Jamie's Italian, Cargo Bar up for grabs as Keystone assets hit market

Carolyn Cummins July 25 2016 - 5:44AM Carolyn Cummins The receivers and managers to food and beverage group Keystone Group have kicked off the long-awaited sale of 17 well-known venues, including the Cargo Bar and the national Jamie's Italian chain, as they try to recoup more than $80 million to repay debt. The agents at CBRE Hotels Daniel Dragicevich​, Sam Handy, Tim Grossmann and Leif Olson, are steering the campaign for the leaseholds of a variety of pubs and food and beverage outlets across the country. Food and beverage group Keystone are selling their waterfront icon Cargo Bar at Kings Street Wharf, Sydney. Food and beverage group Keystone are selling their waterfront icon Cargo Bar at Kings Street Wharf, Sydney. Food and beverage group Keystone are selling their waterfront icon Cargo Bar at Kings Street Wharf, Sydney. Where have all the good times gone? As the famous Cargo Bar goes up for sale, we look back at the unlucky Sydney venues which haven't survived. Keystone went under last month when it failed to renegotiate an $80 million loan with financiers, the private equity group KKR and Olympus Capital. The assets include Bungalow 8, Cargo Bar, Chophouse Perth, Chophouse Sydney, Gazebo, Kingsleys Brisbane, Kingsleys Woolloomooloo, Manly Wine, the Sugarmill Hotel, The Rook, the Winery and the national Jamie's Italian franchise. Morgan Kelly, from the receivers Ferrier Hodgson, said the sales process would be conducted as either a recapitalisation of the group, or a sale of one or more portfolios of assets. The Jamie's Italian will be sold as a group. The Jamie's Italian will be sold as a group. He said the expression of interest process has fielded interest from more than 120 parties. This interest has ranged from parties looking at a group-level investment through to those interested in groups of properties and individual properties. "A group-level investment offers the synergies of an existing head office function including marketing, payroll and purchasing, and represents a rare opportunity to acquire immediate size and scale to a portfolio," Mr Kelly said. National director at CBRE Daniel Dragicevich said the Keystone portfolio consisted of some of the most well-known and highly regarded venues and brands across the country. "We expect significant interest from all sectors of the hospitality market, both nationally and abroad," Mr Dragicevich said. The Colombian Hotel is being sold as the owner, the McHugh family, has relocated overseas The Colombian Hotel is being sold as the owner, the McHugh family, has relocated overseas Photo: supplied "Whilst the 17 venues will no doubt attract interest from portfolio buyers, it's expected that there will be intense competition from parties seeking to acquire segments of the portfolio and individual piecemeal businesses." Mr Kelly said he was conducting a focussed sale strategy, specifically targeting buyers with the balance sheet strength and operational depth to be able to manage these acquisitions. "The Jamie's Italian franchise restaurants would remain grouped together and sold as a nationally integrated restaurant brand," Mr Kelly said. Pubs are hot tickets for traditional operators, who see the demand rising for places that offer a wider range of food and beverages, not just beer and burgers. The lock-out laws in the City and fringe areas have also seen a change in the venue offerings from late-night drinkers to people coming in for a higher-quality meal in a more family-oriented atmosphere. One asset being sold is the The Colombian Hotel, a three-level former Westpac Bank building, on the corner of Oxford and Crown Streets in Darlinghurst, through Andrew Jolliffe and Joel Fisher of Ray White Hotels Australia in conjunction with Gerry Quinlan of Manenti Quinlan & Associates. The hotel has been operated for over a decade by the private McHugh family. Mr Jolliffe said the timing of the sale comes at a "transformative period" for the eastern suburbs and CBD commercial property market, which has seen new and improved hotel offerings attract a more sophisticated and discerning clientele to the area. This includes the revamp of a number of Oxford Street venues including Justin Hemmes' The Paddington, Kaine Bayfield's Light Brigade Hotel and the soon to re-open Paddington Inn, by Bruce Solomon and Matt Moran. Mr Jolliffe, the Asia Pacific director of Ray White, said the vendor was selling due to relocating overseas. There is now access to well-priced debt, and a demand for A-grade hotel properties not matched by supply, which is attracting buyers for pubs," Mr Jolliffe said. "We have seen a resurgence in commercial property values in Oxford Street after a period of suppression given development in other areas, however what is clear to astute investors is that the various infrastructure investment strategies being deployed at both state and federal level will have a significant impact on the value of commercial property in the Oxford Street precinct", Mr Quinlan said.

Qatar: what’s next for the world’s most aggressive deal hunter?

July 4, 2013 8:55 pm Qatar: what’s next for the world’s most aggressive deal hunter? By Camilla Hall, Simeon Kerr, Roula Khalaf, Lionel Barber, Patrick Jenkins and Ed Hammond As the global economy recovers, the nation must grapple with the end of sky-high returns On a visit last year to Qatar Holding’s headquarters, a Gulf banker stepped inside a boardroom, intrigued by what he glimpsed as he walked past. His attention fixed on a set of whiteboards, each scrawled with the names of an array of global companies. This, he suspected, was a shopping list. Some of the companies, including Valentino, the Italian fashion label, had already been bought by other Qatari investors. So had a stake in Germany’s Siemens, which was also on the boards. Printemps, a French department store, would be snapped up months later. “It was as if there was no company that doesn’t interest them,” the banker says. Qatar's LNG exports Volume and global share Qatar lined up for £10bn UK projects fund Investors welcome news of Qatar transition David Gardner Qatar shows how to manage a monarchy Qatar shakes up investment fund Qatar seeks to shake off trophy investor image Qatar fund seeks to soften image Buying up the world How Qatar Holding has put its cash to work since 2007 Qatar eyes IPO for $12bn vehicle Qatar to invest €1bn in Italian groups IN Analysis Russia Imperialism awakes France Hollande’s appeal African banks Fragile dream North Korea Glimmer of hope The wish list illustrates the seemingly unlimited ambition – and resources – of Qatar, a small Arab state that in just a few years has parlayed its enormous gas riches into an extraordinary investment portfolio. For Qatar’s cash-rich sovereign wealth fund, the financial crisis proved to be a buying opportunity. “We have cash,” Ahmad al-Sayed, who on Tuesday was promoted to chief executive of Qatar’s sovereign wealth fund, remarked in 2009. “Cash is king.” Qatar put that cash to work securing some of the biggest deals in recent years, from the multibillion-pound capital-raising of Barclays in 2008 to last year’s $76bn takeover by Glencore, the commodity trading house, of Xstrata, the mining company. And Qatar’s name has popped up as a potential investor in countless other transactions, consummated or not. The state flexed its financial muscle through a wide range of corporate and royal investments. But it is Qatar Holding, the vehicle of its sovereign wealth fund, the Qatar Investment Authority, that has upturned the investment world. As its clout increased, the QIA negotiated alongside some of the world’s most powerful business and political leaders, among them Tony Blair, former UK prime minister, and Nicolas Sarkozy, France’s ex-president, during sensitive transactions. Since 2009, Qatar Holding received $30bn-$40bn a year from the state, lending it such astonishing financial power that normal rules of investing did not apply; losses could be easily absorbed and big gambles taken. It also was able to extract unusually favourable terms. “They were providers of liquidity in an illiquid world. The opportunities for them were different from other institutions,” says a western adviser. “And you don’t take an idea to them without a significant return.” Yet the unique market conditions that allowed the QIA to build its investment portfolio have passed. Stock markets have rebounded strongly since the depths of the crisis and economies have stabilised. As investor confidence returns, the privately negotiated deals, generous terms and big discounts that Qatar demanded and often received may become a thing of the past. “What happens when the world becomes more normalised? You can do deals in higher-risk countries or you have to moderate your return requirements or not spend as much money,” says a western banker. There are momentous changes within Qatar, too. It has a new emir, Sheikh Tamim bin Hamad bin Khalifa al-Thani, who assumed power last week after his father abdicated. And growth in Qatar’s liquefied natural gas exports is slowing. Months before the dynastic transition, Qatar Holding brought in consultants including McKinsey and PwC to conduct an extensive internal review of how it operates. It was led by Mr al-Sayed, the 37-year-old lawyer who has overseen the fund’s growth since 2009. The review appears to be a recognition that the young fund needs to adapt to become a more robust institution – less of an extremely well capitalised start-up and more like the investment arms of established peers in Abu Dhabi and Kuwait. Sheikh Tamim bin Hamad bin Khalifa al-Thani, left, with former prime minister Hammad bin Jassim ©AFP Pedestrians walk past a branch of the Agricultural Bank of China in Beijing. Qatar Holding paid $2.8bn for a 2.1% stake in the Chinese bank in 2010. ©AFPA Sainsbury supermarket in Greenwich, London. In January 2008 Qatar Holding paid $2.2bn for a 17.9% stake in the British retailer. ©PAA pedestrian stands beside a logo for Spain's Banco Santander in London. Qatar Holding bought a 5% stake in the bank for $2.7bn in 2010. ©ReutersA Porsche 911 Black Editionat in Stuttgart. In August 2009 Qatar Holding paid $2.8bn for a 5 per cent stake in the German carmaker. ©BloombergIberdrola, Spain's second-biggest power company. In 2011 Qatar Holding bought a 6.1% stake in the Spanish utility for $2.8bn. ©BloombergThe Barclays headquarters building in London. In June 2008 Qatar Holding paid $4.5bn for a 10% stake in the British bank. In October the same year it paid $6bn for a 6% stake. ©ReutersCredit Suisse's headquarters in Zurich. Qatar Holding paid $4.3bn for a 12.6% stake in the Swiss bank in 2008. ©ReutersLogos badges in a Volkswagen Golf production line in Wolfsburg. In 2009 Qatar Holding bought a 12.5 per cent stake in the German car maker for $7.1bn. ©ReutersThe Harrods department store in London. In 2010 Qatar Holding paid $2.2bn for the upmarket London store. ©AFPA logo on a window above the main atrium of the London Stock Exchange headquarters. Qatar Holding paid $1.3bn for a 20% stake in the exchange. ©Bloomberg BAA is the world's biggest airport operator. In 2012 Qatar Holding paid $1.4bn for a 20% stake in BAA, owner of airports including Heathrow and Stansted ©Bloomberg ‘HBJ’ But the big changes at Qatar Holding have already begun. When Sheikh Hamad bin Khalifa al-Thani handed power to his 33-year-old son, it rattled the investment banking community. But it was not the emir’s abdication that worried the bankers, who have raked in millions from Qatar Holding’s frenzied dealmaking. Instead, they were concerned about the fate of Hamad bin Jassim, the long-time prime minister and foreign minister who resigned at the same time as the emir. They had reason to fret. Within a week, HBJ, as the billionaire is often referred to by foreigners, was out of the QIA. HBJ set the style and tone of Qatar’s investment drive. “Personalities have much more of an impact at the QIA,” says a Gulf banker, comparing the fund with other sovereign vehicles in the region. “When you’re setting up something new, you’re setting the tone, the culture.” The team steering the QIA Sheikh Tamim, 33, is the second son of the former emir and Sheikha Moza. Educated at Sherborne and Sandhurst, the new emir’s career grew from the military into local roles in sports, technology and education. Sheikh Tamim is expected to refocus attention away from international affairs back on to Qatar’s domestic scene. Ahmad al-Sayed, 37, QIA chief executive. The new CEO was promoted to the role after steering Qatar Holding, its direct investment arm, through the financial crisis. He is a technocrat who has ascended the ranks from his role as a legal adviser. Mr al-Sayed studied banking and financial law at Boston University and also has an executive MBA. Sheikh Abdullah bin Hamad bin Khalifa al-Thani, 25, QIA vice-chairman. His appointment marks another promotion for the second son of the former emir’s third wife. Three years after graduating from Georgetown’s Doha campus, the low-profile royal runs the ruler’s court and has taken several board positions, including with Vodafone Qatar. Sheikh Hamad bin Jassim al-Thani, 53, former chief executive of the QIA. He has been the former emir’s right-hand man since aiding the palace coup of 1995. As foreign minister and prime minister, his business acumen and diplomatic savvy raised the country’s profile as a go-to investor and regional mediator. But his interests also stirred disgruntlement. Hussain al-Abdulla, 56, QIA board member. Known as “the Doctor” – a nod to his PhD – he has dedicated his long career to Qatar’s public finances. Gaining a foothold at the QIA as an executive board member under the former chief executive, he came through the government bureaucracy, starting in the economics department of the emir’s office in the early 1980s. Ali Sherif al-Emadi, QIA board member. As chief executive of Qatar National Bank, the US-educated Mr Emadi served as an understudy to Youssef Kamal, the experienced finance minister and QNB chairman. Mr al-Emadi’s brother is also married to Mr Kamal’s daughter, making the transition to a younger generation another family affair. Sheikh Tamim, the new ruler, has long been the chairman of the QIA. His statement last week that he wanted to avoid behaviour that appeared arrogant was taken as a veiled reference to HBJ’s brash style, both in politics and finance. Some bankers worry that HBJ’s departure will mean a slowdown in the pace of external investment. HBJ was the principal generator of deals, using his impressive roster of political, business and banking contacts. (Credit Suisse, in which Qatar Holding has a minority stake, has been used more than most.) Qatar, in fact, has seen “every good deal in the world almost directly”, as one private equity manager puts it. HBJ’s brinkmanship, along with a diplomatic mediation by Mr Blair, clinched Glencore’s takeover of Xstrata, the miner in which Qatar Holding had a stake. But the deal was completed only after Doha squeezed out a higher price. The grandson of a pearl trader, HBJ is a contrarian and a consummate dealmaker. “With HBJ, you have seven minutes to tell him the circumstances of a deal and he’ll give you a reaction in seven seconds,” says a person who has done business with him. “He judges how good a deal is by how far he can push you  . . .  it’s a culture that goes through the organisation. They leave nothing on the table.” At times, he invested personal funds in Qatar Holding deals, an example of the blurring of roles in the autocratic Gulf state. Long-time observers in Doha say that HBJ’s outsized power and his personal wealth – he is thought to be richer than the outgoing emir – made other members of the royal family uncomfortable and hastened the transition to Sheikh Tamim. It is an open secret in Doha that HBJ and Sheikha Moza, the new emir’s mother, have not been on the best of terms. Analysts say that HBJ’s departure was linked to the emir’s abdication, giving the younger ruler the room to assert himself. Even before the dramatic events in Doha last week, HBJ was stepping back from the fund. Although the bankers close to him will be disappointed, his departure clarifies the lines between political leaders and the state’s sovereign wealth fund. This could accelerate the fund’s evolution into a more professional institution. That Mr al-Sayed, a protégé of HBJ, should have replaced him came as a surprise to the financial community in Doha and beyond. It was assumed that another prominent member of the al-Thani family would be handed the job. Like his mentor, Mr al-Sayed is known for a tough negotiating style, often leaving his counterparts guessing about whether he will close a deal until the last minute. But he is also a tireless worker and loyal servant to the al-Thanis, part of a new generation of Qataris now being promoted by the young emir. According to one person who has done business with Qatar Holding, Mr al-Sayed has also played his cards well, helping Sheikh Tamim in some private acquisitions. Mr al-Sayed earned a master's degree in banking and financial law from Boston University. Promoted from legal counsel to chief executive of Qatar Holding in 2009, he came in, as one banker says, “on the ground floor” and rode the recovery cycle. People close to the fund say that it has delivered upward of 17 per cent a year in average returns since 2009. But gauging the success of Qatar Holding’s deals is not straightforward because their financial structures are often not disclosed. Bankers say that a majority of its investments are not the high-profile deals but in undisclosed trading of shares. Some of the fund’s biggest investments have done very well, including its participation in the Barclays cash calls of 2008, which netted about £1.7bn after the staged sale of its warrants in the British bank, according to Reuters estimates. The fund still holds 6.7 per cent of Barclays. Its bet on the merger of Glencore and Xstrata has also paid off. The value of its stake has more than doubled, according to Financial Times calculations. However, some of its other deals do not look so bright. Shares in Iberdrola, the Spanish utility, are down 22 per cent since March 2011 when the fund took a 6.2 per cent stake. Its stake in Hochtief, the German construction group, may have also lost value as the shares have sunk more than 13 per cent since it declared its 9.1 per cent stake in December 2010. Mr al-Sayed’s future is now secure. “He’s the guy who for the last four years has been leading it day-to-day, so his promotion means continuity, no disruption, particularly as Sheikh Tamim has been the chairman of QIA,” says a senior western banker. “Now Ahmad has to go only to Tamim. In a way it will make things smoother.” The Doctor People who have had dealings with the fund say the top job at Qatar Holding was slated to go to Hussein Ali al-Abdullah, a QIA board member in his 50s. In investment circles, he is known simply as “the Doctor” and was also a mentor to Mr al-Sayed. He is considered to be the founder of Qatar’s sovereign wealth fund, arguing for the need for a nest egg for Qatar’s 300,000 nationals – and to prepare for when the gas riches run out. Considered a calm, wise hand, Mr al-Abdullah has preferred to maintain an oversight role rather than thrust himself into the daily management that keeps Mr al-Sayed busy until late into the night. He too is staying on as a board member of the QIA. It was the Doctor who declared last year that the investment strategy of Qatar Holding could be summarised in two words: “No strategy”. The statement encapsulates perfectly the fund’s single-minded pursuit of deals. To a large extent, the fund’s investments have been driven by a simplistic rationale. Qatar Holding made its mark in London in part because it is a market in which the royals feel comfortable. The same could be said for the Volkswagen-Porsche deal in 2009 that put Qatar Holding on the map. Goldman Sachs was the first to suggest that Qatar buy into Porsche in the spring of that year as the car company was engaged in a heated feud with VW. But HBJ’s interest is thought to have already been piqued by a meeting with a member of Porsche’s board. As with London property, there was a personal magnetism at work. HBJ loved Porsche cars, as does Mr al-Sayed, who led the negotiations on the transaction. As the battle between Porsche and VW raged on, Credit Suisse, Qatar Holding’s adviser, suggested a bolder plan: that the two companies merge. The idea captured HBJ’s imagination. He travelled to Germany for high-level talks, including a meeting with Angela Merkel, chancellor, while Mr al-Sayed negotiated with provincial officials and company executives. “They [the Qataris] took a gamble on recovery, and they won – they rode out the storm and are now making money hand over fist,” says a banker who was involved in the deal. In June this year, Qatar Holding sold its 10 per cent stake in Porsche back to the owning families, rounding off the Qatari role in the complex merger. The VW-Porsche deal reflected the image of Qatar that the al-Thanis were looking to project – that Arab hydrocarbons wealth could be deployed shrewdly. It is a matter of national pride that Qatar Holding has taken board seats at big companies, from the owners of Heathrow and Canary Wharf in the UK to Credit Suisse and Volkswagen, making decisions that are relevant to some of the world’s most prominent companies. The board seats are seen as a way to groom the next generation that is now taking over. Hard bargaining Qatar Holding’s hard bargaining worked at a time when there were few other investors looking to take on risk. But the fund has also developed a reputation as a difficult partner that would be best avoided – particularly when it comes to property deals. When the fund bought buildings directly, it was criticised by other property investors for over-negotiating and bullying sellers. “They don’t buy property like anyone else; they treat it like corporate M&A,” says the head of one of the world’s largest property fund managers. “Everyone negotiates hard but there are very few deals when one party literally walks away hoping they never see the other again.” Qatar’s drive for higher yield may also have drawn attention for the wrong reasons. In the UK, the Serious Fraud Office is investigating certain “commercial agreements” between Barclays and Qatar Holding in 2008. (The fund denies any wrongdoing). In France, where it has widespread real estate investments, Qatar’s dealmaking has stirred political controversy. In 2008, Mr Sarkozy, then president, pushed for a law exempting Qatari real estate investments from capital gains taxes, so eager was Paris for more Qatari funding. But when Doha sought to invest in the capital’s suburbs, there was an outcry that the Gulf state was buying influence among France’s restive Muslim youths. The Qataris met their match while haggling over Harrods, one of London’s great brands. The fund spent a year negotiating for the £1.5bn purchase of the luxury retailer from Mohamed al-Fayed, the Egyptian tycoon. This time, it was Mr al-Fayed who threatened to pull out. Mr al-Fayed tried to sell the store without the underlying real estate, a proposal dismissed by the Qataris. He attempted to throw his Fulham Football Club into the mix but the Qataris wanted the Ritz in Paris instead. “The Harrods negotiation was tough and mercurial throughout. They – al-Sayed and Fayed – were both mad as mongeese,” says one banker who was involved in the deal. Even within the oil-rich Gulf, where sovereign wealth funds from Kuwait to Abu Dhabi are powerful international financiers, Qatar Holding and its parent, the QIA, are unusual vehicles. It is now in the midst of the internal review to move on to what a person close to the fund calls “the next stage.” The fund needs to determine exactly what kind of investment group it wants to be. Qatari officials hate being described as having “deep pockets”, saying it insinuates that they are willing to overpay for assets. (Some bankers say this is true in some cases.) Instead, says one former staff member, the objective is to be thought of as a big private equity group, such as a Blackstone or a KKR. There are some similarities. Although Qatar Holding says it had no debt at the end of 2012, bankers say it used debt in some deals to maximise returns and manage liquidity. “Sometimes they use it to hit a mythical returns number. They just like to use other people’s money,” says one banker. Qatar Holding has often asked its bankers to assemble deal structures with ample downside protection, whether through warrants, debt funding from the banks or companies targeted for acquisition or high yielding convertible bonds. The long game Compared with other Gulf funds, the QIA’s size, agility and investment style seem like a private equity group. The Abu Dhabi Investment Authority is a 1,400-strong bureaucracy and invests the bulk of its assets in externally managed index-tracking funds; it acts more like a pension fund. The Kuwait Investment Authority has a staff of about 475 across Kuwait, Beijing and London. In contrast, Qatar Holding is exceedingly thin, with only 40 professional staff even though it has accumulated more than $100bn in assets during the past four years. But Qatar Holding has an advantage over private equity firms. It is, in essence, accountable only to one shareholder – the emir – and it can act as a longer-term investor. Staying lean has worked well for the fund so far. But for all the advantages of not having to get approval for deals through a chain of bureaucracy, as at ADIA, there are signs it is time for Qatar Holding to create a more formal structure. At Qatar Holding, decision making is so centralised that its bankers never call the shots. And like many employees in Qatar their movements in and out of the country are controlled by their employers in an archaic labour system. “You can’t get a piece of paper signed without Ahmad deciding, which creates bottlenecks,” says a senior banker. “But that’s the system, it’s not a democracy,” he adds. Anthony Armstrong, a high-flying American banker at Credit Suisse, was seconded to the fund after advising Qatar Holding on the complex VW-Porsche acquisition. He came to Qatar expecting to oversee some of the biggest deals of the financial crisis. But, according to people close to him, he felt powerless and could not wait for his 18-month stint to finish. Frustrated, Mr Armstrong took a business trip home and never returned. He was not available for comment. But he is one of several people who left the fund in the early stages, reflecting what they said was an internal chaos that undermined the fund’s potential. People close to Mr al-Sayed dismiss such criticism, arguing that he might be a hard-driving manager but that the atmosphere in Qatar Holding is friendly and staff turnover low. But management is waking up to calls for a more institutionalised fund. Qatar Holding is seeking a rating that would bring a measure of transparency. It is also expected to focus more on infrastructure and commodities investments, hoping to generate steady streams of cash flow. The biggest challenge, however, could be a shift in the investment climate. Having dominated the inward investment market for London property since the start of the financial crisis, Qatar has been overtaken in the past six months by a new wave of sovereign wealth interest, most notably from Norway and Malaysia. In banking too, Qatar recently discovered, with its stake in Russia’s VTB, that it is in a different position from a few years ago. The Qataris had hoped to finance all of VTB’s capital needs but their allocation came second to Norges, the Norwegian pension fund. For most investors, navigating through the financial crisis was a struggle for survival. For cash-flush Qatar Holding, it was a once-in-a-lifetime opportunity. Only today, with the combination of a stronger global economy and the waning influence of its dominant figure, HBJ, will it face its real test. But for a small state that realises that the source of its success is finite, there is no question that it will continue to scour the globe for places to put its cash. As one Qatari official once put it: “If we spend all our money in Qatar, every Qatari would have a house on the moon.” The Shard: A vanity project that soars empty above London’s skyline In financing The Shard in 2008, Qatar achieved one of its main goals: recognition. A potent symbol of intent in any market, western Europe’s tallest skyscraper – built in the depths of the financial crisis – became one of the world’s most talked about properties before the first storey was complete. Financed by a consortium of state-backed Qatari funds, it was, many argued, little more than a vanity project; an economically flawed blight on the London skyline. Today, almost a year after completion, The Shard is giving its critics reason to feel vindicated: costing about £1.5bn, the glassy spire rises empty but for a scattering of mostly Qatari-backed tenants. It is because of this, and similar deals that have done more to raise profile than returns, that the tiny state is desperate to shake off its image as a deep-pocketed trophy hunter. The Shard: symbol of intent The push towards commercialisation reflects Qatar’s need to distinguish itself from the wash of sovereign wealth funds that have poured into the property market in the past three years. In 2011 Qatar was the largest overseas investor in UK property, spending more than £1bn on a spread of deals that included buying almost 1,500 apartments used to house athletes during the London Olympics. By the end of 2012, spending just £680m, it had slipped behind the newly aggressive sovereign wealth funds of Norway, Malaysia and China, according to data from Real Capital Analytics. “In their heyday, when the rest of the investment world was lying down, they were a young fund with a lot of ambition and firepower to match,” says a person who has worked on Qatar-funded deals. “They had the market to themselves . . . but the investment case was as much to do with political gain as commercial logic.” Those close to Qatar suggest the slowdown in spending is symptomatic of the peninsula’s transition towards becoming business-minded. Apart from reining in dealmaking, its ruling officials are looking at centralising the property investing process. The move, which would mark a departure from the complex network of investment vehicles it has used to trade property, was given added credence by the announcement this week that Ahmad al-Sayed, the head of Qatar Holding, the state’s direct investment arm, will also run the Qatar Investment Authority, its parent. “They are evolving, but as the world becomes more efficient, they are having to rethink the kind of deals they want to do and the kind of image that they want to present,” says an investment banker close to the QIA.

Why Schwarzman's payday risks riling Blackstone investors

Sat, Feb 18 20:42 PM EST

* Schwarzman's 2011 dividends at least $120.6 mln

* Fee income contributed 82 percent of payout

* Investors concerned over alignment of interests

By Greg Roumeliotis and Bernard Vaughan

NEW YORK, Feb 17 (Reuters) - Stephen Schwarzman, the boss of Blackstone, the world's largest private equity firm, made his fortune by buying, restructuring and selling companies - delivering outsized returns for investors. These days, he is getting huge rewards for being the biggest shareholder in what is more like a souped-up asset manager.

The chief of Blackstone Group LP is set to receive at least $120.6 million in 2011 dividends from his 21 percent ownership of the firm, based on regulatory filings. That is many times what he gets for being CEO - he received a $350,000 salary and total compensation of $6.7 million in 2010. His compensation for 2011 has not yet been disclosed.

Fees for managing assets and advisory services accounted for 82 percent of Blackstone's dividend payouts in 2011, up from 63 percent in 2010, the statements show. That means Schwarzman's payout includes a lot more from fees charged to investors for managing their money than from Blackstone's slice of the profits from its buyout business, also known as carried interest.
(( The purchase of the entire holdings or interests of an owner or investor.
The purchase of a company or business: "If the workers do approve the buyout, their company will become the nation's largest employee-owned enterprise" (Harry Anderson).))
Blackstone, co-founded by Schwarzman in 1985, traditionally made most of its profits from the increase in value of the companies it bought, rather than from management fees. But fees have now made up the majority of Blackstone's cash distributions every year since the company went public in 2007.

The shift will increase concerns at pension funds, university endowments and other investors - which provide the funds for private equity firms - that public listings of firms such as Blackstone means stockholders are being favored over them.

While these investors, or limited partners, focus on returns on their investments, shareholders want dividends that can come from carried interest and management fees.

FEES ALREADY SLIDING

The investors have already been able to push down the average fee charged on asset management to 1.5 percent from the more traditional 2 percent in the past few years , but stories like Blackstone's will only increase the momentum for further reductions, according to some private equity executives and investors' representatives.

Other publicly traded private equity firms, such as KKR & Co LP and Apollo Global Management LLC, are also generating more of their revenue from fees but as yet it hasn't reached the proportion at Blackstone.

"As the industry has matured , some unintended consequences - like nine-digit management fees - have become apparent and problematic," said Stephen Moseley, president of private equity and advisory firm Rockland Management LLC. "Multiple sources of income can produce divided loyalties and divided loyalties make limited partners nervous."

Blackstone's fee-earning assets under management increased 25 percent in 2011 to a record $137 billion. On an after-tax basis, $502 million out of $610 million in dividend payouts last year came from fee-related income.

The large fee component of Schwarzman's pay will "add fuel to the fire in the argument between limited and general partners on the structure of funds," said Michael Moy, a managing director at Pension Consulting Alliance Inc, which advises some of the largest U.S. pension funds on private equity, including California Public Employees' Retirement System.

Blackstone spokesman Peter Rose said given the firm is the largest and most diversified alternative asset manager, private equity accounts for only about 25 percent of its business.

"Blackstone has a significant percentage of its businesses which generate fee income only, similar to all long-only money managers and financial advisory firms," Rose said. "We manage the business as we did before we went public, to maximize net returns to our limited partners, and, as such, we rank as one of the top-performing managers in the world."

KKR and Apollo declined to comment.

MAXIMIZE ASSETS OR RETURNS?

The managers of private equity funds, known as general partners, had traditionally followed the 2/20 model, seeking a management fee of 2 percent on committed capital and taking 20 percent of a fund's profits. They argue that compared with traditional asset managers, their work justifies higher incentive fees because returns are also outsized.

Moreover, the argument goes, sharing in profits from fund investments aligns their interest with limited partners, who commit their money for as long as 10 years in often illiquid assets that cannot easily be sold.

But internal rates of return from buyouts were down to 11.2 percent on a five-year basis in June 2011 from 29.6 percent in September 2008, according to market research firm Preqin.

Although the impact of the financial crisis, including much tighter financing conditions, is at least partly to blame, critics also say it may be a sign the private equity firms are losing some of their focus after growing much larger.

Cerberus Capital Management co-founder Stephen Feinberg, in a rare admission for an industry insider, argued last summer that many private equity executives were overpaid, focused too much on fees and were hampered by the size of their assets.

"I do think there's an issue here in funds that are too large and funds that have acquired too many assets under management," Feinberg said at a conference. "If your goal is to maximize your returns as opposed to assets under management, I think you can be most effective with a big company infrastructure and a little bit smaller fund size."

The interests of the investors and the general partners of the firms are best aligned when the latter is making most of their money from carried interest, said Kathy Jeramaz-Larson, an executive director at Institutional Limited Partners Association, which has more than 250 member organizations representing over $1 trillion of private assets globally.

AN OUTLIER

Besides the dividend payout and his CEO compensation, Schwarzman - whose wealth was pegged at $4.7 billion by Forbes last year - will also receive profits from co-investments through the firm, which are not disclosed.

The size of the dividend payout and its main source, though, is an outlier even among the handful of publicly traded private equity firms. At KKR, co-founders Henry Kravis and George Roberts, who together own 25 percent of the firm, are set to receive $64.2 million each in dividends in 2011, of which 46 percent will come from fee-related income.

At Apollo, co-founder Leon Black, who owns 24 percent of the firm, is set to receive $103.9 million in dividends for 2011, of which only 25 percent will come from fees.

Blackstone has diversified at a faster pace than rivals. It had assets under management of $166 billion at the end of 2011, up from $44.4 billion (when it was largely a buyout shop) in 1987, and it has diversified through a credit arm, real estate business and hedge funds.

For example, BAAM, its hedge funds group , manages $40 billion and is mostly a fees business, with just half the assets eligible for carried interest payments and the carry rate at 10 percent rather than 20 percent. GSO, Blackstone's credit arm, has a collateralized loan obligation business relying on fees.

Blackstone also runs advisory businesses that rely just on fees. Those businesses include an investment banking arm and a placement agent that helps other private equity firms raise funds.

Other private equity firms are taking a similar approach. At Apollo, which has $75 billion in assets under management, the credit investment business is set to overtake the buyout arm in size. And KKR, which has $59 billion in assets under management, is moving furher into real estate, hedge funds and capital markets .

BETTER RETURNS

It is not that Blackstone's performance is bad, it is the source of the returns that is the question. Blackstone said earlier this month its private equity portfolio was up 5 percent in 2011, its real estate portfolio was up 17 percent and credit-oriented hedge funds were up 9 percent, all outperforming benchmarks. The S&P 500 U.S. stocks index was flat in 2011.

These returns have come during what has been a particularly difficult period for global financial markets, which buffeted firms and investors. In the private equity business, exits from investments - which are needed to turn paper profits to hard cash - have fallen dramatically since the financial crisis, as IPO markets have remained choppy at best and frozen at worst.

Blackstone sees its business as cyclical and argues that carried interest will return as the global economy improves and it starts to sell its private equity assets. "You'll see more (M&A) volume coming in a more traditional fashion in the private equity area," Schwarzman told analysts on a recent call.

NEGOTIATING LEVERAGE

Blackstone and other publicly traded private equity firms argue that ultimately the interests of public shareholders and limited partners are the same. They say that if the firm does not make money for limited partners, they will stop giving it money to manage, which will also hurt public shareholders.

"I don't think there is a problem with the alignment of interest," said Steven Kaplan, a finance professor at the University of Chicago. "The founders of these firms are not selling their shares tomorrow and if their funds do not perform in the long term, the value of their holdings will suffer."

It also isn't easy for investors to negotiate the fees down.

"A lot of pension funds believe fees charged by the major private equity firms are too high but it's difficult to negotiate them down on an individual basis," said George Hopkins, an executive director of the Arkansas Teachers Retirement System, an investor in Blackstone. "The ability of these funds to charge large fees all depends on whether they continue to perform," Hopkins added.

===

AIG sells $500 mln Blackstone stake -source
Fri, Mar 02 10:29 AM EST

NEW YORK, March 2 (Reuters) - Bailed-out insurer American International Group Inc sold its entire $500 million stake in private equity firm Blackstone Group LP on Friday, according to a source familiar with the situation.

AIG, which is majority owned by the U.S. government after it was bailed out during the financial crisis of 2008, had acquired the stake before Blackstone went public in 2007, the source said.

The sale is part of AIG's ongoing effort to monetize non-core assets, reduce risk and deleverage, another source said.

AIG and Blackstone declined to comment.

Blackstone's shares fell 1.9 percent to $15.43 during morning trading on the New York Stock Exchange, while AIG's shares fell 0.1 percent to $29.42.

CNBC earlier reported the stake sale.
===

Blackstone expands Asia team with senior hires
Mon, Mar 05 01:23 AM EST

By Stephen Aldred

HONG KONG, March 5 (Reuters) - Global private equity fund Blackstone Group L.P. said on Monday it has hired Yi Luo from Carlyle Group and Edward Huang from Morgan Stanley's Asia private equity unit to fill senior positions in Asia.

News of the hires confirms earlier Reuters reports on the fund's expansion.

Both men will focus on Greater China and report to Michael Chae, Blackstone's Asia Pacific head of private equity and a former top New York dealmaker for the firm, who has been building a new team since arriving in the region in late 2010.

Luo joined Blackstone in January 2012 as a senior managing director based in the firm's Shanghai office and Huang joined as managing director based in Hong Kong earlier in March.

Luo worked for Carlyle in Shanghai and Hong Kong for more than eight years as a senior global partner and managing director. He was a member of Carlyle's Asia investment committee and the chairman of both Carlyle's renminbi fund and its operating entity in China. He also worked at Goldman Sachs , Merrill Lynch and the People's Bank of China.

Huang previously worked for Morgan Stanley Private Equity Asia in Hong Kong where, as managing director, he was heavily involved in one of the firm's most successful private equity deals in Asia, the privatisation of Sihuan Pharmaceutical Holdings Group Ltd. That deal is regularly cited as an example of returns that can be made by identifying the right targets to delist.

Morgan Stanley's private equity unit took Sihuan private in Singapore in 2009, identifying a company that required no additional work before relisting in Hong Kong in October 2010. The stock jumped 28 percent on its IPO, with top-end pricing valuing the company at 26.7 times 2011 earnings.
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RLPC-Blackstone to reinvest in Kloeckner -sources
Mon, Mar 12 13:19 PM EDT

* Blackstone PE, Oaktree seek debt-for-equity swap

* Lazard appointed to sell company if restructuring fails

By Claire Ruckin

LONDON, March 12 (Reuters) - Private equity firm Blackstone has agreed to reinvest in its struggling German plastic films firm Kloeckner Pentaplast alongside senior lenders Oaktree in a bid to restructure its debt, banking sources said on Monday.

Blackstone bought Kloeckner from Cinven in 2007, backed by 1.25 billion euros ($1.64 billion) of leveraged loans. The company breached its Dec. 31 senior leveraged covenants but managed on Friday to secure a covenant waiver until the end of June.

A loan covenant breach had been expected since November when Kloeckner asked lenders to form groups for a restructuring and commissioned an independent business review. [ID: nRLP57867a]

U.S. distressed debt investment fund Oaktree Capital bought a large portion of Kloeckner's loans in the secondary markets and together with Blackstone Private Equity is pushing for a debt-for-equity swap.

Blackstone declined to comment.

Junior lenders could suffer heavy losses in a restructuring. They have until March 21 to agree to a consensual restructuring otherwise Lazard, which has been appointed as M&A adviser, will go forward with a sale of the group.

Kloeckner's 187 million euro mezzanine loan is quoted at around 7 percent of face value in the secondary loan market, down from 32 percent in early November, according to Thomson Reuters LPC data.

A 187 million euro second lien loan is quoted at 18 percent, down from 42.8 percent in the same period, the data showed.
====== Factbox: Blackstone Group's candidates for CEO Mon, Aug 27 07:00 AM EDT (Reuters) - Blackstone Group LP CEO Stephen Schwarzman is grooming six senior executives as potential candidates to eventually take over the reins of the world's largest alternative asset manager, according to insiders with direct knowledge of the situation. The following are profiles of the main players in Blackstone's CEO succession: TOM HILL Hill, 63, heads Blackstone Alternative Asset Management, the firm's hedge fund-of-funds business with $42.9 billion of assets under management. He joined Blackstone in 1993 and previously co-headed its mergers and acquisitions advisory group. Hill began his career at First Boston, later co-founding its mergers and acquisitions department. He then led the mergers and acquisitions practice of Smith Barney and in 1982 he joined Lehman Brothers as a partner, eventually rising to the post of co-CEO. A graduate of Harvard Business School, Hill is cited in popular culture as one of the Wall Street grandees, alongside trader Ivan Boesky and activist investor Carl Icahn, that inspired Oliver Stone's notorious fictional character Gordon Gekko. BENNETT GOODMAN Goodman, 54, co-founded GSO Capital Partners in 2005, the credit-focused investment firm that was acquired by Blackstone in 2008. Following the takeover earlier this year of Harbourmaster Capital, a leading European leveraged loan manager, his business now has $50.5 billion of assets under management. Goodman's first stint in debt investment was in the high-yield business of Drexel Burnham Lambert from 1984 to 1988. He then joined Donaldson, Lufkin & Jenrette (DLJ) to launch its high-yield capital markets group, making it the No. 1 global issuer of high-yield bonds in 1993 and for 11 consecutive years. Like Blackstone President Tony James, Goodman joined Credit Suisse First Boston in 2000 with its acquisition of DLJ. He served there as the chairman of the corporate bank, overseeing Credit Suisse First Boston's $35 billion of global corporate lending activities. Goodman is a graduate of Lafayette College and the Harvard Business School. JOAN SOLOTAR Solotar, 47, was hired by Blackstone in 2007 -- the year it went public -- to lure new investors to its shares. She has management responsibility for shareholder relations and public affairs and also guides the firm on analyzing strategic development opportunities. Another veteran of DLJ, where she started her career in equity research in 1986, Solotar moved to Bank of America Corp in 2003 to become head of equity research. Solotar has an MBA in finance from the NYU Stern School of Business. She serves on the board of directors of the East Harlem Tutorial Program. LAURENCE TOSI Cordially known within Blackstone as LT, Tosi, 44, has been the firm's Chief Financial Officer since 2008 and has assumed more responsibility for running the business on a daily basis as James delegates more of his role. Before joining Blackstone, Tosi was Chief Operating Officer of global markets and investment banking at Merrill Lynch & Co. From 2004 through 2007, Tosi was Merrill's principal accounting officer for global finance. A graduate of Georgetown University, he was also global head of corporate development at Merrill from 1999 to 2007, where he managed many of the firm's strategic acquisitions and investments. Before joining Merrill Lynch in 1999, he was director of business development for General Electric Co's NBC division. JONATHAN GRAY In his two decades with the firm, Gray, 42, has emerged as the leader of Blackstone's most successful fund offering. His real estate business now manages $50.2 billion of assets under management. Gray joined Blackstone in 1992 straight after graduating from the University of Pennsylvania with degrees in English and economics. He quickly established a reputation for brilliant dealmaking acumen. He was given joint responsibility of heading the real estate business in 2005, one year before he executed the largest real estate deal in history, the $39 billion acquisition of Equity Office Properties. Gray then quickly sold off hundreds of the acquired buildings, deftly dodging the 2008 property crash. The public real estate companies taken private by Gray during his Blackstone career are valued at more than $100 billion in total. JOE BARATTA A Georgetown University graduate, Baratta, 41, joined Blackstone in 1998 and in 2001 moved to London to help establish the firm's private equity business in Europe. In July, he was appointed global head of private equity, overseeing a business with $46.6 billion of assets under management. Over the years, he had led a series of high-profile deals for Blackstone including British restaurant chain Tragus Group, healthcare staff provider Independent Clinical Services, and theme and holiday park operators Seaworld Parks and Entertainment, Merlin Entertainments Group and Center Parcs. Before joining Blackstone, Baratta was with investment firms Tinicum Inc and McCowen De Leeuw & Co, and also worked at Morgan Stanley in its mergers and acquisitions department. Source: Blackstone (Reporting by Greg Roumeliotis in New York, desking by G Crosse) ============