Monday, 13 April 2015

CIMB selling part of PE business?

Article in Focus Malaysia (partially behind paywall): "CIMB’s ex-CFO to buy its PE biz".

Please note that the article is based on rumours: "It is learnt", "A banker says", etc., no official announcement has been made, so we need to wait for official confirmation.

The deal would be noteworthy since there would be a large conflict of interest the stake being takeover by the people who manage it:

"... former chief financial officer Kenny Kim and senior executives mulling a takeover of the banking group’s private equity business.Under the deal, Kim and his associates are expected to acquire a 70% stake in the CIMB private equity unit, with the balance to be retained by the banking group."

The reasoning behind the possible move seems to be:

" .....a move by CIMB to detach the private equity unit’s financials from the group’s consolidated accounts. This is part of the implementation of Target 2018 or T18, announced in February, that includes the bank’s aim of a return on equity (RoE) of more than 15% by 2018.In FY13, the latest financial year for which its results are available, the CIMB private equity business went into the red with a RM4.68 mil loss after four years of profit. The sale of CIMB’s private equity business may improve some of the T18 financial benchmarks."

That would be kind of reasoning (dressing up of the accounts) of which I am not exactly a fan.

Managers of PE funds normally work under a 2/20 rule, meaning they would get 2% a year (in this case a cool RM 120 Million) and subsequently 20% of the profit after returning the original amount to the investors (since the amount under management is RM 6 Billion, this could be very substantial).

The PE industry in the US is quite controversial, here is a collection of articles from one of my favourite bloggers on this subject.

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