cross shelves idea to restructure third fund

  • Fund III is a weak performer
  • Discount on fund stakes would have been steep
  • Firm wanted more time to exit

Southern Cross Group has dropped an idea to restructure its third fund after receiving tepid interest from limited partners, three sources told Buyouts.

Southern Cross, which invests across Latin America, had explored potential liquidity options for LPs in its third and fourth funds. The firm worked with Evercore on exploring ideas for restructuring its older fund.

“It definitely was not for the faint of heart,” one secondary-market professional said about the idea of restructuring the third fund, which would likely have included a large discount on interests in the fund.

The pool has a few assets left and needs more time to exit, sources told Buyouts in prior interviews.

The idea was never formally presented to LPs for a vote, one source said. It’s not clear whether Southern Cross will explore other liquidity options for Fund III or the more recent fourth pool.

Fund IV would be an even more challenging process because the fund owes LPs money for carried interest the manager took early in the fund’s life — a situation known as a clawback, sources told Buyouts in prior interviews.

Southern Cross did not respond to a request for comment.

Southern Cross’s recent funds have struggled, dragged down by exposure to investments in Brazil, which has been roiled by economic and political turmoil for several years.

Investments in Brazil made at and before the market peak in 2012 were battered by currency volatility that resulted from the economic downturn.

Southern Cross funds have exposure to Brazil as well as countries like Colombia, Mexico and Argentina.

Southern Cross Latin America Private Equity Fund III raised $751 million in 2007. Fund III is a weak performer, generating a 0.1 percent net internal rate of return and a 1x multiple as of Sept. 30, 2017, performance information from California Public Employees’ Retirement System shows.

The firm closed its fourth fund on $1.68 billion in 2010. Fund IV has struggled, producing a 0.6x total value multiple and a negative 14.55 percent net IRR as of Sept. 30, 2017, performance information from Washington State Investment Board shows.

Action Item: Check out Southern Cross’s Form ADV here:

Demonstrators attend a protest against Brazilian President Dilma Rousseff, part of nationwide protests calling for her impeachment, in Sao Paulo on March 13, 2016. REUTERS/Paulo Whitaker