The severe crisis at Markstone and the tragic death of Amir Kess, one of its managers, have forced founding partner Ron Lubash to disclose the fund's true position to investors. Sources inform "Globes" that in an update given to the fund's advisory board, on which its international investors sit, Lubash revealed that since 2008 Markstone's managers have not drawn management fees. Under the management agreement of the private equity fund, which raised some $800 million a decade ago, the management company is entitled to an annual fee amounting to 2% of the sum raised, or $16 million a year.
Markstone says that, in 2008, Lubash and Kass decided voluntarily to stop drawing their salaries, the cost of which at that time amounted to about $1 million annually (NIS 130,000 gross monthly each). According to the fund, the reason for this is that the management fee reduced over the years, and now stands at under 0.25%. This serves for the day-to-day running of the fund, covering workers' salaries, office rent, and so forth. Up to 2008, the managers of Markstone, which has given its investors a zero return, drew management fees totaling some $80 million.
It is no coincidence that Lubash has now decided to inform Markstone's investors that the fund managers have not drawn management fees for a long time. In the past few weeks, the fund's huge debts have been exposed. Because of a series of failed investments, the fund was compelled to take loans on grey market terms from private lenders. In addition, the fund took a loan of some NIS 250 million from Deutsche Bank. These loans, which Markstone took without notifying its investors as required, were distributed among the companies it owned that had got into cash flow difficulties, such as bookseller Steimatzky and Amfic (formerly the Prisma investment house, which collapsed), which has debts of about NIS 500 million.
It emerges from what Lubash had to say, however, that the decision to stop charging management fees was not made because of the fund's poor performance. He said the decision came in the wake of the bribery affair in which founding partner and then chairman Elliott Broidy was involved. Lubash himself has announced that he will not draw a salary despite being left as sole manager of the fund.
Broidy was accused of bribing officials in US financial institutions in exchange for investment. This led to his dismissal from the fund in 2009 and to the imposition on Markstone of a $18 million fine. The fund says that Broidy still owns 50% of the shares in its management company (the other 50% belongs to Lubash and the estate of the late Amir Kess).
Published by Globes [online], Israel business news - www.globes-online.com - on May 8, 2014
© Copyright of Globes Publisher Itonut (1983) Ltd. 2013