Barings is suing rival fund manager Corinthia Global Management and former staff members as the MassMutual-backed company reels from a mass desertion among its private debt team in North America and Europe.
The legal case comes after Nomura-backed Corinthia hired a spate of people from Barings' global private finance team, including many of the firm's most senior private credit managers, such as its co-heads of global private finance Ian Fowler and Adam Wheeler. It also hired Kelsey Tucker, Barings' former global head of operations, who left in January 2023.
Fowler and Tucker are cited as individual defendants in the Barings lawsuit.
In a court filing, Barings accused Fowler and Wheeler, who is not named as a defendant, of surreptitiously arranging the mass departure of 22 firm members, including themselves, on the evening of March 8 and through the weekend.
The filing said Corinthia and the individual defendants had conspired to "orchestrate one of the largest corporate raids" at an asset manager in years. Barings accused them of attempting to establish a new private credit operation using Barings' employees and its business processes, methodologies, know-how and soliciting Barings clients.
To illustrate how it alleges Corinthia misused confidential employment information from Barings, the filing stated Paul Weightman, Corinthia's founder and executive chairman, contacted targeted employees via personal emails, including term sheets that provided guarantees of compensation virtually identical to the individual’s current salary and bonus at Barings, prior to any conversation being conducted.
"This legal action has been taken due to the defendants' blatant disregard of their fiduciary and contractual obligations, which goes against Barings' codes of conduct and ethics," a Barings spokesperson said. "Barings will not sit idly by and allow the defendants' misconduct to occur."
Fowler and Tucker could not be reached for comment, while Corinthia declined to comment.
Plots and threats
Outsiders said the filing divulged details of a stunningly executed coup.
“I’m amazed they managed to keep it quiet," said a banker. "It was almost like military grade planning."
It also shocked Barings' existing staff. “It was so well coordinated,” said a source at Barings. “This must have taken a very long time to put together, whilst they were doing their day jobs. It is not something you put together in five minutes.”
According to the court filing, Tucker told at least one current Barings employee that Corinthia was "coming after everyone", and seeking to poach more staff after the mass resignation within Barings' private finance team. The targets allegedly included one of Barings' in-house attorneys, who was at that time engaged in protecting Barings against the defections.
The defections highlight the fierce competition for talent in a private debt sector that has experienced explosive growth in recent years.
Many new managers have entered the market, looking to join the "golden era" of the asset class. London-based Corinthia is one of those newer platforms, established in September. It secured Nomura as a minority shareholder, though Nomura has no involvement in Corinthia’s hiring of former Barings employees, said a source.
Barings said Corinthia revealed its motives for poaching Barings' staff on March 8, after Wheeler's resignation, when Weightman requested time to speak with Roger Crandall, the chairman and CEO of MassMutual.
Weightman emailed Crandall again the next day, threatening that the impending departure of the senior managers would create a range of issues for the Barings private credit business, the filing stated. The filing alleged that an unsolicited term sheet was sent to Crandall, offering to assume responsibility for Barings' entire global private finance business and seeking to buy it for "pennies on the dollar".
Under the terms, Barings would appoint Corinthia as the sub-investment adviser for Barings' managed funds and pay Corinthia a portion of management fees earned by Barings. At the same time, MassMutual would further agree to provide balance sheet support to Corinthia's new business.
Corinthia gave Barings and MassMutal short notice to consider the offer, asking for the term sheet to be signed by March 11. However, Barings and MassMutual rejected the term sheet and expressed no interest in a relationship or transaction with Corinthia.
Fire control
While the legal proceedings might provide breathing space for Barings, the firm’s private credit business with assets under management of US$94bn is facing inevitable difficulties.
Barings stated that certain middle market private vehicles have paused.
Some existing investors, known as limited partners, expressed their concerns over the defections and are unlikely to make new investments with Barings until the dust settles. That includes Fresno County Employees’ Retirement Association in California which invested in one of Barings’ private credit funds.
“In our situation, Aksia is our discretionary private credit adviser with their own set of criteria, but I would have to imagine that personnel turnover, such as with Barings, would mean that there would not be any new investment until the effects of the personnel turnover is sorted out,” said Donald C Kendig, retirement administrator at FCERA. Aksia is a portfolio advisory firm for institutional investors that specialises in alternatives.
Debt advisers echoed that view.
“It's embarrassing for LPs. They picked someone and now their team has gone," said a US-based debt adviser. "This is not something that you want to explain to your investment committee and your board of trustees. Most LPs who are conducting a new search would exclude Barings because there are too many unknowns. It will take time for LPs to learn the new team.”
A significant fear for Barings is the possible triggering of so-called key man clauses that could allow investors to withdraw and see funds unwound. However, LPs might not rush into those decisions until they have the full picture.
“Our approach, and likely Aksia’s, is to be intentional and fully informed before any decisions that have long-term consequences," said Kendig. "In the immediate [future], I would expect Aksia and other investors to take short-term stop-gap actions that are protective in nature."
Barings is also under pressure to manage relationships with existing borrowers following the departure of key managers, though the firm said it remains open for business and able to invest across the private credit platform, which includes its business development companies and other private credit strategies.
Private credit lawyers said one of the potential outcomes for Barings would be to sell the existing portfolio to others, as the portfolio is well regarded by the market.
“We were hearing a whole lot of chatter in the market of other credit funds delighted to see Barings was out of the picture for a bunch of months – but also very excited about that portfolio and looking to try and acquire it,” said a London-based private credit lawyer.
Additional reporting by Paola Aurisicchio, Lukas Job, Robert Hogg and Richard Leong