Pamplona’s predicament: How to cut ties with a sanctioned LP

In early March, Pamplona Capital Management said it was “redeeming” the $2.7 billion investment made in its funds by LetterOne, an investment firm linked to sanctioned Russian oligarch Mikhail Fridman. Last week it went a step further, announcing that it had received board approval to liquidate the three funds in which LetterOne has an interest.

The exact nature of this process, described by Pamplona as “irrevocable”, remains unclear, with the statement leaving plenty of room for ambiguity. While noting that the wind-down could involve the sale of direct investments, it also cited the sale of LP interests to third parties as an alternative “wind-down mechanism”. The “transfer of limited partner interest on the first portfolio company” was to take place on Friday 25 March, it added.

In some ways, the statement raises more questions than it answers. For example, how does a secondaries sale – which would bring in one or more new LPs – square with a complete wind-down of the three funds? Was the statement intended to leave the door open for the creation of a continuation vehicle backed by new investors? And will LPs be given the chance to sell their stakes before the disposal of assets begins? Affiliate publication Private Equity International put those questions to Pamplona. The firm declined to comment further.

A lack of clarity is not wholly unexpected; after all, these are largely uncharted waters and there may not be an obvious, immediate solution to the problem. Although Pamplona is unlikely to be the only firm whose LP base is impacted by sanctions, this situation is likely to be one of the most complex examples, given the extent of the pair’s relationship. The wider industry will be watching how this plays out with interest.