Lex Greensill once offered Swiss asset manager GAM an option to buy shares of Greensill Capital, alongside a deal that saw him use client money to funnel funds into his financial company today now bankrupt.
The collapse of Greensill Capital a year ago sparked a sprawling business and political scandal, engulfing scandal-prone Swiss lender Credit Suisse and former British Prime Minister David Cameron.
Years before the company specializing in supply chain finance went bankrupt, however, it was at the center of an imbroglio at Swiss investment firm GAM, in which the asset manager fired its Star portfolio manager Tim Haywood and froze withdrawals on billions of dollars of funds he managed. .
As well as investing clients’ money heavily in hard-to-sell investment products brokered by Greensill, Haywood acted as an intermediary in GAM’s side deal negotiations with the firm’s Australian founder, Lex Greensill.
In a previously unreported deal, Greensill offered GAM a warrant to purchase shares in his company in October 2016, according to documents setting out the terms of the deal, allowing the Swiss company to acquire a 12.5% stake in Greensill Capital for $125 million.
The arrangement was made alongside a deal in which GAM funds loaned more than $120 million to Greensill Capital, via a special-purpose vehicle called Laufer, named after a creek on the family’s watermelon farm in the finance in Australia. The funding provided a lifeline for Greensill at a time when the fledgling company had racked up huge losses, while refinancing loans from shareholders including former GAM chief executive David Solo.
Greensill Capital sent a letter to shareholders, seen by the Financial Times, two days before the Laufer deal closed, explaining that the warrant was “part of the terms of the refinancing” it was negotiating with GAM.
Along with the equity mandate, GAM and Lex Greensill also negotiated a so-called “fee ramp” agreement, in which Greensill Capital would pay GAM $5 million in fees if the assets of a dedicated blockchain fund supply had not reached $1 billion by March. 2017.
In an October 2016 letter to Haywood signed by Lex Greensill, the fund was referred to as the “Vodafund”, a reference to the fact that the British telecommunications company had invested heavily in the investment vehicle while also drawing funds from it. Although this $1 billion milestone was not reached in time, the “fee ramp” was then “modified” in June 2017, extending the date to September 2017.
The Laufer deal appears to have been one of the deals that sparked the Financial Conduct Authority’s investigation which ultimately led to it imposing a £9.1m fine on GAM in December, which was handed down alongside to a lower fine of £230,037 imposed on Haywood. While the UK regulator has yet to release details of the investments that have been fined, it has previously said that the period under review began on October 20, 2016, the date on which the Laufer agreement was signed.
Greensill Capital repaid Laufer’s loans in 2018, shortly after a $250 million investment from US private equity firm General Atlantic transformed the finance company‘s valuation to over $1 billion. .
However, GAM never used Greensill’s stock warrant, which carried a $15 million “exercise fee” to activate it. Fees under the “fee ramp” arrangement were also never paid.
GAM told the FT that it “fully accepts the FCA’s findings” and “acknowledges the conflict of interest shortcomings”.
“We have significantly strengthened our leadership team, governance, control frameworks, policies and training to ensure that all lessons learned from this period are fully integrated into our business and culture,” GAM said. “With all regulatory matters now complete, we are looking ahead and focusing on our strategy to bring GAM back to growth.”
Haywood pointed to the fines imposed on him and GAM when the FCA issued its warning notices in December. “Everyone made statements at the time,” he said. He added that he will “await the release of the regulator’s full views before commenting further.”
Greensill Capital’s administrator and a spokesperson for Lex Greensill declined to comment.
Some of the unusual terms of the Laufer deal were also flagged in an internal investigation conducted by GAM in 2018. An expert report on GAM’s Greensill-related investments described one aspect of the deal regarding his interest rate as “not a normal arrangement”.
The FT reported in 2018 that the Laufer transaction appeared to have provided funding directly to Greensill Capital. Greensill’s spokesman at the time told the FT that “GAM does not provide any funding to Greensill”.