Investors wait for financial statements from leading seller of alternative investments

GPB, which offers private placements, also cut the distribution rate on one of its funds

Jul 11, 2018 @ 2:52 pm

By Bruce Kelly

One of the current leading sellers of illiquid, high-commission alternative investments through independent broker-dealers, GPB Capital Holdings, has yet to file financial statements with the Securities and Exchange Commission for two of its largest funds, although both funds crossed industry thresholds for making such information public more than a year ago.

An SEC rule requires a private company with more than $10 million in assets and 2,000 individual investors to file financial statements with the commission. Such a company has 120 days after the end of its fiscal year to file an annual report, according to the SEC.

GPB has nine private placements on file with the SEC. The two largest, GPB Automotive Portfolio and GPB Holdings II, both had more than 3,000 investors in May 2017 and had raised hundreds of millions of dollars by that time, according to SEC filings. Both now have more than double that number of investors.

GPB Automotive Portfolio has raised $622.1 million from wealthy investors over the past five years, and GPB Holdings II has raised $645.8 million since 2015, according to filings two months ago with the SEC.

Together, the two funds have paid brokers $100.1 million in commissions at a rate of 7.9%.

As many as 60 broker-dealers sold either of the two funds. While many were smaller IBDs, among the most prominent listed in SEC filings were the four Advisor Group broker-dealers — Royal Alliance Associates Inc., Sagepoint Financial Inc., FSC Securities Corp. and Woodbury Financial Services Inc.

Brokers and advisers can sell private placements, also known as Reg D deals, to wealthy, accredited investors and institutions. Private placements have far fewer regulatory standards to adhere to than publicly listed companies. The minimum investment in GPB Automotive Portfolio was $100,000.

GPB has raised more than $1.5 billion from investors and has more than 160 companies in its various funds, according to its website. It is a prominent buyer of auto dealerships.

Investors in the two funds and broker-dealers are aware that GPB is working on its financial statements, said Dana Taormina, a spokeswoman for the company.

"As we have communicated to our advisers and investors, we continue to work to finalize the audited financials necessary to complete the required filings to publicly report on two of our offerings, GPB Holdings II, and GPB Automotive Portfolio," Ms. Taormina wrote in an email. She did not state when the two companies expected to report publicly their financial statements.

A spokeswoman for Advisor Group, Olivia Gagnon, said the firm had no comment.

InvestmentNewsreported this winter that GPB Capital Holdings, the parent company of the various private funds, was in the middle of an ugly dispute with a former business partner who allegedly reneged on the sale to GPB of a group of auto dealerships valued at about $40 million.

David Gentile, CEO of GPB Capital, told investors at the end of March that litigation had pushed the company to cut its distribution rate in half for one of its other funds for the time being.

A distribution in a private placement or nontraded real estate investment trust is akin to a dividend from a stock, but such distributions can include a return of the investor's capital.

The distribution rate for the fund had been 8%, according to industry sources. It was cut to 4% for class A units of GPB Holdings, according to Mr. Gentile's letter.

"This change in distribution rate will allow the partnership to distribute cash flows from remaining assets while pursuing a resolution to the ongoing litigation as swiftly as possible," Mr. Gentile wrote.

"For our first offering, GPB Holdings, we have communicated to our advisers and investors that we have temporarily decreased the targeted distribution rate and the [fund's] advisor has deferred the collection of a management fee," Ms. Taormina added.

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