Hercules Capital: A New Investment Advisor ? UPDATED
UPDATE: We have just added a Proxy filing (see above) just submitted by TCW (see below) for the eyes of HTGC’s shareholders.
The saga of the proposed change at Hercules Capital (HTGC) from internal to external management has taken a dramatic new turn:
One of the biggest asset managers in the world – TCW – has thrown its hat in the ring.
More specifically, TCW is offering its services as Investment Advisor to HTGC’s Board of Directors.
The terms are included in a detailed letter, and are considerably more favorable than what Mr Henriquez seeks to be paid, which we analyzed in a prior post.
The letter is quoted in full in the press release above.
The BDC Reporter has warned HTGC’s shareholders previously that Mr Henriquez has opened a Pandora’s box of issues with the proposed change of advisory status.
We were concluding recently that we did not know where this was going to go, but HTGC was now off the rails.
That’s been confirmed with the TCW approach, which may not be the last.
THE POWER OF THE INCUMBENT
For HTGC shareholders a little competition in an industry where the managers -whether internal or external – can often take the providers of their equity capital for granted must be a good thing.
However, with both the incumbent and now TCW grappling to be the external investment advisor, getting back to the internal manager model appears less and less likely.
HTGC is now officially in play and must be a glittering prize given its size and unique market niche in Silicon Valley.
However, the BDC Reporter was not born yesterday and we’ve witnessed how BDC insiders can retain control even when outsiders are offering shareholders a much better deal.
We refer readers back to what happened at TICC Capital, Business Development Corporation of America and Fifth Street Finance.
We wonder if TCW – its huge size notwithstanding – realizes what a task they’ve set themselves where a BDC Board is concerned.
Even if the asset management giant gets a nod from the Board to proceed there’s many a tool in Mr Henriquez’s toolbox that might block their progress.
We would guess that a key determinant will how the senior managers at HTGC whose name is not Henriquez will respond to the proposed plan.
Will the senior team at HTGC rally round their CEO and threaten to leave and start up fresh elsewhere if TCW is The Chosen One ?
Much of that will depend on that old standby: money. Or put another way, how Mr Henriquez’s compensation plan at his new advisory firm compares to TCW’s.
We’ve not been told how Mr Henriquez proposes to maintain and retain the services of his highly compensated management team, which has been growing in numbers in recent years.
We’d be especially interested – and unlikely to be told – is whether Mr Henriquez proposes to share any equity interest in his new Investment Advisor with the key lieutenants.
If the answer is yes, we might see a rebellion at HTGC and the “rally round” we spoke of. If not, the senior managers might be asking themselves why they should be making Mr Henriquez a very rich man without sharing in the pot.
WATCH THIS SPACE
As we’ve said, this could go anywhere.
Somebody at HBO must be already collecting notes for a limited series.
BDC REPORTER’S UNSOLICITED ADVICE TO HTGC SHAREHOLDERS
The Hercules Capital you invested in no longer exists.
The new Hercules Capital – and its new business model – is up in the air and will remain so for many weeks.
Who will be running the BDC, and whether the current group will even be involved, is also up in the air.
If you’re the type of investor who prefers a solid, uneventful BDC, this is not going to be the case for awhile.
You may want to go to the sidelines, but this competition should boost the stock price for awhile. It’s happening already.
If you don’t mind a little rocking and rolling then staying put might be OK.
However, we do suggest keeping very close tabs on what’s happening here because this could resolve quietly or spin out of control.
At the very end o the process shareholders will actually have a say and that decision will decide the fate of the BDC for many years to come.
The BDC Reporter will be bringing readers updates whenever something material happens.