Ian Cadby leads Liberty Ermitage MBO: Myners to chair new company

Ian Cadby is heading the MBO of fund of hedge funds group Liberty Ermitage Jersey Limited, backed by Caledonia Investments and Paul Myners.

South Africa's Liberty Group Limited (Liberty Life) confirmed yesterday that it has entered into a definitive agreement to sell Liberty Ermitage, its fund of hedge funds subsidiary, to a new company to be 60% owned by Caledonia Investments plc (Caledonia) and 40% owned by Liberty Ermitage's management team and Paul Myners, who will become Chairman of the new company.

Following regulatory approval, the company will revert to its original name
of Ermitage, which was the trading name of the Jersey-based company first established in 1975.

One of the cornerstones of the agreement is the continuity of the senior management team who, together, have been responsible for the company's expansion since 2001. Led by CEO/CIO Ian Cadby, Ermitage's management team of Mark Hucker, Andrew Whelan, Jonathan Wauton and Sarah Allen have all signed 5 year contracts within the new company structure.

Liberty Ermitage is one of the largest offshore hedge fund management groups based in Europe. It manages circa USD 1.8 billion in 12 funds of hedge funds and USD 0.6 billion in money market funds. It also manages long-only funds which will be acquired by STANLIB and which do not form part of this transaction.  Liberty Ermitage's fund administration business in Luxembourg is also excluded from the transaction.

The potential total acquisition price is GBP 41.1 million, payable in cash, and is split between an initial consideration of GBP 35.1 million and up to a further GBP 6.0 million payable over the next three years, dependent upon the level of assets managed in that period by Ermitage.

The maximum acquisition price of GBP 41.1 million represents approximately 3.0% of assets under management at the end of 2005.  Caledonia expects to invest GBP 21.9 million at completion and has underwritten the obligations of Ermitage's new holding company pending the finalisation of external debt negotiations.

Tim Ingram and Jamie Cayzer-Colvin, directors of Caledonia, the UK-listed investment trust company, will also be joining the board of Ermitage. Caledonia already has holdings in Close Brothers, Rathbone Brothers and Polar Capital (see Background Notes below for a list of Caledonia's holdings).

Paul Myners, a highly regarded figure in the investment management world, has a long association with Caledonia dating back to 1985 when he joined Gartmore, the fund management company originally founded by British & Commonwealth Holdings, in which Caledonia was a significant shareholder.

Myners said: "Hedge funds and absolute return investments are moving to the mainstream of institutional and private investor portfolios.  Investment in this area requires specialist skills.  Under Ian Cadby and his team, Ermitage has developed a strong and professional reputation."

Ian Cadby, Liberty Ermitage's CEO, said: 'I am delighted to be working with Caledonia, who will enable us to continue our organic growth strategy, focusing on our core capabilities of managing fund of funds investments and offering a broader and stronger product range to our clients in the institutional, retail and private client markets.'

"This agreement is great news for the company, our staff and investors, and was always the preferred strategy of the management team. Over the last five years our management team has positioned Ermitage to be one of the key players in the European Hedge Fund of Funds and Hedge Fund seeding business. This
success and future potential was instrumental in our decision to structure a MBO, and is indicative of our positive attitude towards the industry.

The transaction is subject to regulatory approvals and is scheduled to close during the second quarter of 2006.

Liberty Life was advised by Hawkpoint Partners and Norton Rose in this transaction.

Background Notes: Liberty Life is the third largest life insurance company in South Africa with a market capitalisation of R23.2 billion.  Liberty Life is active in the life insurance and asset management sectors.

Caledonia is a UK investment trust company, listed on the London Stock Exchange. The Company aims to achieve a long term shareholder return in excess of the FTSE All-Share Total Return while maintaining a progressive annual dividend.  Caledonia has established a reputation as a supportive and constructive long-term investor, with considerable experience in the investment management sector. 

Caledonia's strategy is to focus on a portfolio of around 30 to 40 principal investments, where it has significant and influential stakes with a policy that at least 50% of the total portfolio should be in quoted securities or other liquid assets.  New investments will typically be in the range GBP10 million to GBP25 million.  Careful control is exercised over costs, notwithstanding Caledonia's active and participative management style.  The Board believes that Caledonia has a long established and valuable reputation for being a supportive long term investor, which brings a strong deal flow of opportunities not always available to others.
 
Caledonia's investments are focused on a selected range of sectors where it has good in-house knowledge that can add value to management of investee companies. Where particular expertise is not held in-house, investments may be made through third party managed funds where Caledonia will often seek a significant stake in the management company.
 
Caledonia's selected sectors are: Financial: comprising 26% of net assets, including holdings in Close Brothers, Rathbone Brothers and Polar Capital; Leisure and Media: comprising 15% of the net assets, including holdings in Kerzner International and The Sloane Club; Managed General Funds: comprising 24% of the net assets including holdings in British Empire Securities and a fund managed by Aberforth Partners; Industrial and Services: comprising 12% of the net assets, including investments in Offshore Logistics and Melrose Resources; Property: comprising 11% of the net assets, including a holding in Quintain Estates; Net Current Assets 10%; and Other: comprising 2% of the net assets.  The percentages of the net assets quoted are as at 28 February 2006.

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