Fed-Up Investors Force Reliant to Liquidate
Buyout firm Reliant Equity is shutting down what remains of its only fund.
The move is the result of a vote within the past few months by a limited-partner advisory board for the vehicle, which has been riddled with losses. Feeling that Chicago-based Reliant wouldn't be able to salvage any value from the portfolio by remaining as manager, those dozen or so shareholders ordered the firm to liquidate the entity's assets as quickly as possible through a secondary-direct offering.
While the hope is to recover some portion of the $123 million that investors initially contributed, it doesn't look like the sale will bring in even close to that amount. As of Dec. 31, the fund was running an average annual loss of more than 53%, and it has never yielded a single dollar of distributions.
What's more, shareholders say that about half of the portfolio has been written down to zero, and that the remaining positions are valued at or below what Reliant paid for them. The upshot is that prospective bidders believe the fund is worth less than $50 million - including a small undrawn component that investors have no interest in fulfilling.
Right now, likely bidders consist mainly of secondary-direct funds, which buy portfolio-company stakes from other private equity vehicles. Some are looking at the offering with keen interest, while others are approaching with only passive curiosity.
Reliant's limited partners include Calpers, Illinois Public Employees and Illinois State Teachers.
Reliant formed in 2001 and assembled its sole fund in 2002 and 2003. The outfit invested mainly in minority-owned businesses in the industrial, manufacturing and consumer-product sectors, following what one shareholder deemed a "buy-and-build" strategy. "There's not a single thing in that portfolio that's worth talking about," the limited partner said.
Among the higher-profile blowups in Reliant's portfolio was Blue Sky Brands, a consumer-product company that the firm created in 2005 through a buyout of Paragon Gift Holdings. Blue Sky shut down in March.
Depite the struggles, investors' demands that Reliant shutter its fund may have come as something of a surprise to the firm. Indeed, from 2005 until last year, the outfit was talking about marketing a new vehicle, as executives there expressed optimism that they would be able to turn the previous one around. But Reliant didn't get a warm reception as it pitched the idea of a new fund, and outsiders told the firm that its chances of raising any money were slim.
Now the operation's staff is dwindling. Managing director Carr Preston left earlier this year. Before joining Reliant, he was a principal at Allied Capital of Washington. Managing director Omar Simmons split earlier this year as well. He now works at Windjammer Capital of Newport Beach, Calif. The status of managing director Roy Roberts is less clear. Prior to Reliant, he served as a group vice president in the truck division at General Motors.
Founder Thomas Darden is still on board. He was a managing director at Windpoint Capital of Southfield, Mich., before starting Reliant.