Dollar Tree sues Sycamore
Sycamore Partners is being sued for allegedly breaching the terms of an agreement that formed as part of an acquisition made by one of its portfolio companies. The private equity firm agreed it would work with Dollar Tree to make its portfolio company Dollar Express self-sustaining after it bought 330 of the discount chain’s stores in 2015. However, Dollar Express has struggled and some stores are being liquidated.
In the suit, Dollar Tree said Sycamore breached the material terms of the parties’ agreements and “used Dollar Express as its personal cash cow by siphoning off tens of millions of dollars to secure a quick profit soon after acquiring the business.”
“Dollar Express and Sycamore Partners believe that the allegations made by Dollar Tree in its lawsuit are without merit,” the two businesses said in response to the lawsuit.
Italian carry changes
Carried interest in Italy will generally be taxed as capital gains from June 23, not employment income as was previously the case, following a ruling by the country’s tax authority.
The new tax rate will be 26 percent, considerably lower than the income tax rate which peaks at 43 percent.
The new tax rules apply under certain circumstances, including when employees and managers have invested a minimum aggregate 1 percent of the entire investment made by the fund, and after all other investors have cashed an amount equal to the capital invested plus a minimum return on it. Employees and managers must retain their investments for a minimum five years, or until the exit from the investment by the fund, to qualify for the lower tax rate.
RE seeks standardization
A move towards standardization in real estate reporting would allow investment managers to better benchmark themselves.
“Real estate capital knows no boundaries, so having standardized reporting globally helps investment managers across the world compare themselves side-by-side,” according to a panelist at the recent PERE CFO forum in New York.
The market is currently fragmented, with standardized due diligence questionnaires in Europe and Asia not being used in the US, and these regions not sharing the US’s focus on risk management.
A priority is fees and expenses – the differences in fee structures, disclosures and calculation methods need streamlining, panelists argued.
Luxembourg snags BC Partners
BC Partners plans to set up a Luxembourg fund so it has an onshore presence in Europe following Brexit, according to the firm’s head of compliance, Andrew Devine.
“I think everyone [in the industry] is in the same boat,” he told delegates at the ALFI London conference in May.
If the UK was not leaving the EU the firm could have remained as a third country Guernsey portfolio manager, or converted its [London based] investment advisor into a portfolio manager, Devine said. “We chose Luxembourg because of its flexible commercial regime. It’s also a similar regime to the UK,” he said.
Client demand for Alternative Investment Fund Managers Directive-compliant funds also played into the decision.
RE cyber risk increases
Real estate companies are vulnerable to cyber-attack through their computer systems and physical footprint, according to panelists at a recent Massachussetts Institute of Technology conference.
As more internet-connected technologies are incorporated into buildings, such as ventilation systems and printers, their susceptibility to cyber-attack increases. One panelist said 80 percent of internet-enabled objects are not secure from cyber issues. “The internet of things is here to stay and it’s going to get bigger,” the speaker said. “Now, that collision of real estate and IT is coming. There’s the potential for huge reputational, not just financial, risk.”
Panelists cited a range of methods to stay ahead of risk, including ‘white hat’ IT specialists and regular password updates.
Financial Choice may be divided
Congress could pass separate legislation based on concepts included in the Financial Choice Act, but some of its “larger ideas” are not expected to materialize in the short term, the bill’s author, Congressman Jeb Hensarling, said.
Included in the bill is a proposal to scrap private fund firms’ obligation to register with the Securities and Exchange Commission.
Hensarling told the American Enterprise Institute he hoped and expected “very significant portions” of the act to be signed into law this Congress.
“Others are larger ideas and it may take several Congresses to see these ideas come to fruition. It’s important to play both a long game and a short game,” he said.
The House of Representatives passed the bill on June 8.
Increased LP appetite for private equity and infrastructure investments post-financial crisis has kept GP fees high and investors at a pricing power disadvantage, research shows. The bfinance study found fees have remained “intransigent” due to a dearth of institutional-quality deals. “If we don’t like the fee, the next person in line will pay it,” said one US pension fund official.
Fund managers will put up with the perceived high cost of domiciling in Luxembourg because of the country’s service provision, regulatory regime and attractive tax system, according to European industry sources.
Around half of delegates polled at Invest Europe’s CFO Forum said they were considering domiciling their next fund in Luxembourg, despite 57 percent thinking it the most expensive jurisdiction in which to run a fund.
The Los Angeles County Employees Retirement Association became the latest US public pension fund to say it would release information on fees paid to GPs, including carry earned by managers. The move was in response to AB 2833, a law requiring all California public pension funds to disclose the pro rata share of fees they pay to fund managers.
The German government has agreed to set up a new transport infrastructure company to plan and administer federal motorways, outlawing private sector involvement. The new company will be established from 2021 under private law but fully owned by the federal government, transferring power away from German states. The new law specifically outlines the exclusion of third parties, either directly or indirectly.
European CFOs are split over whether fund leverage should be encouraged or not as the practice evolves and investors turn their attention to its deployment.
Half of delegates at the Invest Europe CFO Forum said it is a useful working capital tool and a way to enhance fund returns, but the other 50 percent said it should be discouraged and reserved for exceptional circumstances.
Investor relations professionals should undertake compliance training to streamline the sign-off on marketing materials, according to panelists speaking at a recent PEI conference.
Documents, including quarterly reviews, deal memos, private placement memoranda and flip books can be examined by the SEC, so it is essential they tick all the compliance boxes, one chief compliance officer said.
If you do not receive this within five minutes, please try to sign in again. If the problem persists, please email: