UK buyouts house Terra Firma has written down two of its investments by €1.365bn and, according to Reuters, handed back €80m of performance fees to investors.
In a letter accompanying the publication of the firm’s annual report, Terra Firma CEO Guy Hands said carried interest will be returned in March, meaning partners at the firm will lose out on much of the compensation that have accrued since 2004.
“This is absolutely right; our investors have suffered and therefore our rewards should suffer at the same time. Such longer-term rewards throughout the entire financial system would have led to a very different world to the one we find ourselves in today,” said Hands.
The bulk of the €1.365bn write down has been attributed to EMI, the UK music group Terra Firma acquired in a £4bn deal in June 2007. The London-headquartered LBO firm lays the blame partly on the drop in public company valuations and the decline of Sterling against the Euro.
The firm is bracing itself for a permanent loss on all investments made in 2007: “Whilst indeed they could make a partial or indeed a full recovery in the future, the directors of the General Partners believe that given the current world economic situation, this is a prudent position to take in terms of the long-term view of market recovery.”
The EMI investment was drawn from the €5.4bn Terra Firma Capital Partners III, which is currently 50% invested. No new investments were made in 2008, but the firm expects to in 2009.