Kinetic Partners US LLP is getting into the money management business, albeit in a very limited way.
Specifically, Kinetic just entered the business of dismantling illiquid “zombie” private equity and hedge funds, said Geoff Varga, partner and global head of the New York-based firm's corporate recovery and restructuring practice.
Investors are losing patience with “investment managers who are reluctant to sell the illiquid assets in their portfolios, who just want to collect management fees while waiting for their funds to come back,” Mr. Varga said. Increasingly, investors and fund directors as well as the courts are appointing liquidators who find replacement money managers to close down the funds in a prudent timely manner.
Kinetic's new service combines both the liquidation and investment management functions.
“We are a liquidator with a different wrapper and our ability to take over management of the fund gives us another layer of control over the fund's assets, allowing us to give fund investors more input into how they want the wind-down process to go,” Mr. Varga said.
The firm is in the process of registering with the Securities and Exchange Commission as a money manager, but already received its first assignment as replacement money manager for the Commonwealth and Sand Spring Capital hedge fund families. The nine funds were managed by Commonwealth Advisors Inc., Baton Rouge, La. Commonwealth filed for Chapter 11 bankruptcy protection on behalf of the funds in late 2011.
Mr. Varga stressed that Kinetic's money management business will be focused on winding down illiquid funds rather than trying to attract new capital or make new investments.
The company has sufficient internal expertise to take on these investment management assignments without adding more staff, although Mr. Varga said in some cases specialists might be brought in as subadvisers, possibly including former employees of the original manager.
Kinetic Partners is a business consultant offering professional services including tax, accounting, restructuring and forensic advice to money managers, investment banks and other financial services companies.