Henderson: make or break

What do you do when you’re a single-asset fund and that asset hasn’t performed particularly well? You put all your chips on the exit and hope for the best.

That’s the situation asset manager Henderson finds itself in relation to its notorious Henderson PFI Secondary Fund II, which controversially spent the entirety of the £573.5 million (€718.4 million; $912.7 million) raised from investors acquiring Private Finance Initiative (PFI) specialist John Laing in late 2006.

By this point, the Henderson story is already well known: Fund II’s investment in John Laing did not go according to plan, with the developer hit hard by the global financial crisis and Henderson saddled with its significant pension deficit.

By late 2009, Fund II had lost up to 60 percent of its value and was worth only £225 million. Things have improved since then, but only slightly. Last June, Fund II was still trading at a 30 percent discount and returning a dismal minus 8 percent.

Of course, the highlight of the whole Henderson debacle was the full-blown shareholder revolt it faced last year, when 22 of Fund II’s limited partners (LPs) took Henderson to court over alleged breach of mandate.

The angry LPs claim Henderson sold them Fund II on the premise that it would invest in a diversified portfolio of PFI assets; instead, Henderson turned around and bought John Laing, a full-fledged company.

The legal saga officially ended this January – following a preliminary court victory for Henderson last November – with the asset manager and its mutinous LPs settling out of court. The arrangement saw Henderson foot the LPs’ legal bill, but refuse to admit any liability. A sort of mea culpa then, with Henderson stressing it did nothing wrong, but at the same time acknowledging its LPs are angry.

Henderson, however, has one last chance to, if not quell, at least mitigate that anger. In three years’ time, Fund II winds down and – as a fund with only one asset – Henderson has set the wheels of its exit strategy in motion.

It’s no coincidence that earlier this week news started surfacing that Henderson was in the early stages of deciding whether to go for an outright sale of John Laing, or perhaps re-list it on the London Stock Exchange (Henderson’s 2006 acquisition of the UK developer was a take-private deal).

After all, just one day after UK channel Sky News broke the story, positing a possible 2014 divestment, John Laing announced a very solid set of results. Highlights include a more than doubling of profits and a record year for new infrastructure investments, with £146 million deployed.

At this point, it’s hard to fathom whether Henderson will manage to make up for Fund II’s disappointing performance in one fell swoop. And even if it does manage to pull off the most brilliant of exits, it’s unlikely that its LPs will forgive it for the bumpy ride.

Liability or no liability, Henderson’s investors have made it amply clear that they invested in Fund II expecting to be given a certain kind of thing and are not happy with what they actually got. It’s a funny reality of the investment world that LPs will more easily forgive a fund manager that failed, but stuck to its original plan, than one which succeeded, but diverted from its story.

In Henderson’s case, of course, it still has all to prove, so the stakes couldn’t be higher. Faite vos jeux.