Dan Gillerman has resigned as chairman of Markstone Capital Partners Group LLC, after five years in the job, because of the private equity's difficulties in supporting its portfolio companies. Markstone did not notify its shareholders of his departure.
Gillerman, a former Israeli ambassador to the UN, was appointed Markstone's chairman in 2009, following the scandal-ridden resignation of his predecessor, Elliot Broidy, who founded the firm. Broidy was convicted of bribing state pension officials in the US in order to raise capital. Broidy still owns half of Markstone's management company, the other half of which is owned by Markstone managing partner Ron Lubash and the late Amir Kess.
Gillerman was appointment was intended to calm Markstone's foreign investors following the bribery scandal. Market sources say that he was merely a figurehead for years, after the firm stopped making investments, and it became clear that it would never raise a new fund. The Israeli representative of Blackstone Group LP (NYSE: BX) apparently urged Gillerman's departure.
Kess's death in a traffic accident earlier this month, highlighted Markstone's cash-flow problems. Although it raised $800 million a decade ago, it cannot help its portfolio companies, including bookseller Steimatzky Group and Amfic (formerly Prisma Investment House), both of which are in serious financial shape.
Sources inform ''Globes'' that Markstone's financial distress not only means that the creditors of its portfolio companies are not being paid on time, but the firm's officers are not being paid either. Markstone's articles of incorporation set the management fee at 2% of the capital raised a year ($16 million), but it is not known when the last payment was made to the management company.
Markstone is one of the worst-performing private equity funds in the world, according to US consultancy firm Preqin (data for 2011). Markstone's financial report for the third quarter of 2013, which "Globes" revealed in March, show that since it was founded in 2004, its investors made a return on investment of just 3%, and that its managers are ineligible for success fees (20% of the fund's profit at the end of its lifespan). Market sources believe that in view of the generous valuations in the report, the fund will expire with a negative return for investors.
Markstone has returned $365 million to investors, almost half of the actual amount raised. Its financial problems are due to its portfolio companies, of which seven of the ten companies remain, including Steimatzky and Amfic, which owns 23% of Psagot Investment House Ltd. Failed investments include ATV company Tomcar, Elran Real Estate Ltd. and soil stabilization solutions PRS (Mediterranean) Ltd. These failures wiped out the gains from the sales of Netafim Ltd., seed developer Zeraim Gedera Ltd., and Dapei Zahan Ltd. (Golden Pages).
Markstone is now trying to exploit the market rally to float Magnolia Silver Jewelry Ltd. on London’s Alternative Investment Market (AIM) or to sell it. The firm also expects a 50% return on investment in nylons manufacturer Nilit Ltd.
Published by Globes [online], Israel business news - www.globes-online.com - on April 23, 2014
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