ING’s Australia-listed FoF sounds liquidity alarm

ING PEAL has been drawing on an A$20m credit facility to fund capital calls and will try to reduce some A$49m in undrawn commitments via secondary sales. It has also ceased paying dividends and making new investments.

Australia-listed fund of funds ING Private Equity Access Limited (ING PEAL) is the latest publicly traded fund of funds to suffer fallout from its over-commitment strategy.

The vehicle, which booked an A$8 million ($5 million; €4 million) loss in the last half of 2008, said it has 109 percent exposure to private equity and given a slowdown in realisations, doesn’t expect to be able to fund future capital calls with incoming distributions as it has done in the past.

It is currently reliant on a A$20 million credit facility to fund commitments, of which it had used $9 million by 31 December 2008. This debt facility expires in August, and ING PEAL will necessarily seek its roll over. It will also cease paying dividends and making new commitments to help fund capital calls.

Additionally, the fund of funds said it may sell some portions of its A$49 million in unfunded commitments and would also consider a share placement or rights issues to boost its liquidity. Some of these measures have been taken by various European listed funds of funds groups including SVG Capital and JPMorgan Private Equity.

“With tight credit markets, outstanding commitments to private equity funds and continuing challenges in financial markets generally, the board has concluded that it would be prudent to express some uncertainty about the company’s accounting assumptions of a going concern,” ING PEAL said in its earnings statement.

ING PEAL’s directors, however, said they believe the fund of funds will be able to meet capital calls and pay its debt based in part on its willingness to employ the measures outlined above, and because it doesn’t expect to have to produce the money for all its capital calls at once.

“Generally, drawdowns by a specific fund are substantially made over the five-year period from first commitment to a fund. Consequently, it has been typical, particularly amongst later stage private equity funds, which form the bulk of the portfolio, for there to be realisations and consequential distributions from underlying funds before all drawdowns by these funds need to be met.”

Furthermore, ING PEAL said it is unlikely all of its outstanding commitments will ever be drawn. “Historically, 5 percent to 10 percent of a diversified portfolio would remain undrawn,” it said.

The only fresh commitment ING PEAL made in the last six months of 2008 was at the start of the period: a $10 million investment in Australian firm NBC Capital’s third growth capital fund, which closed on $101 million last year.

Its shares closed at A$0.24 today, 52-week low which is down more than 72 percent from its 52-week high of A$0.87.