FRP advises US$250 million hedge fund on its restructuring options

Background

Following turbulent market conditions due to the Coronavirus pandemic, a Cayman domiciled hedge fund group headquartered in London found its assets under management (AUM) had dropped significantly, thereby reducing forecast revenue resulting in reduced profitability and breaches of its regulatory capital position.

Due to its forecast cash position and the potential of further customer redemptions reducing AUM, the business required immediate insolvency options planning to understand how the group could be wound-down in an orderly manner, mitigating the potential impact on customers and other stakeholders.

Action

FRP’s Restructuring Advisory team was engaged to provide the group’s management team with an overview of the available insolvency options, and an assessment of the financial outcomes of each option. The team additionally supported management in preparing wind-down cashflow forecasts and conducted due diligence on the group’s balance sheet liabilities to understand its current and forecast solvency position under a wind-down scenario.

Outcome

Despite improvements in market conditions and continuing support from its customers, the group was unable to turnaround performance over the medium term. Following FRP’s advice, management was able to take corrective action to reduce its cost base sufficiently to ultimately facilitate a solvent wind-down of the group and its operations.