That isan excellent question, without a simple answer. Apart...

That isan excellent question, without a simple answer. Apart from cash, CD1/2/3 have only one materialasset i.e. the investment in the respective US/ Caymans Limited Partnerships, throughwhichall the USAassets are held. The question thus needsto be considered at two levels, and I expect your question really refers to thesecond possibility below.

1. Does the REhave the power to sell a fund’s entire investment in the LP, in one block, andif so what are the constraints on doing so? I don’t know- but in effect thatwould be selling the main undertaking of the listed fund- or at least part thereof-so it might require unitholders’ approval per ASX rules. There may be other constraints on doing that,e.g. in the partnership agreements, but we do not have access to complete copiesof them to be able to tell. The RE is boundby the fiduciary duties in the Corporations Act, but whether selling the whole undertakingof the fund, and especially at a large discount to fair value, would be abreach of those duties appears to be a wide open area, for the court to interpret.

2. Does the REhave the power to influence the sale of investments that are held (on a CD fund’sbehalf) under the fund’s beneficial share of the assets of the respective LPs? The LPs own interests in about 7 to 12 underlyingUS PE funds, and those in turn own, in aggregate, investments in about 30 to 80PE assets in USA. Strictly speaking the answer is NO. At the LP level, any suchdecision can only be made by the General Partner. i.e. only the GP can decide tosell an interest in a sub fund (although that may also be subject to pre-emptiverights and other rules of the partnership agreements between all the investorsof each subfund). At the next leveldown, only the sub fund manager can decide to sell individual PE assets- noteven the GP can do that, and certainly not the RE.

That seems clear (at least on point 2) – but the practicalproblem is that related cos of the present RE have interests in the GPs, as below.In theory, the RE should not exert pressure on its related company interest inthe GP to take actions concerning investments- and one would expect the CordishUSA interest to fight that in the cases of CD2 and 3- but the GP of CD1 is wholly owned by E&P. Each GP has an AdvisoryBoard (EM p155) which contains at least one member of the Cordish family, whoought to fight unreasonable sale proposals- but I suspect that the Boards haveno power to direct the GPs to take(or not take) various actions.

(from themerger EM) P49 The General Partners are sole general partners of each of theLimited Partnerships, and are predominantly responsible for investing anddisposing of investments to be made by the LPs and hiring external advisors,agents and employees. The GPs owe fiduciary duties to all limited partners ofeach respective limited partnership and as such, must exercise theirresponsibilities in the best interests of the LPs and promote the LPs’individual purpose and business. NB All material decisions regarding theoperations of the GP require the approval of at least 85% of all members. P50 GPs are for CD1: wholly owned subsidiary ofE&P; CD2 50% a wholly owned sub of E&P and 50% CordishUSA; CD3 42.5% wholly -owned sub ofE&P and 57.5% sub of Cordish USA.

In terms of point 2, and given allthe above, I think it’s very unlikely that RE would try to influence major saledecisions at the LP level re CD2 and CD3; CD1 investors may (at least intheory) be more exposed to such a risk.

I understand that unitholders havethe right, at a general meeting, to appoint another RE- if that organisation isagreeable- or the court may appoint an RE. Unfortunately, unitholders have not beentold who the other potential REs were, and in what way their proposals were consideredby the RE to be less worthy than those of K2

This is only a theoretical analysisof what might be possible- not necessarilywhat the RE would seek to do. Not advice.DYOR.