Private equity: The inside story of Equis and its partners’ $800 million bounty


Chris Wright
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When renewables private equity group Equis Energy was sold to GIP for $5 billion – $3.7 billion of it equity – investors walked away with well over double their initial investment. The founders of Equis made around $800 million. But why was more than $500 million of the proceeds ringfenced into a vehicle called Equis Renewables, in which the underlying investors did not participate, while the general partners got it all? The story of how those assets got there casts a light on the curious inner workings of modern private equity.


When the money cleared, the partners of Equis went shopping to celebrate. Founder and leader David Russell got a yellow Lamborghini; his brother Tim, a personalized orange Porsche. Craig Marsh settled upon a black McLaren with carbon-fibre trims.

They had reason to celebrate. The clearance of funds that day in January 2018 marked the conclusion of the biggest renewable energy sale ever completed.

Several months earlier a consortium led by Global Infrastructure Partners (GIP), with partners including the China Investment Corporation sovereign wealth fund, had agreed to buy the renewable energy asset portfolio of Equis, a Singapore-headquartered independent infrastructure asset manager, for $5 billion.

Some $1.3 billion of that was assumed liabilities, but still, it was a landmark: $3.7 billion of equity, the vast majority of it in unrestricted cash.

At Macquarie, [David Russell] was respected, but I suspect he was seen as a bit of a maverick. He wanted to test the boundaries. That’s one reason he left 
 - Former colleague

The partners, most of them ex-Macquarie bankers, had delivered for their investors, who included some of the biggest institutional names in the world: the University of Texas/Texas A&M Investment Company (Utimco), Partners Group, Willis Towers Watson, BlackRock, JPMorgan Pension, numerous Australian superannuation funds, and others representing the Dutch, German and Malaysian state.

Many had more than doubled their money.

“The sale of Equis Energy [the name of the sold renewable energy portfolio] resulted in record-breaking returns and cash distributions for numerous Equis investors,” says Lance Comes, partner and co-founder. For some, it was their best-ever realized portfolio performance.

But the investors hadn’t taken part in all the returns, even after allowing for Equis’s generous management and performance fees.

Over $500 million of the proceeds was allocated to a separate vehicle from which the limited partners (LPs – investors like pension funds) were excluded. The result of that was that David Russell and his colleagues are believed to have walked away with as much as $800 million, more than 20% of the gross equity proceeds. Even in the high-octane world of private equity, that’s quite something.

Did they take away too much? Since they were entitled to hundreds of millions of dollars by any estimation, wasn’t that enough?

How the money was allocated

CompanyPlatformGIP apportionKPMG apportionCS apportionAllocation as per protocol
Soleq EAF1/Co-Invt 9.8%9.7%9.3%9.7%
Energon EAF1/EDIF/ Co-invt 13.9%13.4%12.0%13.8%
Energon (PH) EAF2 1.1%1.3%1.1%1.2%
Soleq (PH) EAF2 0.2%0.2%0.2%0.2%
Soleq Energy EDIF 6.7%7.1%7.1%6.7%
Energon (TH) EAF2 0.1%0.1%0.4%0.2%
Hydreq EAF2 0.7%0.4%1.0%0.7%
Soleq (TW) EAF2 2.0%2.6%2.1%2.2%
Redaya EAF2 4.9%4.8%5.3%4.9%
India Solar EAF2 2.9%2.7%2.7%2.9%
Japan Solar EAF1/EAF2/Co-Invt 40.0%38.5%39.4%39.8%
Japan Wind EAF2 3.6%4.0%3.7%3.8%
Equis Renewables Equis 13.2%14.4%14.8%13.1%
NREO Equis 0.9%0.9%1.2%0.9%
Source: Project Zenith LPAC presentation, October 2017

The story of Equis Renewables and how those assets ended up the sole property of a handful of partners rather than Australian pensioners and Texan university endowments is complex, murky, and a window on the convoluted world of international private equity.

Equis was provided with detailed written questions, but chose to go on record only on its performance track record.

But one thing is for sure: they made some enemies along the way.

Equis is being sued by one former partner over money he says he is owed, though it says this is not related to the GIP sale, and is suing another former executive, alleging that he has defamed Equis to investors by claiming the partners misappropriated assets. And now one of the biggest investors, Utimco, has engaged outside counsel to review what happened in the sale. At least one other is now believed to have done the same. 


Anyone who has ever worked with David Russell describes him in similar terms: charming, hard-working, self-confident, the best salesman you’ll ever see.

“He was incredibly shrewd, intelligent, and has the ability to look at the macro but also to pick up a typo that others wouldn’t see in a document,” says one who worked with him. “He was the most focused person I’ve ever met. He was laser-focused. And he had an ability to narrate, to tell a story.”

His route to success started in law, at Minter Ellison and then Skadden Arps, but he made his name at Macquarie, where he was part of the handful of bankers who built up the bank’s infrastructure presence in Asia alongside pioneers such as Nick van Gelder. He set up the Macquarie Opportunities Korea Fund, then was preparing another on Greater China, when he decided to go it alone.

“At Macquarie, he was respected, but I suspect he was seen as a bit of a maverick,” says one former colleague from the Australian bank. “He wanted to test the boundaries. That’s one reason he left.”

With a strong background in Asian infrastructure, he was attracted by the idea of a private equity fund with that focus.

At foundation in 2010, and in the years that followed, he would fill Equis with fellow Macquarie bankers: Lance Comes, who had worked alongside Russell in Korea, and whose great intelligence more than compensated for a tendency to spend much of any working day parked on a couch; Adam Ballin, based in Tokyo, another extremely smart banker with a knack for creative solutions; Sung Woo Yang, another Korea alumni who went on to run Macquarie’s funds in Abu Dhabi; and, later, Craig Marsh, who had led Macquarie’s infrastructure business in the Philippines.

George Cowan, who joined as a partner in 2011, had been a consultant to Macquarie; Tony Gibson, who started as counsel for Equis and then became an instrumental part of the team, had advised Macquarie in London.

Three people without Macquarie backgrounds – Josh Carmody, ex-Asia Development Bank; Rajpal Chaudhary, from Assetz Property Group; and David’s brother Tim Russell, ex Goldman Sachs JB Were – joined between 2010 and 2012 to complete the team.

The partners brought with them much of Macquarie’s bold, can-do gumption.

Macquarie chief executives through the years have talked about a loose-tight model, wherein if people come up with a good idea, they are pretty much given the keys and told to make it work, but are on the hook if it doesn’t. The loose bit is the freedom given to those employees, the tight bit, the ruthless speed with which they will be pulled up if it becomes too risky. It’s worked exceptionally well for Macquarie.

Why has management/platform value not been ascribed to the various assets, but primarily to Equis Renewables? 
 - Anneloes Dros, Netherlands Development Finance Company

Correspondingly, the founders of Equis at the outset were expected to take risk. They put their own money on the line to get the whole thing working, and they signed agreements binding themselves in for the long term, anchored by nothing more than their own self-confidence that it would work. Some had to borrow to come up with those contributions.

In the early days, while they were seeking funds, they would take budget flights, sleep in dismal hotels, laugh about it. It would have been easier to tie up with a joint venture partner, but from the outset, they didn’t want to cede any part of the economics; they’d rather re-mortgage their homes.

Russell never had any doubts, it seemed. Say something three times and it becomes true, he’d say. Always ask for the unreasonable. That’s how you get what you want.

They made swift progress, and would eventually raise $2.7 billion in funding from 18 of the most important institutional investors in the world.

Investors liked them, and not just because they knew their way around infrastructure at a time when the thirst for good alternative asset allocations was becoming insatiable.

The AGMs became the stuff of legend.

“It was three days of wowing investors,” recalls one who attended the Tokyo event in 2015. “They threw out the red carpet. It was the best saké money can buy, the best Samurai show.” It ended, as any management meeting in Japan tended to, in a club in Roppongi that was so frequently the conclusion of an evening that some began to wonder if Tokyo-based Adam Ballin owned the place. Champagne bottles were lined up all along the counter by the end of the evening.

“India was one of the tamest AGMs,” says another who attended. “They couldn’t get real elephants, so they got a model one.”

As for the business, it swiftly went through an evolution that would later prove to be highly important.

Fund 1 was established in December 2012 and closed with $647 million raised a year later. At this stage the fund was an infrastructure rather than a renewables investor, and Equis was very much a fund manager.

But it wouldn’t stay this way. Swiftly the partners realized that the best money was not in acquiring brownfield assets, where everyone knew the price and the margins were never going to be wildly attractive, but instead to develop assets themselves from scratch.

They began hiring engineers, land specialists, grid technicians in the platform companies, and before long were doing everything from procurement to operations, taking the role of an engineering, procurement and construction contractor and bringing the whole thing in-house. They insisted in putting management on the ground in every market they operated in.

The synergies were great, and so was the accumulated knowledge: problems could be fixed quickly, they could be developing a dozen solar facilities at a time using the same expertise, and if their grid specialists identified something promising, their land specialists could jump on the opportunity to buy land next to the sub-stations. Always funding with equity, it was nimble and fast.

It was not how they had started out. But, when they outlined the case to investors, there was a lot to recommend it because the returns looked so much better than the usual fund management model.

Equis Energy's solar asset in Aomori prefecture, Japan

The clearest expression of this change would be found in Japan Solar, and this would later become crucial.

After raising Fund 1, Equis thought there was an opportunity in developing Japanese solar energy. But Fund 1 was excluded from investing in Japan and from development work.

Russell and Ballin started looking at Japanese solar themselves, decided it was a winner, scoped out four projects and then decided they needed the capital to fund it.

They could launch a new fund and put the assets in it, or they could do something else: make a co-investment vehicle in which Equis was not the manager but apparently the developer, and would not draw a fee but would own 20% of the business, not 20% of the profit. They invited their existing investors in and raised $700 million.

This was a landmark, because once the investors had approved a structure so unorthodox for private equity, Equis’s partners would continue to do the unusual right up until the moment it sold.

When they did, their deemed interest in Japan Solar alone, just one platform among seven, would net them about $268 million, dramatically more than their performance fees in all the other platforms combined. Also, importantly, the deal turned Equis on to the opportunities in Japan, and it was the moment the firm decided it would only do renewables from now on.

The question

Anneloes Dros had a question.

A private equity investment officer at Netherlands Development Finance Company (FMO), the Dutch development bank, she and the other LP representatives were on a call on October 20, 2017, to discuss Project Zenith, which was the name given to GIP’s offer to buy Equis Energy, representing the renewable portfolios of Equis.

Seven Equis participants and 16 of the LPs were on the call, joined by Credit Suisse’s Aaron Tan, who was advising Equis on the sale alongside JPMorgan. It had been an early start for the home team: the call kicked off at 6am Singapore time.

Dros’s question, as described in Tan’s minutes of the meeting, was: “Why has management/platform value not been ascribed to the various assets, but primarily to Equis Renewables?”


The roots of this question were in an accompanying LPAC document – LPAC being a limited partner advisory committee, a governing body of LPs that oversees a private equity fund – outlining the terms of GIP’s binding offer for Equis Energy.

The bid had a lot to recommend it. The $3.7 billion offer, plus assumed liabilities, was well above the next-highest proposal of $3.5 billion from Orix, and a more solid offer anyway. (The Orix bid is referred to in an LPAC document given to investors in October 2017, but it’s not clear how advanced that bid ever became.)

The GIP offer was entirely cash, with no deferred or earnout considerations – the perfect bid, from the point of view of investors wishing to realize gains and give them to their customers..

As soon as the money started to become real, there was a change in behaviour 
 - An insider

Several of the slides in this deck dealt with the allocation of the proceeds among the many constituent businesses, which, by now, were legion: there were 14 separate businesses listed, which really represented seven platforms and some other more peripheral things.

So, for example, an Indian business called Energon, in its various forms, would account for 13.8% of the allocation, a southeast Asian solar platform called Soleq Energy 6.7%, and Japan Solar, 39.8%.

But the most important line in this slide was for Equis Renewables, accounting for 13.1% of the allocation; along with another business called NREO bracketed with it, those assets accounted for $519 million of the proceeds under a process called protocol allocation, which we’ll return to.

The crucial thing about these businesses was that they were separate from the others – that money was going straight back to Equis’s partners, and the LPs wouldn’t see a cent of it.

So what was Equis Renewables?

Clearly expecting some questioning on the matter, Equis devoted eight pages of the 26 in the document to explaining what it was.

Equis Renewables, the managers explained, contained a few things.

Inside Equis

Equis-pro-forma-780-use.jpgView full size


Firstly, it held a vehicle called Equis Shared Services, which contained all of the group’s staff. This was, by this stage, quite a number: around 300 engineers, specialists and back-office staff, among others.

Secondly, it held development assets – those that were at a very early stage. The idea of this was that, when these projects were at a point of needing capital, they would be transferred into the funds, at which point the labour that had been involved in development to that point would be charged back to investors.

Third, more specifically, it held a variety of assets, mainly in Australia, Japan and India.

It was these three things, collectively, plus the group called NREO that was providing operational and management services to Japan Solar, that accounted for $519 million that went to the Equis partners, not to the LPs.

One might paraphrase Dros’s question as: what are these assets, and why don’t we own them?


Those on the call recall Dros’s question getting fairly short shrift, with others on the call keen to move things along.

FMO and all other investors did, though, later receive detailed personalized responses to their questions. (Dros could not be reached for comment; she was on maternity leave when Euromoney sought to reach her and FMO declined to take part in this story. Euromoney asked Equis if we could see the personalized response to FMO, and was unsuccessful.)

But it’s not hard to see why investors who believed they were funding a portfolio of assets found it curious that there was a considerable and valuable chunk that apparently wasn’t theirs.

Questions arose from the very first line of that September 2017 appendix, which told investors: “Equis Renewables was established in 2013 as a regional services and development company to develop and manage renewable energy assets on behalf of Equis Funds and third-party vehicles.”

This was something of a surprise to investors whose first encounter with the name Equis Renewables had come only three months earlier in the Project Zenith investment memorandum.

Indeed, the whole journey of the Equis Renewables name was symptomatic of a place with a level of complexity that at times seemed perverse.

The name doesn’t appear anywhere in Equis’s documentation history until March 18 2016, when a company of that name was incorporated in the Cayman Islands. Six days later it was transferred from CTC Corporation, a Caymans vehicle, to David Russell, with an additional ordinary share issued to Tony Gibson. Then, on November 17, it was renamed Equis Energy.

Next, a company called Equis Australia was incorporated in the Cayman Islands on April 20, 2017, and was transferred the same day to Equis Energy. Two weeks later, on May 5, it was renamed Equis Renewables.

Convoluted journeys such as these were fairly typical of what had become a labyrinthine organization. An attempt to map all of the various companies and vehicles looks like an advanced circuit board, something that wouldn’t look out of place in a semiconductor fabrication plant.

To some extent this was inevitable: Equis sold a business with 180 assets in various stages of development, many of them requiring their own vehicles, holding companies and so forth, particularly in Japan, where a structure called GK/TK requires the separation of an asset holding company and the investors into discrete structures.

A plan to list the whole operation as a Singapore Business Trust, later abandoned in favour of the better numbers a trade sale might offer, complicated things further by requiring a host of new vehicles and the separation of management. But still, in years of covering private equity, Euromoney has never seen anything that looks like this.

So, if Equis Renewables didn’t exist as a name until 2016, why was Equis saying it dated from 2013?

Our developer model is unique and difficult to replicate, which makes us an industry leader against other major infrastructure managers on both a cash realization and total value basis 
 - Lance Comes, Equis Energy

A timeline provided to investors in the September deck showed that in 2013 the concept of Equis Renewables and Equis Shared Services was discussed at an LPAC, and that in May that year, Equis Shared Services was approved by the LPAC. This, apparently, justified Equis’s assertion that Equis Renewables was nothing new and that the investors had in fact known about it for more than four years.

Let’s look at that more closely.

There is some logic to the idea of pooling staff into one vehicle, rather than divvying them all out among individual assets or individual funds. A good engineer might work across multiple projects and multiple funds, performing services that would be billed to them correspondingly; there were obvious efficiencies in centralizing them all.

Also, it was more attractive to engineers and others to be employed by a go-getting multinational fund than to be hired by a single asset with a presumably limited period of employment.

That’s not really the question. The question is, why didn’t the investors, who had been bank-rolling much of the funds and their investments, also own those staff?

Partly this dates from the idea of launching the Singapore Business Trust, a model like a real estate investment trust that requires assets to be separated from management; it was at this point that the LPAC approved that the funds divest Equis Shared Services to the trustee manager, controlled by Equis.

The approval notice for this transfer included the words “subject to the trust completing an IPO in Singapore”. Approval came in May 2016, and Equis Shared Services was moved to a related-party entity owned by David Russell and Tony Gibson in June 2016.

But the IPO didn’t go ahead, a trade sale being favoured instead. And Equis Shared Services was never transferred back.

The central question here is whether it had been developed separately from the funds, or if the funds themselves had been funding it. In the end, at the sale, the value of those resources was attributed to Russell and Gibson; if investors’ funds had been used at any stage to assemble the network of management, engineering and administrative staff to support the development of those platforms, shouldn’t they have shared in the proceeds?


The next question is how all the assets got into Equis Renewables in the first place, and here, the answers vary. Nobody is disputing the Australian assets that are in there, for example, because they were clearly funded by the partners and were outside the mandate of Equis’s funds anyway. But why are Japanese and Indian assets within it?

In the case of Japan, the rationale for assets going into Equis Renewables was that the fund that invested in Japan, EAF 2, had reached its cap for Japanese investments, in that no more than 40% of the $1 billion fund could be allocated to one country. Between solar, wind and biomass investments, the fund had hit that $400 million cap, and so further assets were developed outside the fund – in Equis Renewables – to be transferred at a later date.

This raises the question of why they continued to develop these assets when the LPs had no vehicle available that could invest in them? Accordingly, it appears Equis could only have been developing these as an investment opportunity that could be realized outside the fund. That said, the partners were bearing all the development costs so investors weren’t being penalized.

A host of Indian wind assets were also in Equis Renewables, apparently because they were generating returns (specifically economic internal rates of return, or EIRR) of below 13%. According to the September 2017 LPAC deck, the LPAC had declined to keep backing these assets some time earlier, at which point they were all developed by Equis Renewables. 


Indian wind assets had been held through a series of companies with variations of the name Energon: Energon Holdings owned Energon Energy, which owned Energon Renewables and Energon Energy & Infrastructure, which jointly held several wind energy projects in India through special purpose vehicles, each of them with 10,000 issued shares.

Again, nothing is ever simple in these company arrangements, and it became even less so when, as part of the Singapore Business Trust process, several other companies were created in parallel to that structure: Energon Holdings II, Energon Energy II, and so forth down through the corporate structure.

This next bit is complicated, and we’ve included a diagram to help.

On July 6 2017, Energon Holdings II sold 100% of the shares in Energon Energy II to Equis Renewables for a dollar. You’ll remember from our earlier look at the genesis of the Equis Renewables name that it was owned by David Russell and Tony Gibson.

The next day, the 10,000 issued shares in each of the Indian wind SPVs was transferred from Energon Renewables and Energon Energy and Infrastructure to Energon Renewables II and Energon Energy & Infrastructure II for the par value of the shares – Rs100,000, or about $1,400, for each of the wind SPVs.

After the sale was underway with GIP, Equis Holdings transferred $630,000 to the Indian wind assets’ SPVs, which ultimately returned it to the investors supposedly for the development costs these SPVs incurred.

All of this is supposedly justified by the fact that investors had said they didn’t want to be in low-return Indian wind assets. But Equis Renewables – the partners – is thought to have received at least $50 million for the Indian part of its portfolio. If any of the initial funding of that portfolio of 13 assets had been borne by the Equis funds, shouldn’t the investors have shared in that?

Desktop projects

Another contentious point appears to be the value that was being ascribed to assets that didn’t yet really exist. Partly, this comes down to the definition of what one calls an asset, and we can see Equis’s rule on this in an information memorandum it provided to investors in June 2017 while deep into the process of trying to sell the business.

It talked about operational, construction, shovel-ready, advanced and development assets.  Operational assets – those up and running under long-term offtake agreements – accounted for 1,011 megawatts of the total of just over 11 gigawatts of net capacity being sold. Construction assets, with exclusivity, a secured grid connection, completed feasibility studies, secured land and offtake arrangements, and either under construction or expected to be by August 2017, made up another 499MW; and shovel-ready – expected to commence construction by June 2018, and in the final stages of securing land and offtake agreements – a further 567MW.

No problem there. But advanced assets – which didn’t sound all that advanced, in that they were still in the process of securing land, grid connection, offtake and so forth, accounted for 2,333MW. And development assets, which were nothing more than a pipeline, and in which in some cases exclusive entitlement had not yet been established, much less grid capacity or associated land, made up well over half the net capacity: 6,693MW across 74 different assets. Some of these were what is known as desktop projects – they appear to exist in nothing more than theory.

None of this is Equis’s problem; it was up to GIP how much it wanted to spend on the portfolio and what it did with the assets afterwards. But it was relevant when it came to valuing Equis Renewables, since it was in that business that development assets were housed until they were ready to be developed and put into the main funds. In that same document, Equis said it had “a historical track record of progressing 54% of Development Assets to Construction Assets,” and this appears to have been the suggested basis for evaluating their worth: 54% of their theoretical value. If that’s right, any renewable energy idea on a desktop would be worth more than half the value of a real energy project under construction with its permits in place.

So, who did the valuing?

A strong argument in Equis’s favour is that it wasn’t them.

GIP declined to comment for this article, but it is understood that its desire was simply to write a cheque for the entire business and leave to others how it was all apportioned. It was a condition of bidding, though, that any bidder break down their bid into the allocation they thought appropriate for all the underlying assets and platforms.

KPMG was hired to conduct its own valuation, and Credit Suisse, the adviser, did one too. (Both were, of course, paid by Equis, which raises questions of independence, although that is almost universally the case in big M&A deals. It is also worth noting that Credit Suisse, more than any other bank, takes pride in linking its investment banking services with its private banking division, and frequently offers both services to individuals at entrepreneurial clients.)

The protocol everyone agreed upon was that if the difference between the GIP and KPMG valuations was wide, the Credit Suisse one would be factored in, and then a process of coming up with common ground would commence.

In fact, the final attribution to Equis Renewables – 13.1% – was slightly lower than GIP’s calculation of 13.2%, KPMG’s of 14.4% and Credit Suisse’s of 14.8%.

The question here is the degree to which all these parties were valuing each underlying asset, or instead plugging Equis’s valuation into a model, crunching the numbers and checking the maths.

KPMG’s hefty 348-page report, for example, says: “In preparing this report, our primary source has been information and representations made to us by the Management and publicly available information pertaining to Equis.”

Investors expecting to participate in our new development vehicle readily acknowledge that if Equis management is able to deliver returns similar to past performance, it will have most justifiably earned the level of proceeds that were previously achieved for the firm 
 - Lance Comes, Equis Energy

Alongside all of these valuers was an LPAC sub-committee formed “following a request by investors for the LPAC to undertake a role in monitoring and providing feedback and guidance on behalf of the LPAC to Equis,” according to the protocols for its formation.

This three-man sub-committee had fairly limited power: it was there first and foremost to check the maths rather than challenge the attribution of value. Its members were nominated by the other investors rather than by Equis itself.

Nevertheless, questions have been raised about its independence.

Mark Warner of Utimco was one of the sub-committee members. He, long among the most vocal of the investor group – in keeping with the fact that at over $400 million of commitments, it was among the most exposed – would go on to be appointed a partner of Equis in 2018 and took part in an internal strategic briefing at Equis while still employed by Utimco in April 2018.

Equis says that Warner visited Singapore in November 2017 at his own cost to meet with Equis and discuss the potential of him joining in the future, but insists conversations about a job did not advance until after the financial close of the sale in January 2018.

Ben Haan of Partners Group was another. Partners Group had a side deal granting it favourable economics in Japan Solar, an arrangement that is alleged to have eventually led to a payout of at least $70 million to Partners Group.

There is nothing unusual about side deals in private equity – they happen all the time, particularly with larger investors, and Partners Group was among the biggest across all Equis platforms. Partners Group was designated as a Substantial Investor in Japan Solar’s documentation.

But how clearly was the side deal disclosed to other investors? The only non-specific reference we have found to it in the June 2017 information memorandum is a note 311 pages in where it says Equis has complete discretion over each fund’s investments and divestments, “except with Japan Solar where the decision making is shared with one (1) of Equis’ existing investors.”

Euromoney understands that the existence of a side letter was understood among investors, but that the contents were not disclosed.

The third member of the sub-committee was Brent Snow at First State Investments in Australia, whose independence has not been questioned.

Snow and Haan did not respond to requests for comment. Warner is now a partner of Equis Group, which opted only to comment on the returns it achieved for investors.


All these asset-shifting gymnastics aside, there is a central question: how was more than $500 million of value attributed to Equis’s partners through the Equis Renewables business when they had not put in anything like that amount of funding?

The Equis position appears to be that they created a vast amount of value without using any of the limited partners’ funds.

In this version of events, they funded early-stage project development out of their own pockets, taking on all of the risks themselves and wearing the cost of anything that failed, driven by nothing more than the iron-clad self-confidence that they were so good at their jobs that the assets they developed would eventually get the funding they needed from eager investors.

This version requires you to believe that these accumulated projects, and the value of the management, was worth about half a billion dollars by late 2017, having been funded by nothing more than whatever the partners put in in the first place or ploughed back into the business by foregoing big salaries and bonuses.

Finally, it requires you to accept that the model involved Equis partners writing off unsuccessful projects with no compensation to themselves, while also employing over 300 professionals whose time would not be charged to the projects they worked on if those projects weren’t good enough to go into the funds. And that, when projects were good enough to go into the funds, they would be transferred without profit. It looks a lousy model for the partners – until they sold. At that point, since they got to keep a host of valuable assets, it no longer looked lousy at all.

The thing is, by and large, investors seemed to be happy with that version of events.

They made good money – very good. In aggregate, the investors made 2.8 times multiple of invested capital (MOIC) and a 43.6% EIRR in terms of gross returns.

“Our developer model is unique and difficult to replicate, which makes us an industry leader against other major infrastructure managers on both a cash realization and total value basis,” says Lance Comes, partner and co-founder, in written contributions to Euromoney. 

Equis funds’ cash realized returns, he says, are between 400% and 800% higher than similar vintage funds of other leading managers, and total returns are 160% to 270% higher than other major infrastructure managers.

“This outperformance versus the rest of the market is quite significant and explains ongoing demand for Equis product and our future fund-raising efforts,” says Comes.

He adds: “We have received feedback from a number of them that the sale materially improved the total returns from their overall Asian and emerging market strategies.”

Several investors, he says, found the sale “represented the highest returns across any of their portfolio investments, and at US$3.2 billion in realized cash proceeds, they received the largest single cash distribution across any of their portfolio investments historically.”

One of the strongest arguments for Equis’s processes – and the partners’ own accumulation of wealth – is that nobody has complained. Euromoney contacted most of the limited partners and received very little feedback and hardly any objection; there was a sense, in fact, of closing ranks, and within a day of approaching these investors, at least one of them immediately went to Equis and told them we were asking questions.

But there are signs of doubt. Euromoney understands that Utimco, consistently one of the investors with the biggest exposures, has engaged outside counsel to conduct a thorough review of what happened.

At least one of the Australian investors is believed to have engaged outside counsel too. (Equis’s position is that the engagement of counsel has been prompted by media inquiries, and therefore that depicting that engagement as being undertaken independently is unfair.)

Certainly, as the business became successful, things changed internally at Equis. One insider says Russell himself changed around this time.

“As soon as the money started to become real, there was a change in behaviour,” this person says. “We never had to do town-hall meetings, but it was suggested he do so to talk about the sale. We thought he would give us a feel-good tale about it.

“Instead, he said: ‘There are rumours about the profits that would be made’” – he named a number, $800 million – “‘and if this is ever talked about publicly, I will personally sack you.’ Everyone was on that call.”

Three people independently have a similar recollection of that call.

“It was a shock for everyone, especially folks who had worked hard to finish their part of the deal,” says one. “I personally had thought it would be a pat on the back for everyone.” Another says: “He was very explicit.”

Equis’s position is that these recollections are factually incorrect. Internally, the official line on that conversation is thought to be that it was substantially about staff remuneration and profit share, not partner profits.

Through Equis’s history Russell had kept things private and under the radar. It is not a vocal fund and its partners do not give interviews. But, again, the money changed things.

One person recalls Russell looking at the BRW rich list, a benchmark estimation of individual wealth in Australia, to see where he stood relative to the famed executives on the list. He was particularly keen to note where he stood relative to then-Macquarie chief executive Nicholas Moore.

Then Russell found himself being written about in the property pages of the press. The Australian newspaper reported in March 2018 that he was buying a Melbourne mansion from Shane Warne for close to A$20 million ($13.5 million), and the following month Brisbane’s Courier Mail reported he had bought a trophy home in Noosa, Queensland, for A$18 million in a deal that set a record for the entire Sunshine Coast region.

Rumour had it Craig Marsh had bought a place nearby and Russell didn’t want to be outdone.

Friction developed internally.

George Cowan – a partner who had joined in December 2011 and put in his own money but left in October 2017 (prior to the sale) – lodged a claim in February 2018 against two Equis Cayman Islands vehicles, claiming he had not been given his financial interests, which had been “in effect frozen”.

The writ of summons, acquired by Euromoney through application to the Grand Court of the Cayman Islands, includes a passage in which he claims “David Russell used obscene language directed at the Plaintiff and threatened the Plaintiff with physical violence” while on a call with several of the other partners.

Others who had been involved in Equis’s structures and business also resigned.

William Hu, the corporate secretary, went in June 2018; Rick Phoon, the group chief financial officer, in October 2018. Among the partners, Josh Carmody and Rajpal Chaudhary have moved on too since the sale.

Phoon is facing litigation from Equis for defamation after allegedly going to investors and suggesting to them that they had been deceived. Euromoney has seen the writ through application to the Singapore Supreme Court (which covers the High Court, where the suit has been filed), and it makes for interesting reading, not just because it alleges Phoon told investors that Equis “had wrongfully misappropriated assets that should have been allocated to the funds that Equis Group was managing,” but because of how Equis found out about it.

The summons, drafted by Equis’ lawyers Allen & Gledhill, says that LGIA Super, one of the LPs in the Equis funds, informed Equis in writing that Phoon had phoned them to make the allegation.

In other words, it appears that Phoon tried to tell an investor they’d been misled, and that investor went straight to the entity Phoon was alleging had misled them, specifically stating who had made the call.

LGIA Super was approached for comment for this article, but did not respond.

Phoon appears not to have responded to the writ – there is also a lengthy affidavit from Tony Gibson detailing his efforts to serve it to him – so on August 2 the High Court ruled in his absence that he should pay damages. Those damages will be determined at a hearing on October 25.

Investor demand

Today, Equis is building again. It has been investing in areas such as biomass since the sale, and a non-compete deal will expire in November, freeing it to return to the other renewable sectors that enriched its partners the first time.

It remains a leader in renewables with good staff and proven models. It is understood that investor demand for the new vehicle is over eight times the target capital raising.

“We’re currently raising another US$1 billion for our Equis Development Company, utilizing our successful developer model,” says Comes in written responses to Euromoney. “Investor demand for Equis’ new development vehicle is several times Equis’ target capital raising, with the capital raising expected to be completed by year’s end. This very clearly demonstrates both the uniqueness, demand and level of confidence that investors have in our model.”

And they won’t be changing their approach as they build afresh.

“Investors expecting to participate in our new development vehicle readily acknowledge that if Equis management is able to deliver returns similar to past performance, it will have most justifiably earned the level of proceeds that were previously achieved for the firm,” Comes says.

The Equis model, he argues, avoids the risk of stacking funds to generate profits from management fees. Investment profitability, he says, determines Equis’s partner, investor and management returns.

“Our ability and willingness to invest in our own business and deploy multiple 20+ year Asian infrastructure veterans in each target country, coupled with our capability to develop high-quality assets via Equis-controlled platforms, means we’re ideally placed to maintain this performance going forward.”

David Russell and his partners legitimately made a fortune out of the Equis Energy sale. The question is whether more of the proceeds should have been shared with the pensioners and endowments who were ultimately funding the enterprise.