| The offices of Arion Banki HF stand in Reykjavik, Iceland, on March 14, 2012 (Photo credit: Arnaldur Halldorsson/Bloomberg). |
Taconic Capital has made a big bet on Arion Bank.
The New York hedge fund firm has received about $160 million in capital commitments for its newly launched Sidecar III Fund to invest in a private placement of the Icelandic bank, according to a person with knowledge of the fund.
This is the sidecar we reported Taconic was raising money for back in December. Sidecar III is actually the sixth co-investment vehicle Taconic has created for its investors since 2008. Taconic declined to comment.
The internal rate of returns for these vehicles that have been completed have ranged from slightly more than 10 percent to about 20 percent. Vehicles still in their investment or harvest periods have current IRRs ranging between 15 percent and 50 percent, according to a person with knowledge of the funds’ performance.
Last year, the firm’s two main hedge funds, Taconic Opportunity Fund and Taconic 1.5 Event-Driven Fund, posted gains of 8.5 percent and 9.5 percent, respectively. This year through February they had gained 3.7 percent and 4.6 percent, respectively.
Taconic was founded by Frank Brosens and Kenneth Brody in 1999. They both previously worked at Goldman Sachs, where Brosens was a partner and once served as head of risk arbitrage and Brody was a general partner and member of the management committee. Brody retired from Taconic at the beginning of 2014. Taconic currently manages a little over $6 billion.
It is not known exactly why Taconic was attracted to Arion Bank. Back in the 2008 financial crisis, three Icelandic banks were especially hit hard from defaulted loans: Kaupthing, Glitnir and Landsbanki.
An economic turnaround and other factors have led some investors, including Taconic, to warm up to Icelandic assets. And last week Iceland lifted capital controls imposed in the wake of the financial crisis.
Arion is a state-owned bank created from the ashes of Kaupthing. On Sunday Arion and Kaupthing announced they completed the private placement of nearly 583 million shares of Arion owned by Kaupthing’s wholly-owned subsidiary, Kaupskil. As a result of the sale, Kaupthing reduced its stake in Arion to 57.9 percent. The proceeds of the sale will be used to prepay a secured note held by the Icelandic Treasury. According to the Financial Times, Taconic is one among a group of investors — including Och Ziff Capital Management and Goldman Sachs — to acquire a combined 30 percent stake in Arion.
Back in October, Brosens made the case for investing in Kaupthing while speaking at the Invest For Kids Chicago Conference. He told the audience Taconic was Kaupthing’s largest creditor after building its position in 2012 and 2013. The bank started liquidating in 2015 and investors starting receiving payments in January 2016.
Brosens also said most of the bank’s asset sales will be made over the next few quarters. He figured its notes are worth par and may even rise to a higher level than that.
