Fort Worth, Texas-based Crestline-Kirchner has replaced Medley Capital as the investment manager of Medley Opportunity Fund Ltd and Medley Opportunity Fund LP, the firm’s first private credit funds, launched in 2006.
As part of the transition, the funds have been renamed CK Pearl Fund Ltd. and CK Pearl Fund LP, respectively, according to a statement from Crestline on 28 January. “Following consultation with fund investors, the offshore fund's board of directors and Medley, the foregoing selected Crestline-Kirchner as the replacement investment manager for the MOF I Funds,” the statement added.
Some of the investments in the vehicles were asset-based lending stakes that soured during the financial crisis and defaulted, leaving the fund with equity interests. Several sources briefed on the matter told PDI that the funds’ investors voted to replace Medley as manager. They opted to pass management of the assets to a firm with equity investment expertise.
“Given what happened in the markets, some of these assets defaulted and given the lifespan of the fund and skill-set of the manager, it ultimately made more sense to convert it to more of a PE-type structure,” said Dave Philipp at Crescent-Kirchner. The manager will need to take control positions and sit on boards of the underlying companies, a situation where private equity firms have more expertise, he explained.
Crescent-Kirchner expects to work out about 20 underlying investments worth about $100 million over the next three years.
“It has been a pleasure working with the Crestline-Kirchner team throughout their portfolio assessment, triage strategy and implementation. The residual assets in the funds and corresponding opportunities to monetize the holdings effectively for investors are tailor made for a group like this. Their ability to navigate a complex transaction and also handle a wide range of asset classes and disparate holdings allowed us to engage a single group with confidence,” said Michael Pearson, board director from Fund Fiduciary Partners, who approved the selection of Crestline-Kirchner.
The Crestline-Kirchner Private Equity Group was formed in 2013 as a joint venture between Crestline Investors and Bud Kirchner, founder of the Kirchner Group, who is known for his ‘successor GP’ strategy. Crestline-Kirchner acquires and manages portfolios of private assets made available through restructurings, orphaned portfolios, manager transitions, end of fund life scenarios and related special situations.
Medley has launched and managed other private debt funds: The Medley Opportunity Fund II, which closed at $581 million in May last year, according to SEC filings, and the Medley Opportunity Fund III, which was just registered on 14 January. These won’t be affected by this transition, nor will Medley’s two BDCs, the public Medley Capital Corporation (MCC) and private Sierra Income Corporation.
The firm’s BDC is trading well below book value with sharp falls in its stock price, prompting concern from some analysts.
The overall group parent, Medley Management, which has offices in New York and San Francisco and handles $3.6 billion in assets, also went public last autumn. The manager’s share price has declined since then. It opened at about $17 per share on 24 September but had dropped to $10.24 on 4 February.
According to a 10K filing with the SEC, the firm’s portfolio is broadly diversified across multiple industries, though oil and gas was one of the largest positions at 6.4 percent, as of 30 September 2014.