Henderson versus LPs: the verdict

London’s High Court told the 22 investors looking to press charges against the Henderson PFI Secondary Fund II that they will have to forfeit their limited liability status if they wish to proceed with legal action.

Asset manager Henderson has scored a preliminary victory against the 22 limited partners (LPs) seeking legal action over one of its infrastructure funds, Henderson recently announced in a statement.

“A court hearing, held during the week of November 5, dealt with preliminary matters and certain issues in relation to the allegations of breach of mandate. Judgment has now been handed down and the court has found in favour of both Henderson Equity Partners (GP) Limited and Henderson Equity Partners Limited in respect of all of the issues considered by the court at that hearing in relation to the allegations of breach of mandate,” the asset manager wrote.

As previously reported, a majority of LPs in the 10-year Henderson PFI Secondary Fund II – a UK fund which closed in 2006 on £573.5 million (€718.4 million; $912.7 million) – are alleging “breach of mandate and misrepresentation” on Henderson’s part.

But the court was clear on what Henderson’s LPs will have to do if they wish to pursue legal claims against the asset manager:

“The claimants are not entitled to pursue a derivative claim against the General Partner. They are entitled to pursue a derivative action against the Manager on the claims to which I have referred, but to do so, they must forfeit their limited liability and render themselves liable to creditors of the Partnership generally, as if they were the General Partner, for the period during which such claims are pursued.”

It should be noted the LPs can still appeal the court’s decision, but Infrastructure Investor could not ascertain whether they will do so in time for publication.

At the heart of the dispute is the way in which Henderson invested the money raised for the fund. Put simply, the fund manager used the entirety of the money raised to fund its £1 billion December 2006 public-to-private acquisition of UK developer John Laing.

From Henderson’s point of view, the acquisition was seen as a good way to provide its LPs with access to a diversified portfolio of PFI assets.  

The contentious issue is that John Laing wasn’t – and still isn’t – just a PFI bidding or holding company. Rather, it’s a fully-fledged firm which at one point included a railways business (Chiltern Railways) and a house building unit (Octagon Housing) – both fully divested now – as well as an insurance operation.

What the majority of the fund’s LPs are now saying is that they were unaware of Henderson’s intention to buy John Laing, pointing out that the purchase violated the fund’s mandate in a number of areas.  

LPs are claiming Henderson sold them the fund on the basis that it would invest in concession companies that hold PFI assets and that no more than 20 percent of the fund would be invested in a single entity, among other claims.

Law firm Ashurst is representing the 22 pensions, with Clifford Chance in charge of Henderson’s defence. The plaintiffs include a number of local council pensions, funds linked to Oxford and Cambridge universities, as well as the pension funds of BAE Systems, BBC, Bupa, Fenner, Magnox, Scottish & Southern Energy, Smurfit Kappa and Tesco.