Fondul Proprietatea: why does the Board of Representatives prefer Roca FP for the position of administrator?

The decision of the Board of Representatives of Fondul Proprietatea (FP) to propose to shareholders the partnership between IRE AIFM from Luxembourg and Impetum Management - called Roca FP - as the new fund manager was based on a series of key criteria, related to organizational aspects, investment strategy, regulation, personnel and remuneration structure, according to the committee's report, published yesterday on the website of the Bucharest Stock Exchange (BVB), which can be consulted in full in the attachment.

Within the partnership, IRE will act as an external alternative investment fund manager (AIFM) and sole manager of FP, in accordance with European Union regulations, and Impetum will act as a consultant for IRE, in order to manage the FP portfolio, based on knowledge of the Romanian market.

• "IRE's proposed operational framework does not require any transition period for establishment and development,” according to the report of the FP

Representative Board In terms of organizational aspects, the committee argues that IRE has demonstrated solid regulatory and compliance capabilities at European level, aligned with global standards, as well as extensive experience in managing alternative investment funds on local markets. "The firm has a strong presence in Central Europe for over 20 years, serving a diversified client base. It currently manages assets worth two billion euros globally, with approximately 70% of its assets under management exposed in the EU.”

According to the report, the consultancy agreement concluded between IRE and Impetum demonstrated IRE's operational capacity in the Romanian jurisdiction, including in terms of the necessary support systems. "IRE's proposed operational framework does not require any transition period for establishment and development or hiring of staff, allowing for the immediate assumption of responsibilities as AIFM of FP,” FP representatives write in the report.

Regarding the investment strategy, the committee members say that Roca FP's proposal was considered credible, relevant and adapted to FP's current liquidity and capital structure. "The focus on relatively small investments in companies with internal growth potential and able to access grant-type capital financing led the CR to consider the proposal more feasible under current market conditions and given FP's current and expected future liquidity, as well as the current and historical discount to net asset value, than strategies that require large-scale asset sales or capital increases,” the report states.

In addition, the phased approach, which begins with a stabilization period before launching new investments, was aligned with FP's long-term transition objectives, the CR members also pointed out.

Essentially, the strategy proposed by Roca FP is based on two directions:

• Direct investments in Romanian and Central and Eastern European companies, focused on sectors with high growth potential such as technology, healthcare, renewable energy and manufacturing industries;

• Strategic allocation of part of the capital in a Fund of Funds (FoF) component, which will support private equity, venture capital and other investment alternatives.

"CR emphasizes that the proposal of a new strategy for Fondul Proprietatea will require both regulatory and shareholder approval. If the necessary regulatory or shareholder approvals are not obtained, the existing strategy will be maintained, focusing on share buybacks, full dividend payments (net of expenses) and increasing the value of portfolio companies, with the support of grants from public funding sources,” the report states.

• "IRE presented a fully authorised and operational structure, which has the capacity to operate in Romania as an EU authorised AIFM”, according to the report

On the regulatory side, the committee members state that IRE presented a fully authorised and operational AIFM structure, authorised in Luxembourg and having the capacity to operate credibly in Romania as an EU authorised AIFM.

"IRE (with the support of Impetum) has demonstrated its understanding of the local regulatory environment and operational requirements, which was considered a key strength”, the report states.

No restructuring or re-authorisation measures (other than the AIFM passporting procedure) are required, the CR members say, adding: "In addition, the Luxembourg authorisation provides access to a robust governance framework, a well-established operational infrastructure and the reputational advantages associated with operating in a highly rated EU financial jurisdiction”. Regarding personnel issues, the report states that the Roca FP proposal includes a dedicated team (including a dedicated team from Impetum, as consultant to IRE on the proposed role as AIFM of the FP) with experience in investing in Romania and in collaborating with relevant stakeholders. "The composition of the team reflects an explicit focus on local market expertise, practical knowledge of the Romanian regulatory framework and existing relationships with relevant local stakeholders, all of which were identified as essential factors for effective implementation and ongoing compliance with applicable legislation,” say the RC members.

• "Both candidates proposed to optimize and selectively sell parts of FP's current portfolio, while presenting viable implementation frameworks,” according to the report

According to the report, in addition to Roca FP, there was one other candidate that entered the final phase of the selection process to manage the fund with a four-year mandate, namely a Luxembourg-based AIFM in partnership with a global infrastructure asset manager. It proposed a long-term infrastructure investment strategy using listed vehicles.

Among the key features of the proposal were: opening an office in Bucharest dedicated to managing FP, using its existing infrastructure presence in Central and Eastern Europe; focusing on FP's existing infrastructure investments, aiming to maximize shareholder value by protecting and increasing the value of FP's existing portfolio; making new investments in critical infrastructure over the long term in Romania, using listed investment vehicles. "Both candidates proposed the optimization and selective sale of parts of FP's current portfolio, while presenting viable implementation frameworks," the report published yesterday on BVB also states.

• Fondul Proprietatea administrator election to take place at the end of next month; group of shareholders challenges selection of ROCA FP partnership

The election of Fondul Proprietatea administrator by FP shareholders will take place on September 29. The selection of the partnership between IRE AIFM and Impetum Management by the FP Board of Representatives as the preferred candidate is being challenged by a group of shareholders holding over 5% of the fund's voting rights, who have requested an audit of the selection process.

In their opinion, the selection process was conducted in a non-transparent manner, with shareholders being deprived of essential information, including on the use of FP resources. This, given that the initially approved budget for the FP administrator selection process was 3.8 million lei, which was later supplemented by 1.78 million lei.

"Shareholders do not have any specific information regarding the cost of each phase of the selection process, the type of expenses in each phase or, in the case of consulting services expenses, the cost of the deliverables approved for payment and the extent to which these deliverables are those envisaged in the contracts agreed on behalf of the fund,” the audit request states.

The shareholder group also requested the cancellation of the fund manager selection process and the approval of the Board of Representatives to start a new process, based on the condition that it has assets under management at least equal to the value of the Proprietatea Fund's assets. Another option for shareholders is to renew the mandate of Franklin Templeton, who has been at the helm of FP since 2010.