How vulture funds got their tentacles deep into Irish lives
Private-equity funds control our shopping, holidays, mortgages, healthcare and more
US fund Kennedy Wilson owns the Shelbourne Hotel, which took it out of receivership in 2014, with about €110 million in debt attached.
Readers of a certain vintage might recall the best-selling book Barbarians at the Gate: the Fall of RJR Nabisco, which told the story of one of the first big private-equity takeovers, that of US conglomerate RJR Nabisco by KKR, back in 1988.
Thirty years on, private-equity funds and their role – for better or worse – in both economies and societies is as relevant as ever, in Ireland as much as anywhere else.
They’ve always invested in Ireland but, since the 2008 crisis and the subsequent collapse in asset values and lack of other buyers, private-equity funds, and the so-called “vulture fund” cohort, have become much more significant players.
In essence, private-equity funds are bargain hunters. They look for cheap opportunities, snap them up and wait for them to turn around, so they can sell them on again at a tasty premium. All the while they will add debt, try to minimise taxes and cut costs. And as they’re not banks, when acquiring financial assets such as mortgages they’re not subject to the same regulatory oversight as financial institutions are.
While the money they use to invest is private – it typically comes from institutional and wealthy investors – some such funds also have a public element in that they are quoted on public stock exchanges, as is the case with Blackstone and Kennedy Wilson. That means you can buy shares in them. But access to their funds is still largely restricted to those with very deep pockets.
It can be a well-known investment house making a transparent acquisition; sometimes it’s some obscurely named fund, where ownership can be confusing, and practices such as this can give private equity a bad press.
But if considering how benign, nefarious or otherwise private equity/vulture funds are is an exercise perhaps for another day, it might be instructive to first assess just how pervasive they have become in Irish society.
Without us realising, perhaps, they now have an input into many parts of our day-to-day lives.
Looking for a spring break? How about a show in the Bord Gáis Theatre – owned by Crownway Investments, the investment vehicle set up by the former owners of Jurys Doyle hotel group, John and Bernie Gallagher? Dinner afterwards perhaps in the nearby Marker Hotel (owned by Brehon Capital Partners, backed by Swiss money via the Spitzer family)? Or maybe a bit of fresh air in the Powerscourt Hotel in Co Wicklow, Mount Juliet in Kilkenny or Mount Wolseley in Co Carlow, all also owned by Brehon.
What about a round of golf at the Heritage, in Killenard, Co Laois, or dinner at Cork’s Metropole, both owned by the Goldman Sachs-backed Tifco hotel group – the second-largest hotelier in the State, which is currently on the market with a price tag of up to €600 million.
But maybe you’d prefer to stay in Dublin? The Portmarnock Hotel and Golf Resort was bought up by US fund Kennedy Wilson for €27 million back in 2014, while the swish Shelbourne Hotel is also owned by the US fund, which took it out of receivership in 2014, with about €110 million in debt attached.
And if, on your way home, your car breaks down. No problem, you just pick up your phone and ring AA Ireland – a Carlyle Cardinal Ireland investment – and a mechanic duly makes his merry way to you.
When you finally get moving, you cross the M50 toll, stopping off later at your local shop to pay the toll thanks to Payzone (also owned by Carlyle Cardinal).
Even students will find private equity playing a part in their life. Those still studying, or recently graduated, are likely working on tight budgets but perhaps dreaming of a life down under or on the other side of the Atlantic. Usit Travel is the go-to company for booking travel, but this is yet another private-equity investment, taken out of examinership by Irish boutique firm Lioncourt Investments back in 2012.
But it’s not just a feature of those special days out or general entertainment. If you have a pain in your chest, you might head down to the emergency department at the Mater Private Hospital in Dublin and hand your money over to a company which is majority owned by European private-equity firm CapVest. It took a majority shareholding in the group in 2007, in a deal that valued it at €300 million. Last October US private-equity firm HarbourVest Partners sought to buy out investors in the original fund.
Should your doctor give you a prescription, you might drop into a local branch of Sam McCauley, the third-largest retail pharmacy group in Ireland, with about 38 outlets across the State. And, as it scales up under Carlyle Cardinal by acquiring rival pharmacy multiples, you’re likely to happen upon it more frequently.
On your way home, you could stop to visit an elderly relative in Mount Hybla nursing home in Castleknock – one of four operated by Beechfield Care Group, in which Lioncourt acquired a significant stake back in 2014. German investment group Immac acquired it for about €33 million late last year.
Looking to jump the public queue for a hip replacement? You might find yourself in Waterford’s Whitfield Clinic – owned by the Goldman Sachs-funded Beltany Property Finance, which bought loans tied to the clinic back in 2014.
Summer is coming (apparently) so it must be time for some shopping for those days in the sun, right?
Some retailers have already moved on from private equity. Dublin city-centre retail powerhouse Arnotts, for example, was snapped up by US fund Apollo and Britain’s Bluegem Capital after its previous owners overextended themselves in a grand plan for a Northern Quarter only to collapse into the hands of the banks when the financial crash came. In 2015, the Weston-owned Selfridges group made a move and took full control.
Elsewhere, you could be paying for your purchases with an Avant credit card, bought by Apollo, from MBNA, but since sold in 2014 to Spanish bank Evo Banco.
In Stillorgan, south Dublin, Kennedy Wilson is busy renovating what was the State’s first shopping centre. It also owns the Marshes Shopping Centre in Dundalk, while, in Tallaght, US private-equity giant Oaktree owns the Square.
Maybe you prefer the shopping behemoth that is Blanchardstown Shopping Centre, bought by US private-equity giant Blackstone for about €950 million in 2016.
And if you’re looking for a coffee and buns as you rest your weary feet, you might stop off at BB’s Coffee & Muffins (owned by Irish firm Causeway Capital).
Your weekly shop
Even in your weekly household shop, there’s little chance of avoiding these groups. Into your trolley goes some Carroll’s ham (owned by Carlyle Cardinal); Jacob’s Jaffa Cakes, Batchelors baked beans and Odlums porridge (all owned by CapVest- and Lioncourt-backed Valeo Foods); and some gluten-free bagels from Promise (part-owned by Mayfair Equity Partners).
You tidy away your groceries and, disposing of some wrappers, discover that your bin is full. No problem, it’s collection day tomorrow, so you grab your Greenstar wheelie bin and drag it out to the front of your house. The bin used to be owned by US fund Cerberus, which took it out of receivership back in 2013, and is now owned by Panda Waste.
But wait, someone is ringing you. With more than 2.4 million residential and business customers in Ireland, Eir still has a substantial hold on the market, despite no longer being in State – or public – ownership. These days, its owners include New York-based private-equity group Anchorage Capital and US hedge fund Davidson Kempner, as well as French telecoms tycoon Xavier Niel, but it is no stranger to the call of private equity. Since it was sold off by the State in that (in)famous flotation back in 1999, it has been owned by a number of private-equity groups.
And last, but far from least, your home. It may be your sanctuary but, depending where you borrowed your mortgage, you won’t be able to avoid private equity.
It’s the area that’s most in the news at the moment: vulture funds swooping in, acquiring, at hefty discounts, portfolios of residential and buy-to-let mortgages that are in arrears. This leaves the original borrowers potentially bereft of traditional protection from the regulatory authorities.
Private equity’s entry into the Irish housing market intensified in the aftermath of the financial crisis. In 2014 for example, Irish Nationwide Building Society sold a portfolio of some 12,702 mortgages, worth €1.8 billion, to Lone Star, Oaktree, Mars Capital and Bank of Ireland. Mars Capital also paid about €250 million for subprime loans sold by Springboard, and Lone Star acquired a bundle of subprime loans when it acquired Start Mortgages from Investec.
But it’s still a feature of the market as banks look to improve their balance sheets. Permanent TSB is currently looking to sell on 14,000 non-performing home mortgages, while Ulster Bank has similarly mooted the sale of as many as 7,000 non-performing home loans.
Funds make money by acquiring the loans at a significant discount, often of as much as 50 per cent of the face value of the outstanding debt. If the loans are repaid, the fund stands to profit on the difference: another option is to repossess the property and sell it for a value greater than what was paid for the loan.
But it’s not just about existing homes. Even if you’re in the market for a new home, it too may have been funded by a private-equity player. KKR, of Barbarians at the Gate fame, is part of the efforts of the Ireland Strategic Investment Fund to fund larger developers, for example, while Lone Star funds own 600 acres of land in Dublin with the potential for 7,000 homes.
Having found your home, you go looking for a mortgage – KKR, again, owns Pepper’s Irish mortgage-lending unit.
And even if you’re renting, you could have a vulture fund for a landlord, as these funds put non-performing landlords into receivership and take control of their rent rolls.