Hands ups Terra Firma stake

Ongoing discussion in the market surrounding large-cap buyout fund performance and LP allocation issues were given renewed vigour recently, when news broke that Terra Firma chief Guy Hands has bought out three investors in the firm's latest fund.

Terra Firma's management company, which is tightly controlled by Hands, is thought to have acquired the three interests - collectively representing EUR25m in funded and unfunded commitments respectively - for a negligible value. Marketed by some as representing Hands' confidence in the funds future performance, the low purchase price has been touted by others as an indication of the investors' desperation to escape the vehicle.

Indeed, the investor was reported to have written off around EUR1.39bn from two of the investments in the new fund, with music group EMI thought to be primarily responsible for the loss. Following the news, Terra Firma gave back to LPs approximately EUR70m of performance fees generated since 2004, while Hands himself is forgoing his EUR40m bonus.

Hands, via the management company, was already one of the four largest investors in Terra Firma's EUR5.4bn third fund, which closed in January 2007, having made a contribution of EUR200m.

The three investors that sold their interests were not named, but were said to comprise two institutional investors and one family office.

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