GPB Capital reports decline in value of two biggest funds

One has dropped by 25.4% and the other by 39%, according to the company

Jun 21, 2019 @ 2:08 pm

By Bruce Kelly

In a blow to investors, GPB Capital on Friday reported significant losses in the value of its investment funds, which are in the form of private partnerships that invest primarily in auto dealerships and waste management businesses.

The two largest, GPB Holdings II and GPB Automotive Portfolio, have seen declines in value, respectively, of 25.4% and 39%.

According to a document from GPB sent to custodians and investors, that means that a client who bought $50,000 of GPB Holdings II has seen his investment trimmed to $37,300. For an investor who purchased $50,000 in GPB Automotive Portfolio, that position now has an estimated value of $30,460, according to GPB.

Those two funds raised $1.27 billion from investors and make up the lion's share of GPB Capital's portfolio. In total, GPB has raised $1.5 billion; broker-dealers sold the securities to wealthy clients in chunks of $50,000 to $100,000.

GPB's five other smaller funds reported declines in estimated value of 25% to 73%, according to GPB.

In a statement to InvestmentNews, the company noted that if distributions were added to the fair market value, investors did better. The distributions in the GPB funds are not returns on the investments but a return of of a small piece of investors' initial capital.

Adding in distributions, investors in GPB Holdings II and GPB Automotive Portfolio saw decreases in their investments, respectively, of roughly 13% and 25%, according to the company.

The company has been facing questions from broker-dealers and investors about the value of its private placements.

At the end of April 2018, the company missed a deadline to report financial information about GPB Holdings II and GPB Automotive Portfolio.

Since then, GPB has experienced a number of other setbacks. Most recently, Fidelity's National Financial Services was discussing whether to remove the private placements from its platform as GPB was trying to determine a value for the funds.

GPB's estimated values for the funds are as of the end of 2018. The company intends to issue quarterly valuations in the future.

GPB has been in recent years a leading sponsor and manager of high-risk, alternative investment private placements sold by brokers who work at independent broker-dealers.

According to its website, GPB has more than 160 companies in its portfolio. Advisers typically receive commissions of 7% for selling the private placements, much higher than for mutual funds.

In an email, a spokesperson for GPB said it was asking its investors, who are limited partners in the funds, to be "patient" as GPB work towards finishing an audit of its funds.

"While our estimated fair market values as of December 31, 2018 for Holdings II and Automotive Portfolio are below where we would wish them to be, we are making efforts to improve performance of our portfolio companies and believe this effort will, in the future, translate into improved operating results," wrote Kelly Whitten in an email.

As many as 60 IBDs have sold GPB funds. While many were smaller firms, among the most prominent listed in Securities and Exchange Commission filings were four Advisor Group broker-dealers: Royal Alliance Associates Inc., Sagepoint Financial Inc., FSC Securities Corp. and Woodbury Financial Services Inc.

A spokesman for Advisor Group did not have an immediate comment.

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