Administrator GlobeOp pulls IPO following hedge fund's negligence lawsuit
Hedge fund administrator GlobeOp Financial Services has postponed its planned listing on the London Stock Exchange on Thursday after being hit by a USD465m lawsuit from Archeus Capital Management, which says GlobeOp's poor service was responsible for its assets under management declining by USD2.3bn in the space of 17 months.
GlobeOp was hoping to raise GBP52m through the floating of a quarter of its equity through the listing, valuing the company at around GBP275m. 'Grey market' trading of the firm's shares on the exchange was suspended on Wednesday following news of the Archeus lawsuit, which was filed in New York on Monday.
The asset manager announced the closure of its Animi funds last October after its assets under management fell to USD700m from around USD3bn in May 2005. Archeus accuses GlobeOp of 'reckless indifference', alleging that administrative failures in areas such as reconciliation let investors to withdraw their capital from the fund and. The lawsuit claims: 'GlobeOp pushed the Animi Funds into a 'death spiral' from which they could never recover.'
Archeus was established in 2002 by Peter Hirsch, formerly global head of interest rate trading at Salomon Brothers, with Gary Kilberg, a former managing director at electronic trading provider eSpeed and UBS.
At the time of the closure of the funds Hirsch and Kilberg told investors: 'One obstacle we have not been able to overcome has been the negative sentiment which has snowballed as a result of our third-party administrator's failure to properly maintain the books and records of our funds. This failure, and their subsequent inability to properly re-reconcile the funds' records, led to a series of investor withdrawals from which we have not been able to recover.
'When their failure at re-reconciliation became known, we embarked on a time-consuming and costly effort to reconstruct the funds' books and records from inception. While ultimately we were able to secure clean, unqualified audit opinions without any material changes in estimated NAVs (and in fact throughout our history have experienced only clean and unqualified audit opinions), the significant delays in releasing those audited financials proved understandably intolerable to many investors, who made it clear that they could not accept the uncertainty resulting from protracted delays in financial reporting.
'We are proud of the transparent and professional manner in which we handled the reconstruction of the funds' books and records, and have insulated you from the excessive costs associated with such an effort. Nonetheless, the continuing redemptions have triggered a spiral of portfolio liquidations which have in turn eaten into the positive performance that other parts of our book have been experiencing.'
GlobeOp has rejected the allegations, arguing that the lawsuit has been timed to give the plaintiffs maximum leverage by coinciding with the administration firm's IPO. In a statement, the company says its contract with the Archeus fund excludes claims for consequential damages, particularly related to loss of business or lost profits, and that consequential damages account for the vast majority of Archeus's claim. GlobeOp hopes to reinstate the IPO once the situation has been clarified.
Founded in 2000 by chairman and chief executive Hans Hufschmid, GlobeOp employs some 1,500 people at its headquarters in New York and London and offices in George Town, Grand Cayman, Harrison, New York, Hartford, Connecticut, and Mumbai in India. The firm's largest shareholder is reported to be private equity firm TA Associates, with a stake said to be of 40 per cent.
According to a HedgeFund.net survey, at the end of the first quarter of 2007 GlobeOp was the world's eighth largest administrator of single-manager hedge funds with 800 funds and USD93.9bn in assets, and the 10th largest fund of hedge funds administrator with 300 funds and assets of USD31.3bn.
Hufschmid was previously a principal at Long-Term Capital Management and co-head of its London office for five years, supervising traders, researchers, programmers and administration personnel, and serving on the firm's risk management and management committees. He previously spent 10 years with Salomon Brothers in London and New York, the last four as global head of foreign exchange sales and trading, and was a member of Salomon's credit committee.
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