Bery claims $30.8 million from JPM

The total includes alleged lost income and fees, wrongful dismissal and breaches in agreements to spin out his team. Bery has filed a complaint in Hong Kong's Court of First Instance in the form of a writ of summons. In it he refers to his dismissal in November 2009, claiming that the bank obstructed attempts to spin the unit's business off and take it independent once again, in contravention of existing agreements.

AVCJ's sources expressed surprise, both at the outcome of the business arrangement and the amount claimed in damages. But calculations based on present and potential future funds indicate that $30.8 million, while high, may not be too extreme.

Pedigree of an entity

Bery and his 10-member team at TVG joined JPMorgan in early 2008, in an effective wholesale acquisition of his firm. Bery's original firm, Telecoms Venture Group – later TVG Capital Partners – was founded in 1998 as a spinout from the Asian Infrastructure Fund, and received the Firm of the Year Award in the 2001 Asian Private Equity and Venture Capital Awards. The firm was closely involved in some major deals of the early 2000s, including the buyout of Korea's Hanaro Telecom – an AVCJ Deal of the Year for 2004.

At the time of its absorption by JPMorgan, TVG had some $250 million in assets according to the filing, and was in the middle of raising its third fund. At that time, TVG told AVCJ that its current capital was almost fully invested. JPMorgan had seen its own private equity arm, JPMorgan Partners, spin out as CCMP Capital in 2005.

Bery's new division, JPMorgan Private Capital Asia was established to include provisions for more funds to be created, according to records. Together with fellow TVG founder, and now joint JPMorgan MD, John Troy, Bery was allotted $750 million for principal investment off JPMorgan's balance sheet, to be deployed primarily in mid-market deals. Despite TVG Capital's telecoms focus, the new entity had a much broader investment mandate, including consumer, retail, industrial, healthcare, TMT, and natural resources, chiefly at the mid-market level. According to the Hong Kong court filing, Bery and his team were granted a high degree of autonomy in their investment activities.

Discord and separation

John Troy left the firm and Bery helped hire more investment managers for the unit in March 2009.  But in the aftermath of the global financial crisis and a consequent internal business review at JPMorgan, the bank wound up all divisions of its private equity and hedge fund business except the Asia team in June 2009. The Asian unit was later folded into the bank's special opportunities group under Chris Nicholas.

According to the court filing, prior agreements dating back to the unit's formation in 2008 stated that JPMorgan would not oppose a spinout if it withdrew its own support from the division. Such agreements, it stated, were customary to protect fund managers in the event of a bank or other such institution backtracking on its original commitment to support such a division. The filing alleges that the bank then indicated that it would in fact not support a spinout, which forms much of the foundation for the complaint.

The compensation calculation

The complaint filed with Hong Kong's Court of First Instance details the calculation of $30.8 million in lost income and compensation as including lost management fees and fund establishment costs, loss of allocated and unallocated carry from profits on the investments made by the unit, and loss of management fees and other income from future funds.

As one AVCJ source emphasized, a figure like this has to be based on the carry from profits on the fund investments, not just the fund's management fees, though the complaint does include some calculation of budgeted costs of $3 million for management of the unit's portfolio over its first 12 months.

According to another AVCJ LP source, if the actual fund is assumed as $600 million on a promoted basis – with JPMorgan committing some $150 million – 2% of the fund would be $12 million for management fees. However, a GP fund head should be typically paying himself no more than around $1 million per year, said this LP. Over eight years, a $600 million fund earning a 20% annual return would deliver some $115.2 million in total carry. Assuming that Bery was entitled to 20% of the total carry, he would receive $23.5 million over eight years from this, as well as $1 million per year. in management fees, for a total of at least $31.5 million.

The calculation in the complaint appears to make some aggressive assumptions around the fund's likely performance and returns. However, as the complaint makes clear, the $30.8 million also takes into account possible prospective income from future funds.

Naturally, the final figure to be decided in or out of court will be the point at issue, and these types of cases generally end in a settlement. But AVCJ's LP source remarks that compensation metrics like this are not worrying in themselves to LPs. LPs in a fund would typically be more concerned about the GP taking too high a share of the management fee. In this case – somewhat ironically – that does not appear to be the case.

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