Sorry, but it’s time to get opaque. There is a big private placement sponsor that’s about to rattle investors and independent broker dealers. If you know the sponsor and what it’s telling investors and broker dealers this post will make sense. If you don’t, consider yourself lucky. Here are some warning signs, all of which are a serious tremor, but together result in an earthquake:
It’s bad when a sponsor does not release its funds’ financial statements on time.
It’s worse when financial statements stopped getting released.
It’s bad when a sponsor releases two sets of financial statements for its funds.
It’s worse when the two sets of financial statements have big disparities.
It’s bad when the auditor calls an extended time out so a sponsor can get its financial procedures and documentation in order.
It’s worse when a sponsor’s funds’ business model is to assist portfolio companies improve operations, including financial management, the same functions it can’t get right for itself.
It’s bad when a sponsor has frequent management changes.
It’s worse when the management changes are not immediately disclosed.
It is bad when a sponsor churns through multiple Chief Financial Officers.
It’s worse when a Chief Financial Officer leaves before year-end audits are complete.
It’s bad when a sponsor has its programs make intra-fund loans.
It’s worse when a sponsor is slow to disclose the intra-fund loans and then keeps making intra-fund loans after it says it will stop making intra-fund loans.
It’s bad when a sponsor gets into a lawsuit with a former manager.
It’s worse when a sponsor says the lawsuit will get wrapped up soon and all disputed money and assets will be easily sorted in the sponsor’s favor.
It’s bad when a sponsor is raising so much money it buys an airplane.
It’s worse when a sponsor is raising so much money it buys an airplane.
“Truth isn’t truth” may go down as the phrase that defines this period of history. I don’t buy it. I believe truth eventually wins. This sponsor tried to defy its systemic financial problems and dismiss them as growing pains, but the inevitable reckoning has arrived. This large private placement sponsor is now facing hard truths – on many fronts – that it can no longer ignore or bluff its way through.